No need for Ireland to take 'dramatic' new austerity steps, says IMF director

THE INTERNATIONAL Monetary Fund has said there was no pressing need for the Government to adopt “dramatic” new austerity measures to deal with the slowdown in the global economy.

While warning Ireland’s recovery could come under threat from weakening growth in Europe and beyond, the fund’s European director, Antonio Borges, said the Irish economy was performing surprisingly well and said conditions now were much better than before.

Ireland’s performance was exemplary but the situation remained challenging, he said.

Although Dublin may have to accelerate spending cutbacks and tax hikes if the European economy enters recession, he said it was difficult to see how the Government could do much more than it was already doing.

“As you know we can look at all kinds of downside risks and it’s not excluded that if there was a real recession throughout Europe the Irish would have to take additional measures, but we are hopeful that will not be necessary,” he told reporters in Brussels.

Mr Borges’s remarks are at odds with the views of senior figures in the European Central Bank, who have been pressing for an acceleration of Ireland’s austerity drive in next year’s budget to ensure the recovery is not blown off course as the sovereign debt crisis worsens and global growth slows down.

The EU Commission, the bank and the fund are members of the “troika” overseeing Ireland’s international bailout.

Asked whether the current turmoil should prompt the Government to take additional budget steps as a precautionary measure, Mr Borges there was no need at the moment to do that.

“I think they’re already accelerating the programme, which I think is very positive – we’re not recommending that they go a lot further,” he said.

“I think a steady implementation of the measures is exactly right, and in that sense we don’t think this is the time to be considering additional dramatic measures which don’t seem to be justified.”

He expected Ireland’s growth to continue, unless there is a major crisis in the countries that are Ireland’s main markets.

“I think the performance of the Irish economy has been surprisingly positive. The growth figures came out better than expected, which is extremely reassuring. In particular, this is due to the ability to export. Ireland of course has a strong export base,” he said.

“There was a very, very strong effort to recover competitiveness, with very bold measures in particular through wage reductions across the board and so forth, which must have been very painful, but which in fact delivered the right results in terms of a much better export performance.”

The fund was very pleased with the seriousness with which the Government and the Irish people generally were implementing the bailout plan.

“There’s some very difficult measures, they’re very tough, very demanding, but with good results. And I should say that if the same approach existed all over the programme countries, we would have a much, much better situation,” he said. “Ireland is exemplary in many ways. The results are beginning to be good, surprisingly good, which is very positive, but the situation remains difficult and tense.

“In fact, with the new developments in Europe and the slowdown in growth, this can have some damaging consequences for Ireland because all the growth is export-oriented as it should be, so Ireland is especially vulnerable, let’s say.

“Let me say that if there is a major recession in Europe – which we don’t expect but we cannot rule out – Ireland will suffer, inevitably, but everyone else will also suffer a great deal.”