Stark’s parting shot: Ireland must cut pay and welfare bills
JURGEN Stark – who dramatically quit his European Central Bank role last Friday - had some blunt advice for Ireland in a parting shot.
He said that the Irish government needs to cut back welfare benefits and public sector pay as part of its austerity drive.
The outgoing ECB executive board member says that budget cuts need to be 'frontloaded' in order improve market sentiment.
"The government should be more ambitious in cutting the public debt ratio, which is still at double-digit levels," said Stark in an interview with an Irish newspaper.
Such a move to reduce public sector pay would be in conflict with commitments already made by the government under the Croke Park deal.
Mr. Stark's comments come after he resigned from his position at the ECB last Friday in protest over the bank's bond buying program. However, he remains officially on the bank's board until his successor is appointed.
Despite his disagreement with other officials at the bank on other issues, Mr. Stark's views about Ireland are reflective of the ECB stance.
"I think that from a political point of view one needs to consider that other countries of the euro area provide financial support to Ireland in which the wages of the civil service are significantly lower," said Mr. Stark, who is known for seeing over-indebtedness as a moral issue.
Mr. Stark has voiced concerns that the Irish government might run out of steam with regards to their austerity drive in the coming months and said that they should use the very strong mandate that they were given by the electorate to push through reforms.
"We know that after a certain period of time there is always a risk of reform fatigue," said Mr. Stark. "The government should concentrate on the items that have to be on the top of the political agenda, to reform the Irish economy to bring the deficit down and not to bring up issues that in our view are non-issues."
Regarding welfare reforms Mr. Stark says that welfare entitlements should be examined, adding that reform of the welfare state was on the agenda for 'pretty much every euro area country.'
"I think it is obvious that the social security system and pensions system, healthcare, unemployment benefit schemes have to be adjusted," said Mr. Stark. "They have to be under scrutiny."
Despite his disagreeing strongly with the ECB's bond buying program he dismissed as 'absurd' the notion that these programs had turned the ECB into a European-wide 'bad bank'.
The Greek situation continued to deteriorate last week with Greek government bonds reaching record highs and rumours over the weekend of a possible Greek default in the near future.