IMF's grim warning on recovery is aimed at EU hawks
Published 04/04/2013 | 05:00
THE IMF has launched a blistering attack on EU leaders for failing to deliver on their promise of a bank debt deal for Ireland.
The latest IMF review of Ireland's progress under the bailout set out a stark vision of a lost decade before families get back to pre-crash living standards.
Ireland is doing enough to get out of the bailout by the end of the year, but risks falling back into a new bailout unless Europe helps ease the bank debt burden, the International Monetary Fund warns.
Many experts saw the report as a warning to the EU and European Central Bank that both need to do a lot more to help Ireland out of its excruciatingly heavy debt.
The Government is already meeting the IMF's call for extra judges to speed up home repossessions and to deal with the unfolding mortgage crisis.
But the international lender also wants tougher laws, which would see quick repossessions where borrowers have not paid any substantial part of their mortgage or agreed to a plan of repayment.
And what will really cause alarm is the IMF's stark warning about the risks faced by the country if it does not get further help from Europe.
It said that the recent deal to stretch out the repayment of Anglo debt had provided a significant reduction in borrowing needs over the next 10 years -- but our national debt of €192bn had been "little affected". It said that European leaders needed to deliver on their commitment to break the link between the State and its banking debts to "assure the durability of Ireland's exit" from the bailout programme.
"Even with continued strong policy implementation, a durable exit (from the bailout) cannot be assured without timely and forceful delivery of European pledges," it said.
The IMF called for the new eurozone bailout fund to be used to be used to deal with the €32bn of taxpayers' money that went into AIB, Bank of Ireland and Permanent TSB.
It said this would pump much-needed cash back into state coffers and make it easier for the banks to access cheap money to support lending. But this is being strongly resisted by Germany, the Netherlands, Finland and other eurozone states.
The IMF staff report said Irish households had suffered the largest fall in wealth in the EU due to the 50pc drop in house prices. And it went on to paint a grim picture of the current situation.
"Household debt remains high, curtailing consumption, and financial distress affects many households," it said.
It warned that on current growth rates, it would take a further 10 years for living standards to recover to the levels last seen in the boom in 2006.
The IMF pointed out the predicted recovery date of 2024 for Ireland was slower than other European countries which had gone through similar "boom bust" cycles. Sweden recovered after five years and Finland was back after seven, following economic crashes in the late 1980s.
Although there was little disagreement on the call for an EU bank debt deal, government sources played down the report, saying it was not the same as a formal bailout review.
A spokesman said Finance Minister Michael Noonan had repeatedly referred to making a "sustainable" exit from the bailout. "It is fair to say we are focused on making a sustainable exit from the programme. We are working with the troika to see what supports are there," the spokesman said.
Coalition sources said there were a number of concessions required from all three of the bailout partners – the EU, ECB and IMF itself – including: breaking the link between bank and sovereign debt; maturity and repayment of bailout loans from the lenders; and access to the new EU bailout fund.
But the IMF also sounded warnings about unemployment and the process of re-training.
It said the biggest danger in the country's "acute unemployment crisis" was the fact that over 60pc of people on the live register had now been out of work for a year and 30pc for over two years.
When the unemployed were added to those working fewer hours than they wanted, the total was a "staggering" 23pc of the workforce, it said.
The IMF has also complained abut the "slow progress" in dealing with the 123,000 people with mortgage arrears of more than 90 days.
The IMF also ruled out any general mortgage debt writedowns as "unaffordable and ill-targeted", saying that 84pc were still paying their mortgages.