Chief banker calls on Government to introduce more savage cutbacks

IRELAND’S chief banker has warned the Government to look again at its plans for the anxiously awaited upcoming budget.

Patrick Honohan, the governor of the Central Bank, suggested even more savage cutbacks than already hinted at are necessary.

Urging an “explicit reprogramming” of the public finances over the coming years, Mr Honohan said international lenders still need convincing the country is on the right path to recovery.

“It is important now to re-set the fiscal path to ensure a virtuous cycle of lower borrowing rates... and a lower overall cost of the adjustment to society at large,” he said.

The Central Bank chief said recent jumps in the cost of government borrowing show international lenders must be convinced Ireland is committed to reducing its debts.

“Some explicit re-programming of the budgetary profile for the coming years is clearly necessary soon, if debt dynamics are to be convincingly convergent. Recent movements in the yield spread on Government debt – both for Ireland and for some other countries – readily demonstrate the costs that can result unless international lenders remain convinced that the budget is going to be kept on a convergent path, as indeed the Government is committed to ensuring.”

Rejecting arguments for more spending to boost the economy, he said there wasno question that cuts were the only option for a small country like Ireland.

Mr Honohan said, however, that Ireland shouldn’t need EU aid to prop up the economy.

Monday saw a further rise in Ireland’s cost of borrowing, with the interest rate overseas investors are demanding on Irish Government bonds up to 6.4%. In order to meet EU requirements, the country’s budget deficit must be shaved to 3% of GDP by 2014.

Mr Honohan went on to say that, while more clarity and detail on the Government’s plan to cut Ireland’s budget deficit – to 3% of GDP inside the next three years, from the current level of nearly 12% – is needed, he fully expects to see that clarity. However, Ireland’s budget deficit could rise to 20% of GDP this year on the back of the money being pumped into Anglo Irish Bank.

Still, the European Commission has also said that it sees no current evidence that Ireland is not on course to meet its budget deficit targets and said that the country will not default on its debt.

“We can only welcome the Government’s renewed commitment to reducing the deficit to below 3% of GDP by 2014,” a European Commission spokesperson said yesterday.

Mr Honohan said the cost of the banking bailouts would continue to be a heavy burden on taxpayers and public service users for several years to come.

But he insisted the measures were “manageable” in terms of the public finances.


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