Sunday 18 February 2018

The myth that we have lots of options about our debt

It's time to stop searching for unrealistic solutions in the attempt to get a grip on our massive debts, warns Colm McCarthy

THE composition of December's Budget will determine whether Ireland can retain a degree of independence in economic policy. Failure to restore confidence in the State's ability to borrow and to guarantee credibly the borrowing of its banks will result in an abrupt erosion of economic sovereignty. There is no policy option available that is not deflationary.

The Government has chosen to withdraw from the international credit markets for the rest of this year because it cannot find lenders at reasonable rates of interest. In September, the huge amounts that became repayable by the guaranteed banks were repaid with funds borrowed from the European Central Bank, since our banks are unable to roll over their borrowings in international markets in any useful amount.

The Government needs to borrow enormous additional funds over the next several years in order to fund its "austerity" programme, a programme which would see a further and substantial increase in the national debt. That debt is heading, under the austerity programme, to levels that have already spooked the markets. Yet there is endless discussion about how much should be cut from the deficit next year, as if this country were perceived as a gilt-edged credit risk, free to borrow whatever we feel is needed.

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