‘Exaggerated’ market needs must be met

IRELAND has to “jump” to meet the expectations of the international markets even though they are “greatly exaggerating” the country’s economic problems, Central Bank governor Patrick Honohan has said.

The markets have yet to be convinced that Ireland can resolve its difficulties and so the Government has no other choice but to implement the austerity measures necessary to reassure them, he indicated.

Dr Honohan said he strongly endorsed both the Government’s decision to set out a four-year plan to tackle the deficit and to begin that work with an initial adjustment of €6bn in next month’s budget.

The four-year plan would put the country on a credible path to getting the debt under control and help “restore domestic and international confidence”.

His comments came as the rates demanded by the markets to lend money to Ireland hit record highs and Goldman Sachs said the likelihood of the country resorting to an EU/IMF bailout had increased.

A bailout of both Ireland and Portugal would resolve current market tension and not lead to contagion in the wider EU, Goldman suggested.

But Dr Honohan said an IMF bailout wouldn’t be necessary, as the organisation would probably take the same actions already being identified by the Government.

He acknowledged the bond yields were unsustainable at their current level, but said it was possible to reduce them over time.

Ireland will not return to the markets to borrow until early next year, by which time the Government hopes the bond yields will have fallen as a result of the Budget restoring investor confidence.

But some analysts said only a change of government could now restore the type of political stability required to build such confidence.

“A few weeks ago I would have said an election would be economic suicide. But I think you need an election now and a budget afterwards,” said Alan McQuaid, chief economist at Bloxham Stockbrokers. “The market would prefer to see some sort of certainty that you have a chance of getting it passed.”

In the Dáil, Labour’s Pat Rabbitte urged the Taoiseach to call an election to restore stability, saying: “It’s like the last days of the Roman Empire around here.” But Brian Cowen rejected calls for an election and hit out at those who were “exaggerating” the weaknesses of the economy and sapping morale.

Meanwhile, the bank guarantee scheme was extended for a further six months until June 30 next year after EU approval was granted.