McCarthy warning: IMF is at our door
Bord Snip economist says Budget is our last chance for sovereignty
Published 31/10/2010 | 05:00
Economist Colm McCarthy has starkly warned that the International Monetary Fund will be running Ireland by February if the Budget "fails to convince the financial markets".
In what he calls a "scary scenario", outlined in the Sunday Independent today, Mr McCarthy says "the game is up" if the Government flunks the Budget on December 7.
The sense of impending doom is also evident in the latest Sunday Independent/Quantum Research poll, which found that a massive 64 per cent believe it to be "inevitable" that Ireland will need the help of the IMF in the new year.
Mr McCarthy has said that if the Budget does "too little" to convince the financial markets, the Government will be unable to finance itself -- "which means an IMF/European bail-out and economic policy dictated from outside the country for the first time since the State was founded".
He warns that the country's cash reserves will run low by next spring, unless Ireland re-enters the bond market with a "pretty big issue" of up to €5bn.
"Realistically, the Government needs to do this in January or February at the latest," he says.
Mr McCarthy, an economics lecturer at UCD, headed a group which recommended savings of up to €5.3bn in a report commissioned by the Government and published in July of last year. Most of its recommendations have not been implemented.
The public finances are in such a dire state that the former Fine Gael leader, Garret FitzGerald, said yesterday that the national interest would not be served by a Dail defeat of what he predicted would be the toughest Budget in the history of the State.
"It seems to me that in the present critical situation, the national interest would not be served by a Dail defeat of the Budget -- whatever its contents may be," he said.
Government sources were yesterday anxious to downplay speculation that Finance Minister Brian Lenihan intends to bring the Budget date forward, closer to the as yet unspecified publication date of its four-year budgetary plan, which has to be submitted to the European Commission in Brussels this month.
There was a view last week that a convergence of the dates would reduce the possibility that TDs who support the Government might defect upon publication of the budgetary plan to cut the public deficit by €15bn by 2014.
Government sources were yesterday confident that the Budget would be passed on December 7 and that there would be no defections from Fianna Fail, the Greens or by independent TDs who support the Government.
Yesterday, Dr FitzGerald also said he did not believe that the Budget would fall due to the defection of TDs who have supported the Government up to this point.
However, a growing number of political observers believe that the survival of the Government will be tested when the specific detail of the Budget is outlined in the Finance Bill in January.
A government source said yesterday: "If the Government is to fall, I would say it will fall on some detail or other of the Finance Bill, rather than on the Budget itself."
In the event that the Budget is defeated, Dr FitzGerald has suggested a deal which would see the Government agree to dissolve the Dail at once "or, perhaps preferably, in early January" -- in return for which the Opposition would agree to an immediate vote to adopt the Budget.
In the Irish Times yesterday, Dr FitzGerald said: "If the opposition parties then won the subsequent election, as seems almost certain, and if the two of them together agreed on budgetary changes that would not affect the size of the general government balance in 2011, they could then effect such changes when they took power after the election.
"Such an arrangement could avoid the potentially disastrous impact of a budgetary collapse, followed by a consequent dissolution of the Dail and weeks of electioneering, while our financial stability was being put at risk.
"I raise this matter now because unless some arrangement of this kind is contemplated, a Budget defeat in the Dail could leave us without either a Government or a Budget for a month or more, followed by the likely emergence of a new Government under huge pressure to produce a new Budget at once."
Mr McCarthy has said that the four-year plan will be critical, but that the Budget measures "will matter even more".
He said the priority was to reduce sharply the projected amount of fresh borrowing for 2011 and to hope that Ireland's re-entry to the bond market goes well.
"Those who object to a tough Budget on the grounds that it will weaken an already weak economy are whistling in the wind unless they can identify a less deflationary option.
"It is not that we are living beyond our means: we are living beyond the willingness of lenders to lend," he said.
The public, meanwhile, remains hugely pessimistic about the country's prospects.
Asked if they believed that there was real scope for economic growth and job creation over the next four years, a huge 68 per cent said no, while only 32 per cent said yes, according to our poll.