Government must cut deficit at faster pace -- Honohan
Central Bank governor Patrick Honohan said the government needs to cut the country’s budget deficit at a faster pace to shore up investor confidence.
“Some explicit reprogramming of the budgetary profile for the coming years is clearly necessary soon if debt dynamics are to be convincingly convergent,” Honohan said in a speech in Dublin today.
He said he expects “more clarity” and “detail” on the government’s budget plans.
The Government is struggling to convince investors that it can shore up the banking system after Standard & Poor’s downgraded the country’s credit rating on concern that the cost of the bailout is rising.
The extra yield that investors demand to hold 10-year Irish government bonds over German counterparts rose to a euro-era closing high of 387 basis points on September 17.
Honohan, who is a member of the European Central Bank’s Governing Council, also said that costs related to Ireland’s banking crisis remain “manageable.”
An upcoming assessment of Anglo Irish Bank’s rescue cost, including both base capital and stress calculations, will help “narrow the range” of estimates of the cost of the Irish banking crisis on the country’s finances, Honohan said.
“Recognising that losses may exceed the base assessment over time, by setting out a stress case, we aim to provide as much certainty as is reasonably possible as to the potential exposure presented by Anglo under a severe hypothetical stress scenario in the runoff of its book,” Honohan said.
Honohan said the total Anglo cost will be less than the numbers “touted around.”
The Government has been cutting public salaries as part of an austerity drive aimed at narrowing its deficit to 3pc of gross domestic product by 2014.
Finance Minister Brian Lenihan said this month there’s scope to reduce spending by more than the €3bn forecast in this year’s budget.
He said in a newspaper interview published yesterday that Ireland won’t need European Union aid.