European Central Bank (ECB) boss Mario Draghi has warned the Government to prepare for all possible Brexit outcomes, including a no-deal scenario.
Speaking at the Finance, Public Expenditure and Reform Committee, the European financial boss said that Ireland is more exposed to direct trade effects of a hard Brexit than other EU countries because of its close trading relationship with the United Kingdom.
Mr Draghi added that the ECB will stand behind Ireland and back the country as Brexit takes effect.
Mario Draghi's exchange of views at the Irish parliament, with the Oireachtas Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach will be streamed live from 16:15 CET today https://t.co/RhBm3asfK1 pic.twitter.com/edw9rSAuJk— European Central Bank (@ecb) November 8, 2018
“The impact on the Irish economy is both direct through trade and indirect through financial channels,” he said.
“We also see limited overall risks to the euro area financial stability. Without sufficient mitigating action, however, a cliff-edge Brexit could have an adverse impact in certain areas of centrally cleared derivatives markets.
“Sources of risk from outside the EU have grown since May. A stronger US dollar and heightened trade tensions triggered renewed stress in a number of emerging market economies.”
He said that ways of taking mitigating action against Brexit will only become clear once the ECB knows the outcome of a deal, but said he has advised businesses to take precautions.
“Things can be managed, however if the private sector were to decide there is going to be a cliff-edge or an unmanaged process, then the private sector behaviours could be a source of instability and that is something we have to monitor very closely.
“I think the most likely thing is gradual transition, which will allow all parties to negotiate in the best possible way.”
He went on to say that while the economy is strong, there are risks of it overheating.
Mr Draghi said that Ireland’s recovery from the financial crisis has been “impressive” and the country’s economy has seen a “particularly strong expansion” in recent years.
“Ireland is now growing at the fastest pace of any euro area country,” he added.
“Unemployment has been falling too and now stands well below the euro area average.
“This is all the more impressive given the severe crisis Ireland went through and the legacies it is dealing with, including high private debt and arrears.”
Committee chairman John McGuinness, however, said that the devastation caused by the financial crash has been “absolutely horrific” and still continues today.
“It is wrong to say we are experiencing a recovery, certain parts are but vast amounts of people are still caught in courts and their homes are being taken from them,” he added.
“People are being threatened because of what happened in the past and the system is ignoring them. They do not experience the recovery as much as the EU would tell them and the banks here are a disgrace.”
Mr Draghi also stated that while the financial stability environment remains favourable, it has become challenging in the last number of months.
He continued: “The results of the European stress test published last Friday show that euro area banks are increasingly resilient to financial shocks.
“This also reflects the continuing economic expansion, which has strengthened private and public balance sheets alike. Still, there are risks.
“These include liquidity risks in the non-bank financial sector that could be transmitted to the broader financial system. Developments in this area should be closely monitored, and the regulatory and supervisory framework for non-banks needs to be strengthened.”
Sinn Féin TD Pearse Doherty raised Ireland’s housing and homeless crisis with Mr Draghi.
Mr Doherty said: “Not everything is going great in Ireland, the GDP figures are going well, recovery is going well, but Michael [surname not given] was the 27th person to die on our streets in our capital city in the last 16 months – he’s homeless.
“There’s 4,000 children who won’t have a home and will sleep in emergency accommodation and wake up on Christmas Day so not everything is going well.”
Original story (4.06pm): ECB chief warns Irish economy most at risk of overheating and Brexit
The head of the European Central Bank has warned the Irish economy is most at risk from overheating and Brexit.
Mario Draghi is addressing an Oireachtas committee this afternoon and says the overall state of the Irish economy is good, but he noted Ireland is more exposed than most countries to the risk of a hard Brexit.
Mr Draghi also said policies need to be put in place to prevent the economy from overheating.
"There are two sets of risks. One we have just discussed [Brexit] and the other one is overheating. It wouldn't be the first time," he said.
"There are some legacy vulnerabilities, especially the non-performing loans.
"So what to do? First of all, rebuild fiscal buffers and now's a good time because things are going well."