Honohan: Budget savings needed 'even without bailout'

Significant Budget savings would be needed even if the Government did not have to bail out the banks, Central Bank Governor Patrick Honohan said tonight.

Mr Honohan said dealing with the bank-related debt accounts for 1% of Gross Domestic Product, or the value of the economy – a 10th of the projected 2011 deficit.

In an address to the Institute of Certified Public Accountants of Ireland, the Governor said that while the recapitalisation had caused a spike in the debt ratio, it is not the main cause of the problem.

“That’s why a sharp fiscal adjustment would have been needed anyway – even if the Anglo and Nationwide had not lost quite so much money,” he said.

Mr Honohan said he did not want to be drawn on the scale of the savings but said anything unsustainable would stop, including the double digit deficit.

“What policy can – and I am hopeful will – achieve is that the adjustment will, not least by rolling back unaffordable excesses, be accomplished in a manner that is much less damaging to the economy and society,” the Governor said.