Ireland 'hit worst by recession'
Finance minister downbeat about upturn as jobless rate heads for 12pc
Finance Minister Brian Lenihan said last night the recession in this country is worse than in the rest of the world.
Mr Lenihan said Ireland is facing a "very difficult recession", but the country's membership of the eurozone will help us against the downturn.
He spoke shortly after Federal Reserve chairman Ben Bernanke said the recession in the US could end this year. Mr Bernanke's comments prompted a surge in global stock markets.
But Mr Lenihan was more downbeat about Ireland's immediate prospects,
However, he expressed confidence that Ireland would return a 'Yes' vote in the second Lisbon Treaty referendum, which the Government was not going to defer beyond the autumn.
This country is having a tougher time grappling with the recession than others, Mr Lenihan said in an address to the Foreign Press Association in London.
The effects of a domestic housing crisis had fed into the banking system. Irish property exposure was excessive and the Irish economy suffered from ''irrational exuberance.''
He warned:"Ireland is facing a very difficult recession, somewhat worse than the rest of the world." .
The minister said the Government now had to make spending reductions and there would be no timidity in the coalition's budgetary plans.
After admitting the increase in VAT in last year's Budget was a mistake, Mr Lenihan said the decline of sterling against the euro had reduced the country's competitiveness.
But he empasised to the business community in one of the world's banking hubs that tax cuts included in the upcoming budget would not affect our low corporation tax rates.
He maintained that the country was in a strong position to deal with the global recession as a member of the eurozone.
"The advantage of eurozone membership is having the European Central Bank behind us," the minister said.
But he added that the Irish economy was feeling the sting of a weak sterling, which is hovering in range of a record low against the euro.
"The penalty [of being in the eurozone] is the devaluation of sterling," he said.
Mr Lenihan said that Ireland's competitiveness with the "sterling economies" had been reduced substantially due to the British currency's dramatic depreciation since the autumn.
He said the Irish government would attend to that issue by keeping labour costs down.
But Mr Lenihan insisted Ireland would not leave the eurozone and emphasised that the zone could not break up.
The finance minister also predicted the Irish economy wouldl contract 6-6.5pc in 2009, echoing comments made by Taoiseach Brian Cowen earlier this month.
He forecast unemployment would rise to 12pc this year.
The finance minister again floated ideas on how the Government would deal with toxic debts in the banking system.
Ireland is examining banks' lending and considering creating a company to manage some toxic banking assets in a separate "vehicle", he said.
But this didn't imply the setting up of a so-called bad bank was on the cards either. He said the Government is looking into a plan to insure assets.