Chances of debt easing 'less likely'

Fri, Sep 28, 2012, 01:00

THE IRISH Fiscal Advisory Council has cast further doubt on the merit of the Government’s July 2012 stimulus package.

Appearing before the Oireachtas Committee on Finance, Public Expenditure and Reform, council chairman John McHale reiterated scepticism set out in its recently published report. Four of the five-member council appeared before the committee.

Prof McHale said he believed the prospects of a reduction of the banking-related public debt was now “somewhat less likely” after the statement earlier in the week by German, Dutch and Finnish finance ministers.

He warned that while a reduction in bank-related public debt would help the adjustment process, it was not a “panacea”.

The new watchdog repeated its call for more ambitious efforts to tackle the budget deficit over the medium term.

It has urged the Government to add a further €1.9 billion in adjustments to the already planned €8.6 billion package over the period to 2015, although it is not advocating tougher cuts than already planned this year.

Success in improving the State’s creditworthiness since the spring has, however, seen the council lower its earlier estimate of the cuts required over the coming years.

Prof McHale told the committee yesterday that the fiscal adjustment yet to be implemented was “daunting” and that defaulting on public debt should be “absolutely avoided” owing to costs and risks involved.

Another member of the council, Prof Alan Barrett, said yesterday that there was “no sign” of the banking system functioning normally. This warranted consideration of the setting-up of a State bank to “short-circuit” the problem of inadequate credit provision.

The independent council, which was established last year, said in its most recent report that it had “significant reservations” about the €2.25 billion stimulus plan announced by the Government in July.

In its most wide-ranging critique of budgetary issues since its establishment, its latest report noted that “no information has been made available regarding the expected rate of return of the projects” and that resources would have been better used reducing the State’s very large debt.