Boost for Lenihan as tough policies praised
FINANCE Minister Brian Lenihan received a boost yesterday when one of Europe's biggest banks, Credit Suisse, said the economy was in a "strong financial position" with a recovery under way.
The Swiss bank said there were several positives about the Irish economy that could not be ignored. The drop in wages over the last two years would help Ireland to bolster its exports, said the bank's analysts.
While markets were concerned, "several positive points shouldn't be disregarded".
In a note seen by the Irish Independent, Credit Suisse says:
- The budget process is well on track and the deficit has started to fall, with an austere budget to come in December.
- Ireland's funding needs for 2010 are almost met, with €20bn in cash providing an extra buffer in case of trouble.
- Recovery is under way, as Ireland benefits from falling prices and wages, boosting exports. Production levels are back to pre-recession levels.
Meanwhile, the International Monetary Fund (IMF) said it did not foresee that financial assistance would be needed for Ireland and praised the country's efforts at propping up its banking system.
A spokesperson said Ireland had taken "assertive measures" to deal with its banking crisis.
"With the most recent policy measures, the authorities continue their support of the banking system and help maintain financial stability," the spokesperson added.
At home, Davy Stockbrokers said some in the markets were reaching "unreasonable'' conclusions about the economy, pushing borrowing costs higher. The challenge for Ireland was to "communicate'' news of the recovery to a sceptical international audience.
The broker's leading analyst, Donal O'Mahony, said Ireland had already got most of its funding in for this year. Recent market reactions were "divorced from the reality on the ground''. His note said that while the public was "understandably angry'' at the scale of the bank rescues, talk of retribution by defaulting was misguided.
Davy said that by the end of this year, €16bn of tax rises and savings cuts would have been implemented.
"The weight of these adjustments is on the expenditure side, which is more easily controlled by government than the revenue side,'' it said.
This approach helped the credibility of the Government's plans, but also allowed the economy to keep growing.
Consumer spending had shown signs of recovery.
"Growing confidence will encourage spending and a reduction in private-sector savings,'' said their report.
The broker accused other European economies of lagging behind Ireland by not imposing their own austerity measures. Irish consumers could look forward to increasing their spending over the next two years, whereas consumers in other countries would be battening down the hatches, said the broker.
The two reports were issued as government bonds hovered over 6pc yesterday as concerns lingered over the bank rescues and the economy.
The government said this week its austerity programme had been endorsed by the European Central Bank and bodies such as the IMF. So far the tax returns for 2010 are on target and spending is also meeting forecasts. In fact, spending on capital projects is actually 23pc behind the forecast as outlined by Mr Lenihan last December.
Ireland is among a number of countries struggling with banking problems, with Spanish and German banks also grappling with losses linked to property. The biggest loser to date has been Anglo Irish bank, which is going to cost at least €25bn.
Emmet Oliver on why the economy is finally getting some support: page 24