Tuesday 28 March 2017

Soden: Give us 30 years to pay debts

Experts urge action on bloated public sector and 'insane' welfare system

Ronald Quinlan and Daniel McConnell

FORMER Bank of Ireland Chief Executive and Central Bank board member Mike Soden says the EU should give Ireland 30 years to repay the money it owes, with the first 10 years limited to interest payments only.

Speaking to the Sunday Independent in a personal capacity, Mr Soden said the Irish economy would not recover until the European Community puts in place a system of long-term funding to meet our needs.

"The steps that are being taken at the moment (by the Government and the EU) are deferring a problem, not addressing the solution.

"The solution is the acquiring of long-term funding for a minimum of 30 years with perhaps the first 10 years having only interest repayments, and this will allow the economy to recover and allow liquidity to be put into the system. There is no market at the moment that can provide us with 30-year money," Mr Soden said.

Meanwhile, Ireland's financial crisis means it will definitely have to default, and the Government has to tackle our "insane" bloated public sector and benefits system, bestselling author and former Lehman Brothers boss Larry McDonald has said.

Speaking to the Sunday Independent, Mr McDonald also said we should consider leaving Europe given how badly they treated us and Ireland would take five to seven years from now to recover.

Following last week's rise in the unemployment numbers, up 2,600 to 443,000, weaker than expected tax returns, and the fact we are now using half of our income tax take to pay interest on our national debt, there are mounting fears that Ireland cannot meet the targets agreed under the €85bn IMF/ECB/EU bailout.

McDonald, when asked if Ireland would default, was unequivocal in his answer.

"When you look at the way the bonds are trading, there will be haircuts (debt writedowns), absolutely." Given Ireland's huge and unsustainable debt mountain, the market clearly believes some form of an Irish default is inevitable, he said.

But, he insisted, Ireland should not default by itself, but as part of a wider European debt forgiveness programme.

He also said Taoiseach Enda Kenny and the Government must tackle the "considerable fat" in our public sector as well as our overly generous welfare system.

He said: "This child benefit, when there is no means testing. That's insane. Insanity. There is nothing like that in the US. Say you get a guy who earns €400,000 a year, and he is going to get €40,000 in benefits. Insane. If you cut that, there's €200m right there."

McDonald's view echoes that of OECD economist, Patrick Lenain, who said he knew of no other country in the 34-member organisation where more people received unemployment benefit than were unemployed.

Meanwhile widely respected banker Mike Soden believes there is much the EU can do to ease Ireland's debt burden.

"The European Community is capable of creating 30-year money for sovereigns that are in need and I believe that they should make that. That is the only solution that I see working in the future. This is not a three-year time horizon. This is a 30-year solution."

Ireland's unsustainable financial position was thrown into stark relief only last Thursday with the publication of the latest exchequer returns. According to those figures, the Government is currently using more than 50 per cent of all income tax to meet interest payments on the national debt. In the first five months of this year, the State paid €2.6bn in interest on the country's debt out of the €5.1bn it collected in income tax.

And with Ireland set to draw down additional funding from the €67.5bn secured under our so-called bailout deal with the EU and IMF, the level of our repayments will rise substantially in tandem with the country's overall debt, which the NTMA has forecast will reach a staggering €203.6bn by 2015. Compounding the country's difficulties are the punitive interest rates, ranging from 5.8 per cent to 6.4 per cent, being charged by our EU partners for the money it is lending us as part of the bailout.

Ongoing debate both inside and outside Government on the timing of Ireland's return to normal borrowing on the international markets isn't helping matters either, according to Mr Soden.

"You've got to ask who in the markets are going to provide the money when the rating of the country is one step away from junk," he said.

Sunday Independent

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