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Monday 22 May 2017

IMF lays blame at feet of previous government

Lack of political courage and failure of Irish economic institutions led to disaster here, says report

International Monetary Fund (IMF)'s Poul Thomsen (centre) walks towards Greece's Interior Ministry in Athens yesterday. Photo: Reuters
International Monetary Fund (IMF)'s Poul Thomsen (centre) walks towards Greece's Interior Ministry in Athens yesterday. Photo: Reuters

Thomas Molloy and Emmet Oliver

THE last government lacked the courage to pass legislation to curb lending and dampen the housing boom, the IMF said yesterday in a report on European economies.

It blamed a lack of "political fortitude" in Ireland for many of our problems, along with poor-quality institutions.

The report comes as the Washington-based organisation prepares to consider Ireland's current financial situation on Monday. Its executive board will meet to discuss the recent mission here, led by economist Ajai Chopra.

The IMF yesterday refused to discuss whether Ireland would meet its targets for this year -- even after the Government downgraded its growth targets just a fortnight ago.

Debt crisis

Despite bailouts for Ireland, Greece and Portugal, Europe's debt crisis could still spread to core eurozone countries and the emerging economies of eastern Europe, it warned.

"Contagion to the core euro area, and then onwards to emerging Europe, remains a tangible downside risk," it said.

The report singled out fiscal institutions for blame, saying their quality "ranks relatively low".

Deficits would have been 1pc smaller if Irish fiscal institutions -- code for the Central Bank and the Department of Finance -- had performed better between 2005 and 2008, the fund calculates.

While praising some recent spending cuts which have improved the nation's current account balance, the IMF makes it clear that there is room for further efforts.

"In Greece, continued fiscal consolidation would further reduce, although not eliminate, remaining imbalances. At the same time, additional consolidation could further increase the current account balance in Ireland," the report notes.

The jump in Irish unemployment has had a terrible effect on social inequality, the IMF says. While the crisis has only increased inequality by an estimated two percentage points in the euro area as a whole, it has risen by as much as 10 percentage points in Ireland -- as well as in Greece, Portugal and Spain -- because of the sharp rise in unemployment, which has hit the young and temporary workers the most.

"With long-term unemployment slowly creeping up, there is a risk that many unemployed will become discouraged and leave the labour market. This would have adverse consequences on Europe's social fabric," according to the report.

A paper contained within yesterday's report notes that a flexible temporary workforce and a highly protected permanent workforce can increase unemployment.

It suggests that countries, such as Ireland, which operate such a system should rebalance employment protection to create jobs.

This would mean relaxing protection on regular workers while enhancing it for temporary workers.

It also calls for more outreach programmes, training, apprenticeships and access to job-search assistance measures to help younger jobseekers.

The IMF report also urged the European Central Bank to tread carefully in relation to further rises in interest rates, saying eurozone monetary policy could "afford to remain relatively accommodative".

The IMF increased its growth forecasts for Europe's emerging economies, while saying that outlook may be threatened by the sovereign-debt crisis in the euro area.

The region's economies will expand a cumulative 4.3pc this year and next, it predicted, instead of the 3.7pc and 4pc the IMF had projected last month.

Irish Independent

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