IRELAND’S bid to cut the interest rate on its rescue loan and keep its low corporation tax won strong support from the IMF, which warned that the EU was in danger of aggravating the crisis.
The body that loaned Ireland a third of the €67bn bailout said the EU needed to come up with a more comprehensive plan for troubled eurozone countries to prevent the crisis spreading and getting worse.
It cautioned against the Government making bigger spending cuts than already agreed, saying it could affect the growth so essential to recovery.
Ajei Chopra, deputy director of the IMF’s European section and the face of the IMF during its visits to Dublin, said Ireland was well on its way to recovery, but warned there were many risks outside the country’s control.
Asked about Ireland’s battle to have the EU apply the same lower rate to Ireland as it does to Greece and Portugal, he pointed out that the IMF applied the same interest rate to all countries it gives loans.
Asked about the pressure to increase the country’s 12.5% corporation tax rate, he said this was not part of the EU/IMF programme. “We did not see it as consistent... with restoring growth”.
The plan for the country to go back to borrowing on the markets next year is not possible at current spreads, which are much higher now than when the EU/IMF loan was agreed five months ago. Getting these costs down was not something the Government could do on its own. It needs the support of a comprehensive, consistent European plan to convince markets the risks are less, Mr Chopra said.
“The problems are not just Ireland’s but are shared and require a shared solution”, he said during a call with journalists.
Europe needs to make sure that countries with programmes — Ireland, Portugal and Greece — have the right amount of finance for the right duration and the right terms to foster success, he said.
Countries could not do it alone and putting a disproportionate pressure on a country to take steps that were not politically or economically feasible increased uncertainty and the risks of failure, warned Mr Chopra.
The costs need to be shared, including through additional financing, if necessary. The European Financial Stability Facility — from which Ireland’s EU funding comes — needed to be upgraded while the banks would be helped by the European Central Bank committing to medium-term funding.
The Government had taken decisive action on the matters under its control. “They are doing all they can to get ahead of their problems, especially in the banking sector”, Mr Chopra said, but he emphasised that it would need time.
“There is no wavering in the Government’s commitment — they are in it for the long haul. They are implementing policies that are necessary for success, but we need to recognise this is not sufficient”, he said.
The dangers were slower growth, higher unemployment, further rating downgrades and developments in other countries that all contribute to increasing the cost of borrowing and reduce the chances of the country being able to access funds from the markets when they are due to return next year.
This is true for Government borrowing and a delay would also affect the banks’ ability to get back into the markets.
While the EU had taken some important steps, the crisis in the EU was not over and there was a need for a more co-operative and shared solutions, he said.
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