Current low interest rates will not last forever – Paschal Donohoe

Minister for Finance Paschal Donohoe has warned that the current low interest rates will not last forever.

Mr Donohoe told the Institute of International and European Affairs today that the country’s current level of borrowing will have to be either paid back or refinanced at a higher interest rate in the future.

He warned about Ireland’s rising debt levels during the Covid-19 crisis.

The State projects GDP to fall by 10.5% this year, with unemployment expected to peak at 22%.

“To respond back to this, the Government has already committed exceptional financial supports for workers and businesses, amounting to €13.3 billion or 7.5% of gross national income,” Mr Donohoe said.

“We have been able to act decisively and proportionately because we managed our public finances with care in recent years.

“And there is a clear reminder to us from our recent history. Some appear to be arguing that we make the same mistake about public debt for Ireland as was made about private debt a decade ago.

“The low interest rates of today will not be the low interest rates of forever.

“That which is borrowed now will have to be either paid back or refinanced at a higher interest rate in the future.

The foundation of our economic stability is paying for our living standards – and our public services – ourselves. Central banks and savers in other countries will not pay for this decision.

“So, over time and as our economy grows, we need to reduce our borrowing.”

Mr Donohoe said that, given his role in setting policy, he would not be drawn into revealing views as to when and how he expects interest rates to change.

He added that what is currently in place is not going to become the normal.

“When that normal changes, if you have a national debt of well in excess of €200 billion – change in those interest rates can have a very significant effect on the day-to-day operation of the Irish state,” he added.

“This has happened to us twice before in my lifetime and I’m very determined that we get the balance right between avoiding that risk of developing again, while at the same time borrowing the right amounts of money that we’re going to need to protect incomes here in Ireland and restart our economy.

“That is a balance that myself and the Taoiseach are committed to identifying and then trying to implement.”

The minister also said there is a need to “reassess” the balance between the efficiency of supply chains and its resilience.

He referred to comments made by EU commissioner Phil Hogan in which he called for greater “strategic autonomy” in areas including production of medicines and medical devices.

“And amidst this change, Ireland will, again, identify strategic opportunities and pursue them,” Mr Donohoe added.

“As a country that is deeply embedded in global and European supply chains, I recognise that this potential for change is a significant development for Ireland.”