13 May 2010
Lenihan said Ireland does not have the severe structural problems that some Mediterranean countries have and the former ‘Celtic Tiger’ would see a “measurable” return to growth in the last quarter of this year.
Ireland, widely considered the eurozone’s weakest link a year ago as an abrupt slide from its growth boom hit state coffers, has been under less pressure since tough spending cuts and bank reforms were introduced in late 2009.
Its fiscal reforms have been hailed by European leaders as an example for fellow eurozone struggler Greece.
“If real risks materialised in relation to Ireland, they would be paralleled in a European-wide crisis in the financial system and we’re not at that point,” Lenihan said in an interview.
“The risk of contagion in my view does not extend to Ireland. Over the last 18 months we have taken many of the measures that the Greeks are only beginning to take. I don’t see Ireland as being at great risk.”
A proposed 110 billion euro aid package for debt-stricken Greece has failed to soothe concerns that the fiscal problems saddling it and perceived weaker eurozone nations will hurt the banking system and worldwide economic growth.
“One of the reasons markets are critical of countries other than Greece is because some … don’t just have public debt problems, they also have structural problems with their economies,” Lenihan said.
“We’re not a country that has the severe structural problems that some of the other Mediterranean countries have shown and the markets have tended to differentiate Ireland out from these countries.
“Ireland’s share of the three-year rescue programme for Greece will be up to 1.3 billion euros and it is currently preparing the legislation to allow for the disbursement. Just as Ireland steadily won back market confidence last year, so could Greece, Lenihan said.
“I think the markets are waiting to see the response of the Greek government and the credibility of the Greek measures,” he said. “I believe when the Greek government take the measures required under the stability package, Greece will acquire greater credibility.”
Lenihan said a decision on whether Ireland would skip a May bond auction because of rising funding costs had yet to be made, adding that Ireland was comfortably funded until early next year. He did not see Ireland having to seek help from the IMF should market funding rates remain high.
The three major rating agencies said recently that Ireland’s responsible approach to managing its finances means its rating prospects have not been harmed by recent speculation against peripheral eurozone countries and Lenihan said Ireland was in a stable position at present. Lenihan, who oversaw three budgets in just over a year at the height of Ireland’s woes, said the bulk of the adjustment needed in December’s budget for 2011 would be found through cuts in expenditure.
“There may be some scope for limited taxation but the bulk of it will be on day-to-day expenditure. We had to face up to three billion euros [worth of cuts] last year and we did it, so two billion is less of a challenge,” he said.
Revised data in April showed Ireland had the biggest deficit in the EU last year compared with the size of its economy at more than 14 percent of GDP, due to the cost for a bailout for nationalised Anglo Irish Bank.
The government has earmarked more funds for Anglo and Lenihan said any resolution of its difficulties would be done over years with an immediate wind-up not an option.