Opposition warned to toe the line on Budgets
Cost of borrowing could soar if €7bn cuts target not met
Published 07/10/2010 | 05:00
OPPOSITION leaders were last night warned they will have to come up with their own credible four-year budgetary plans -- or else the country will be hit by a crippling rise in the cost of borrowing.
Enda Kenny and Eamon Gilmore -- potential partners in a future government -- were told Fine Gael and Labour must put forward definitive proposals of their own to restore international confidence in the economy.
The threat to government and opposition parties was made by an influential credit rating agency after it again downgraded our credit rating --which is likely to make the cost of state borrowing more expensive. Adding to the pressure, the International Monetary Fund (IMF) stressed Ireland had no choice but to take strong and credible action to restore its finances.
A warning shot was fired across the bows of the main parties that, regardless of who is in Government, draconian Budgets will have to be brought in to bring the public finances under control or the country will have difficulty borrowing funds.
Fianna Fail and the Green Party are due to publish a four-year plan next month on how they will reduce the budget deficit to 3pc by 2014.
Fine Gael and Labour will publish their own proposals on what they will do if they get into office to bring about the same result.
Blaming the higher-than-expected €50bn cost of the banking bailout and the uncertainty on the economic front, one of the world's leading credit rating agencies lowered its rating on Ireland's debt.
Fitch Ratings cut the rating from AA- to A+ and signalled a further downgrade was more likely over the next couple of years.
Significantly for whoever is in power over the coming year, Fitch also warned it could lower Ireland's rating if broad political support for measures to tackle the public finances weakened.
Indicating it was concerned about a possible change of government, the agency added that "broad-based political support would help strengthen the credibility of the medium-term fiscal consolation effort".
This was interpreted as a warning the Coalition needs to garner broad support from the opposition if the four-year spending plans due to be outlined in November are to convince the markets.
Government sources said comments from Fitch seemed to be a "political threat from the company to the politicians".
"No matter who is in government, you'll have to jump the hurdles. The EU, the markets, the rating agencies -- mainly the markets -- will all be watching," another source told the Irish Independent.
Meanwhile, senior IMF economist Jorg Decressin said the Irish economy was still struggling from the unwinding property boom and a banking crisis that was leading to market pressures on interest rates.
He said the IMF supported the tough measures being taken by the Government.
Rather than endorsing the Government's plans, the opposition parties are expected to propose their own parameters on reducing the deficit.
Fine Gael finance spokesman Michael Noonan said the cuts in spending and increases in taxes proposed by the opposition will have to be "genuine".
He said his party would be tied to the targets outlined, but not necessarily the measures.
Mr Noonan said there would be no room for "weakness".
Labour finance spokeswoman Joan Burton said her party supported the commitment entered into by the Government with the EU to reduce the deficit to 3pc by 2014.
"However, we are a sovereign country and the difficult decisions to be made must remain a matter for the democratic process in this country and not for any self-appointed international rating agencies," she said.