Trichet says Ireland must meet targets on deficit reduction
ECB chief says bank's support dependent on achieving cuts
Published 08/10/2010 | 05:00
IRELAND must stick to the deadlines and commitments on fixing the public finances, the president of the European Central Bank Jean-Claude Trichet said yesterday.
ECB loans to the Irish banking system have been critical in saving the system from collapse, and it is now the largest lender to Anglo Irish Bank. Mr Trichet made clear that this support must be matched by action on the deficit.
"It is extremely important that the Irish Government takes all the appropriate decisions that would permit that highly credible path towards sustainability of the public finances,'" he said.
Economists at Bank of Ireland have reduced their forecast for growth next year -- partly because they expect a tougher 2011 Budget.
"We have revised down our 2011 GDP forecast to 2.5pc. A sharp fall in the actual budget deficit will achieve little if it simultaneously reduces GDP and hence leaves the deficit-to-GDP ratio little changed," said chief economist Dr. Dan McLaughlin.
Higher imports mean the bank is now estimating growth this year of just 0.5pc, rather than the earlier 1pc.
"2011 may see a modest rise in consumer spending but consumption may fall this year, however, by around 1pc following a 7pc decline in 2009," he said.
Speaking at the ECB's monthly press conference, Mr Trichet described the announcement of a detailed four-year budgetary plan as a "very important declaration".
In a general comment, the ECB governing council said credible multi-year budget plans "will strengthen public confidence in the capacity of governments to return to sustainable public finances, reduce risk premia in interest rates and thus support sustainable growth over the medium term".
There was further support for the Government from the International Monetary Fund (IMF) yesterday when economist Daniel Leigh said the austerity measures were the right thing to do.
"There's no alternative right now. There's a lot of pressure from markets and they seem to be doing the right thing," Mr Leigh said at a meeting in Brussels.
This follows comments by IMF Chief Economist Olivier Blanchard that countries such as Ireland and Greece had no choice but to do "fairly dramatic things" in as clear a manner as possible.
One concern for the Irish authorities is that Irish banks are the biggest recipients of ECB support and the central bank is gradually reducing the aid to the eurozone banking system.
Mr Trichet said there's "absolutely no change" in the ECB's stance from a month ago and it would continue to gradually phase out its non-standard liquidity measures.
(Additional reporting Bloomberg)