Honohan: 'Savage' cuts resemble IMF package
Ireland is lining up the same savage cuts as a feared International Monetary Fund (IMF) rescue, the country’s top banker warned today.
As the State’s cost of borrowing on international markets soared to new highs, Central Bank Governor Patrick Honohan said he believed the IMF would back the Government’s €6bn.
In his sobering assessment, Professor Honohan said: “An IMF package wouldn’t look that much different.”
Ireland faces going bust next July unless the drastic savings plan is passed on December 7.
And in a bid to revive the confidence of international money markets and secure lending the Government is lining up €4.5bn spending cuts and €1.5bin tax hikes.
Taoiseach Brian Cowen issued the warning over the Republic’s solvency despite staring at a slim coalition majority of three seats and the prospect of a by-election late this month.
Mr Cowen followed that with an attack on the Opposition, accusing parties of running down the country.
“The people who are dropping the morale of the people are the people who exaggerate the weaknesses in our economy and make no effort whatever to do anything,” Mr Cowen said.
Mr Honohan gave his assessment of the Budget and offered the Government his support during questions at the International Financial Services Summit in Dublin’s Four Seasons Hotel.
He declared Ireland had got it “exactly right”.
Despite the professor’s optimism the money markets remained unconvinced with State borrowing charges running at near 9% – an interest rate more often applied to the likes of Pakistan, Greece and Argentina.
Prof Honohan suggested the global lenders were holding the cards and had adopted a ’you say jump, we say how high’ approach to lending to Ireland.
“Though we may not like it, I think it’s pretty visible to everybody now that we actually have to jump to what the lenders expect,” Mr Honohan said.
“We have to convince the lenders that we can get to a situation where our debt is not spiralling away out of control.”
Amid concerns about the IMF, the European Commission also gave the green light for the revised €153bn bank guarantee scheme. It will protect mainly corporate and retail deposits but also some individuals’ savings.
It is the second time European officials have approved Ireland economic protection plans in as many days after Commissioner for Economic and Monetary Affairs Olli Rehn gave his backing to a plan to reduce spending by €15bn. He also said the EC would be flexible with the Irish savings bid.
Prof Honohan claimed less severe budget cuts would do even more harm to the economy.
“It was a question, in considering this and giving advice on this, what kind of package is going to make this convincing?” Mr Honohan said.
“If it doesn’t work, then it won’t convince the markets.
“I think it will work. There will be damaging effects, but the damaging effects of attempting a much lighter reduction in the deficit, particularly for next year, 2011, would definitely not work and would be more damaging.”
