Friday 28 July 2017

Ireland the 'role model' for bailout countries

ECB board member Stark praises our efforts to stabilise economy and says eurozone won't face second recession

Juergen Stark
Juergen Stark
Donal O'Donovan

Donal O'Donovan

IRELAND is the "role model" for the other eurozone bailout countries, according to European Central Bank (ECB) board member Juergen Stark.

In Dublin yesterday, the central banker admitted that the debt crisis had now spread to the eurozone core, but he said Europe could still escape a second recession.

He rejected calls for the introduction of common "euro bonds" as a tool to help end the debt crisis, saying only debt reduction could solve the debt problem.

Dr Stark, who was in Dublin for a lunch-time address to the Institute for International and European Affairs, singled out Irish austerity measures for special praise.

"The Irish economy has stabilised, and the EU/ IMF programme has helped it to stabilise," he said.

"Ireland shows it is possible to implement (austerity programmes) as long as there is support in the society and a consensus among political parties," Dr Stark said.

Financial Regulator Matthew Elderfield, Alan Dukes of the Irish Bank Resolution Corporation, and UCD economist Colm McCarthy were among the dozens of senior policy-makers, academics and diplomats who attended the event.

Troika

The ECB, along with the IMF and European Commission, makes up the "troika" overseeing the Irish bailout.

Dr Stark has been one of the more outspoken members of the ECB executive board since the start of the crisis and has been bitterly opposed to calls for ECB cash to be used to ease the effects of the crisis.

In September, he announced plans to resign from the board. Most observers believe his decision came after the ECB said it would step up its controversial program of buying the bonds of countries that were in trouble in the markets.

Dr Stark had publicly opposed the move, preferring austerity and debt reduction to any such moves.

Yesterday, he said cutting wage costs and creating a flexible workforce, including those who were prepared to emigrate during times of crisis, were the only real tools that euro countries had to restore economic competitiveness.

Despite a positive gloss on the situation in Ireland, he admitted that the eurozone crisis had now spread from the periphery to the core.

"The sovereign debt crisis has re-intensified and is now spreading to other countries including so-called core countries. This is a new phenomenon," he admitted.

He said it was mostly a confidence crisis but admitted the spillover was damaging.

Despite that, the ECB still believed the euro area was heading for an economic "soft patch", not a second recession.

"We should avoid talking ourselves into recession," he said.

He also offered positive news for households and businesses that are worried by rising debt costs.

Dr Stark said the rate of inflation was set to slow across the eurozone over the next two years.

If that happens, the ECB is more likely to cut interest rates over the same period.

Crisis

In a wide-ranging discussion, Dr Stark denied that the crisis in Europe was hurting the US and UK economies -- saying the two economies had their own debt challenges regardless of what happened in Europe.

He also rejected a call for common euro bonds to help euro countries return to the debt markets.

Such euro bonds would only come about after euro member states agreed to share even more sovereignty, he said.

"In my personal view, euro bonds, even if they were called stability bonds, will not solve the sovereign debt crisis. Euro bonds do not tackle the structural problems some countries are facing," Dr Stark said.

On a more upbeat note, he said Europe was not heading into a second recession.

Irish Independent

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