No bank debt deal just by demanding it, says official

Ireland will not get a deal on its bank debt by simply demanding it, the secretary general of the Department of Finance, John Moran, told a conference this week.

The argument that the Sept 2008 government bailout of the banks was an indirect recapitalisation of the EU banking system will not win over countries that did not benefit from the move, he said.

The best chance of Ireland securing a restructuring of the debt burden is by convincing other member states that the EU badly needs a success story among the EU/IMF programme countries.

“The politicians need to be able to show the electorates that there is some light at the end of the tunnel,” Mr Moran said.

He told the 1,400-strong audience at the Davy Stockbroker annual conference on Tuesday that the biggest challenge facing the State was breaking the link between the banking system and the sovereign.

When the Government introduced the State guarantee of the banks in 2008 it took on an exposure of €375bn.

That exposure is now down to €90bn.

Moreover, the banks are close to functioning without the State guarantee of deposits.

The country could not go on spending more than it generates in taxes, Mr Moran said. There will still be challenges in reining in health and social protection spending, but taxes were holding up well.

“But we have told our European partners about the necessity for growth.” Improving competitiveness was key to maintaining an export led recovery. But the export sector will not solve the unemployment problem,” Mr Moran said.

“It is critical that the domestic economy and the SME sector both return to health. Getting the banking system up and running and liquidity into the wider economy was crucial to this.”

Even though there was an overall improvement in competitiveness, the Government had concerns about wage inflation in sectors where there was a high demand for skills.

He asked where does the Irish economy fit in to a ‘United States of Europe’. “Does it become an Alabama that exports its graduates to New York, Florida, and California every year or does it become a San Francisco?”

Mr Moran said it was the Government’s aim to make Ireland a magnet for entrepreneurs, similar to Silicon Valley. It was essential that all government agencies work towards this goal.

“We have to look at the skills shortage and see whether we retrain Irish workers or do we attract these skills from overseas?

“When the rest of the world starts growing we should be able to outgrow our European neighbours over the next few years.”