Government must stick to deficit plan for investors -- Central Bank
The Government must press ahead with its deficit-reduction plans and consider tougher action to avoid being tainted by problems in countries such as Greece, the Central Bank said.
“Any slippage would be certain to damage confidence, both internationally and domestically,” the bank said in its quarterly bulletin published today.
Adherence to the budget plan allows the Government to “avoid being classified among those countries whose fiscal situation is the most worrying.”
The Government's fiscal action, which includes reductions in government spending and pay cuts for public workers, has helped keep a lid on the premium investors charge to hold its debt even as problems mount in Greece.
European leaders on March 25 endorsed a proposal to help Greece with a mix of International Monetary Fund and bilateral loans at market interest rates that would be triggered if the debt-stricken nation runs out of fund- raising options.
While the yield spread between Greek and German 10-year bonds has widened more than 100 basis points in the past month to exceed 400 basis points, the equivalent spread for Ireland has risen 4 basis points to 138 basis points in that period.
Irish bonds are among the euro-area’s best performer this year, returning 3.5pc since January 1, Bloomberg/EFFAS indexes show.
Italian debt has returned 2pc, Spain’s bonds have made 1.97pc and Germany’s have gained 2.9pc.
“It would enhance confidence further to set out in somewhat greater detail the nature of the further adjustment measures planned for future years,” the Central Bank said.
The Government should be ready “to take further action” if its forecast for economic growth of 4pc a year between 2011 and 2014 isn’t met.
The economy will shrink 0.5pc this year, less than the 1pc contraction forecast in January, the bank said. It sees growth of 2.8pc in 2011.