Scramble to stem panic after new bailout gaffe
Alarm after Varadkar claims State will need further loans
Published 30/05/2011 | 05:00
THE Government has scrambled to allay fears that a second bailout is on the cards, following damaging comments by a cabinet minister.
Transport Minister Leo Varadkar sparked alarm and confusion when he said the Government may need to get new loans from the European Union and IMF next year.
Ahead of an anticipated backlash from investors this morning, Finance Minister Michael Noonan's officials insisted the Coalition's firm plan was still to return to borrowing on the bond markets in 2012.
The Department of Finance stressed there was no change in the Government's plans, as Mr Varadkar's comments were reported around the world.
Mr Varadkar was also left backpedalling after he was reported as saying: "I think it's very unlikely we'll be able to go back (to borrowing on the bond markets) next year. I think it might take a bit longer... 2013 might be possible but who knows?
"It would mean a second programme (of loans from the EU/IMF). Either an extension of the existing programme or a second programme. I think that would generally be most people's view."
Another bailout would involve even deeper spending cuts and more increases in taxation -- leading to further contraction in the economy. That would mean hopes of a return to growth and possible erosion of the unemployment queues would be dashed.
However, Mr Varadkar will not be reprimanded, senior government sources stressed, despite breaking ranks on the sensitive economic issue.
Other ministers have previously said the country's debts will be unsustainable unless the interest rate charged by the EU is reduced. But no minister has gone so far in saying it is "very unlikely" that the country will be unable to resume borrowing next year.
Ironically, most independent economists agree with Mr Varadkar's comments, with many predicting that Ireland is unlikely to resume borrowing until 2014.
That would force the Government to borrow from the EU's permanent rescue fund, which will come into operation in 2013.
But his comments immediately caused a problem for the Government, implying that there was a view within Government that a second bailout would be needed.
The remarks were later picked up by international news organisations and are likely to alarm some investors when markets open this morning.
But a Department of Finance spokesman insisted last night: "The policy is to return to the bond markets next year."
The spokesman added that the situation would have to be reviewed closer to the time, and advice sought from the National Treasury Management Agency.
Last night Mr Varadkar attempted to play down the significance of his comments.
"My quote was in response to a hypothetical scenario," he told the Irish Independent. "I am basing my spending plans, prudently I believe, on the more pessimistic scenario.
"Nobody really knows and there are no crystal balls."
A government spokesman also attempted to reduce the impact of his remarks, which were made during a recent briefing about transport issues, describing the comments as a "hypothetical answer to a hypothetical question".
Mr Varadkar's suggestion that Ireland will fail to meet its targets comes as investors are already panicking about the possibility that Greece will default this summer because its government is not committed to its targets.
As the euro crisis deepens, the Government has so far been very careful to dismiss any suggestions that Ireland is in further difficulties.
Mr Kenny last week categorically ruled out seeking more time or trying to get a write-off of part of the debt.
"We will repay our loans. We will not restructure our debt. We're not looking for any further time, we are going to meet this challenge," he said.