IMF praises Ireland’s attempts to rein in finances but warns of tough times ahead
Our attempts to rein in our finances have been described as "exemplary" by a senior International Monetary Fund (IMF) official but he also warned that a slowdown in the European economy could hit Ireland’s growth.
Antonio Borges, European department director, said that if Europe entered another recession the Government could be forced to adjust its targets although he said he did not expect this to happen.
Speaking to RTE, he said Ireland’s economic performance has been “surprisingly positive” and that if other countries in bailout mode had stuck to their austerity plans the European economy might not be as weak as it currently is.
He added that European banks need between €100bn and €100bn in recapitalisation funds, stopping short of the €300bn figure suggested by IMF boss Christine Largarde earlier.
“There has been a lot of talk about French banks, but the problem is very widespread,” he told reporters.
“No banking sector in the world can sustain a generalised loss of confidence and we need to restore that confidence all over Europe.”
Later German Chancellor Angela Merkel admitted that European banks do need more capital.
Mr Borges also confirmed that the IMF could participate in alongside Europe’s European Financial Stability Facility bailout fund in buying the bonds of Italy and Spain in a bid to bring down the cost of borrowing in those countries.
He was responding to the latest move by rating agency Moody’s which threatens to push up its costs.
Meanwhile, the European Commission has confirmed it is watching European banks closely with a focus on French/Belgian municipal bank Dexia whose shares have been battered because of its exposure to Greek debt.
“It’s important that the governments concerned address this issue in a co-ordinated manner,” said Commission spokesperson Pia Ahrenkilde Hansen.
“All new state aid will of course need to be notified and approved by the Commission.”
Meanwhile, new figures show that private sector business activity in the eurozone shrank for the first time in two years last month, adding to fears the area’s economy is heading back into recession.
A survey compiled by Markit, which compiled the survey, said the latest figures suggest the region’s economy will contract in the fourth quarter unless consumer confidence improves.