Tax Irish assets abroad to avoid default, says expert
European Policy Studies boss insists State is in a better position than Greece, Portugal and Spain
Published 30/04/2011 | 05:00
ASSETS held by Irish people abroad may have to be identified and taxed if Ireland is to avoid defaulting on its debts, a leading international economist said yesterday.
It would also make a big difference to the outcome if Irish pension funds were able to lend to the Irish government instead of being obliged, as at present, to buy more expensive bonds from the likes of the German government, said Daniel Gros, director of the Centre for European Policy Studies in Brussels.
"If you can do those things, solvency won't be a problem," Mr Gros told a meeting of economists at the Institute of International and European Affairs in Dublin.
"Unlike Greece and Portugal, Ireland's foreign debt is relatively low, once you deduct foreign assets. But the scale of the bust is so great that it will take at least 10 years to digest it.
"I am cautiously optimistic that Ireland can pull through without a default. It has a better chance than Greece and Portugal, or even Spain," he said.
Mr Gros based his optimism on statistics that showed the country's net foreign debt, both government and private, is less than 10pc of GDP, compared with around 100pc of GDP for Greece and Portugal.
"We know that the foreign debt of the government and the Central Bank is about 110pc of GDP. So 100pc of GDP is 'missing' to get the overall balance of 10pc. It depends how much of that is Irish assets abroad," he said.
"The key issue for Ireland is who holds these assets -- institutions or households? Can they be taxed or sold by the government to pay down its foreign debt?"
One problem is that the statistics do not show the extent to which Irish banks borrowed abroad to fund property speculation abroad, on which large losses may have been incurred.
Mr Gros said Ireland probably needed another 10pc fall in consumption, on top of the 8pc already incurred, to balance its national finances.
He said the reduction in Greek consumption so far had been only 6pc and required another 20pc.
"The Baltic states had this kind of adjustment in just a year, because they were not in the euro and did not have access to ECB support. In the eurozone, the private-sector party can go on and that means the adjustment is delayed.
"The Latvian adjustment took 18 months; the country is now in external surplus and bond yields are back to where they were before the crash," Mr Gros said.