BUDGET cuts of €4 billion to €5bn are needed to maintain Ireland’s fiscal independence, but these will not damage the economy as a whole, international businessman Peter Sutherland believes.
He said the current sense of fatalism and depression evident everywhere in Ireland is damaging growth and will damage the prospects of growth in the future.
Mr Sutherland stressed that “even after the catastrophic events of recent times Ireland is not a poor country” when speaking at the Dublin Chamber of Commerce annual dinner last night.
The non-executive chairman of Goldman Sachs International said Ireland remains a leader in the export of services, information technology and pharmaceuticals.
“Once confidence recovers, even to a limited extent, then investment and growth will follow.
“What Ireland badly needs now is a credible path forward and to know, as is the case, that there is such a path,” said the former EU commissioner.
Mr Sutherland said Ireland is faced with two, related, significant challenges — one relates to our fiscal deficit, the other our competitiveness.
Massive budget cuts are unavoidable in country with an annual deficit at €18.5bn, he said.
“For those that are directly affected, the changes to achieve this tightening will undoubtedly be painful. But there are those who argue further that correcting the deficit in this way will also be damaging for the economy as a whole. I do not agree.
“While fiscal tightening necessarily involves some short-term reductions in domestic demand it would be much more damaging and costly if we failed to undertake the required fiscal adjustment,” he said.
Mr Sutherland recalled that ahead of the budgetary adjustment in the late 1980s, most commentators also argued that the cuts or tax increases would drive Ireland into a downward spiral.
“With the benefit of hindsight, we know now that the opposite was the case.”
Mr Sutherland believes that re-balancing the books will reduce borrowing costs and give the private sector the confidence to start spending again.
He said that the opposition have as important a role to play as the government in the months ahead.
“If Ireland’s creditors around the world are to continue to lend Ireland money, they need to be confident that any succeeding government will continue to take the tough decisions required to ensure that Ireland can continue to pay its bills,” he said.
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