Banks not even half our problem
Ducking tough budget choices will damage our image abroad and won't spare us pain in the long run, warns Colm McCarthy
Published 03/10/2010 | 05:00
IT is not possible to deliver finality about the cost of a banking rescue until the damaged assets have finally been sold off. Last Thursday's announcements, however, have brought greater clarity, and focus should now shift to the continuing crisis in public finances.
In round numbers, three-quarters of the debt Ireland will owe when the figures finally come under control will relate to the accumulated budget deficits and just one quarter to the costs of the bank rescue. Getting down the rate of borrowing for day-to-day purposes is the critical component in putting the public finances in order. Of course the costs of the bank rescue are horrendous, and make a difficult task much harder. In addition to a more credible estimate of these horrendous costs, the announcements last Thursday serve to take the banking issue off the radar for the next few months and should refocus policymakers' attention on what needs to be done with the Budget.
Since the Greek crisis, Ireland and Portugal have been in the firing line, and both countries are facing borrowing costs which must be reduced if they are to escape resort to the IMF and the European bailout fund. For countries with large debts and a requirement for further borrowing, there is a limit to the interest rate that can be afforded. That limit was being approached in recent weeks, and the decision to withdraw from selling new Government bonds over the next few months is understandable.