Cowen dismisses housing slump fears and says economy on sound footing

Minister for Finance Brian Cowen has dismissed fears of a slump in the housing market and said public finances remain on a sound footing.

He has also offered Irish support for the French socialist Dominique Strauss-Kahn, who yesterday won European support to head the International Monetary Fund (IMF). At a meeting of EU finance ministers in Brussels, Mr Cowen said the housing market was headed for a soft landing rather than a British-style collapse in the late 1980s that left homeowners with negative equity.

"We have strong [ economic] fundamentals, we have low unemployment. "If you look at what happened in Britain, you had high unemployment, much higher than in Ireland now, and high interest rates," said Mr Cowen.

He added that mortgage payers' disposable income was running at similar levels to that found a decade ago.

But in response to a Government report this week which showed that one-third of first-time homebuyers took out 100 per cent mortgages in 2006, Mr Cowen reiterated his call for responsible behaviour both by lenders and consumers in the housing market. "The lending institutions need to take into account from a prudential point of view that there is a softening of market conditions as a result of interest rate increases," he said.

"The financial regulator also has a role to safeguard the interests of consumers."

He said the increased vigilance of regulators recently had been demonstrated by new guidelines issued on increasing capital provisioning by the lending institutions. On the general economic outlook, Mr Cowen said annual growth rates would fall from the higher rates seen in recent years to about 4.7 or 4.8 per cent in 2007, and 3.7 per cent in 2007.

But this would still be above Ireland's competitors in the euro zone.

Meanwhile, Mr Cowen followed fellow EU finance ministers in endorsing French candidate Mr Strauss-Kahn for the position of head of the IMF.

The French former finance minister got the strong backing of French president Nicolas Sarkozy, who forcefully lobbied other European finance ministers to support his bid.

EU countries are searching for a replacement for the current IMF managing director Rodrigo Rato after the Spaniard's surprise announcement at the end of last month that he intended to step down in October.

Traditionally Europe chooses the head of the IMF, while the head of the World Bank is an American citizen. Britain broke ranks with other EU member states yesterday and said it could support a candidate for the post from another part of the world.

Other EU finance ministers have signalled that they will break the tradition after Mr Strauss-Kahn.

Mr Sarkozy's energetic support for Mr Strauss-Kahn followed his unusual appearance at the regular monthly meeting of the euro group on Monday night to explain French plans to reform its economy.