Lenihan focus on credible fiscal plan

THE GOVERNMENT may secure an extension on the 2014 deadline set by the EU to bring the public deficit in line “after a few years”, but only if it shows a credible four-year plan now, said Minister for Finance Brian Lenihan.

Looking for more time beyond 2014 now would be “devoid of any credibility”, he told the Irish Banking Federation’s conference.

“It might be that, after a few years, we would get a further extension, but only after we have demonstrated that we are already on a credible track way forward.

The Government had to show that it had a viable plan to bridge the €19 billion gap between State spending and revenues in a bid to reduce State borrowing costs.

“The idea that telling those who want to invest in Ireland that we should somehow extend the period of our correction further is devoid of any credibility,” he said.

Speaking to reporters, Mr Lenihan said the Taoiseach was consulting with Opposition parties on the changes required to prevent uncertainty in the markets if the Government changed during the four-year recovery plan.

It was not the case that the Government could not plan for the period after 2012 when the next general election is due, he said.

The Minister denied he had misled the public when he said last year that the economy had “turned a corner”. There had been a 12 per cent drop in annual national wealth, he said, and that had stabilised and forecasts were met.

“The original plan was based on a stronger medium-term forecast that hasn’t materialised worldwide.” Mr Lenihan said there would need to be “a more convincing exit strategy” from the bank guarantee in the years ahead.

Bank of Ireland’s head of retail banking, Des Crowley, said the bank would transfer total loans of €10.2 billion to the National Asset Management Agency at discounts of up to 42 per cent.

Robert Gallagher, head of capital markets at Ulster Bank, said that lending to all businesses was “not good banking” and that banks needed to get the balance right.

John FitzGerald, economist at Economic and Social Research Institute, said growth in domestic demand “could be postponed to 2013 with the number of cuts coming down the track”.

The Government could force through over four years now what took seven years of economic correction during the 1980s, he said. “Are you better taking the medicine too fast or, if the medicine is too severe that, like chemotherapy, will it really put the patient into decline?”

Angela Knight, chief executive of the British Bankers’ Association, said it was “vital” to resolve the issue of banks being “too big to fail”.

Financial authorities in the UK have ordered banks to establish “living wills”, which outline the steps a bank would take to emerge from a major crisis, she said.