Conference told IMF may be called in

It is possible the International Monetary Fund will be called in to sort out the current “real economic crisis” here and if it is called in it will seek public sector pay cuts of “between 30 and 50 per cent”, a leading economist has warned.

Dr Alan Ahearne, of NUI Galway, addressed a Labour Party conference on the economy in Dublin today and said the task facing those trying to restore the economy was "scarily unprecedented".

"This is a real crisis and we have to be agile. If we find that agility we can get out of this but we are facing a painful and prolonged adjustment period."

He said the banks would have to fully nationalised temporarily. Wages and prices would have to come down but he added wages must come down in all sectors at the same time, so that everyone's standard of living
falls at the same rate. "It has to happen everywhere if it is to work."

There would have to be tax increases. "I wish the Government would say that. Otherwise they are going to create resentment when the increases come. They must give some endgame about how high the tax take is going
to go."

He said such fiscal consolidation was going to be very difficult to achieve.

"But if we don't do all this, if we are not agile enough we are going to need external assistance, from the IMF. One of the things they will look at is public sector pay cuts of between one third and a half. We are climbing an extremely steep cliff and if we fall from it we will be washed out to sea."

Brian Lucey, Professor of Finance in Trinity College, said it was important to remember the policies that have caused the current crisis were created by a Government for which 44 per cent of the electorate voted.

"Part of me says those 44 per cent should take the burden now. The problem is what we voted for, not the Galway tent. We voted for these policies."

He said from a banking perspective, the reality was we now paid on average twice as much as the Dutch and Germans for our macro-economic debt.

"That's the price of our national profligacy." He said it was "worrying" the lack of basic economic knowledge among Government ministers he had met.

"I think the Government is trying but they are at sea. They keep coming out with less and less credible policies. We need vicious policies now and we're not getting them. The international markets don't believe the
Irish State. I am convinced the Department of Finance does not understand international bond markets."

He said most of the staff in the Financial Regulator's office should be either replaced or retrained, as the office was "so underskilled".

"No banking system in any other country had underperformed as much as the Irish one and every bank director has failed in their fiduciary duty and should resign immediately. "

"We must have a system that is clean, transparent and believable for international markets to regain faith in the Irish system".

Poul Rasmussen, former Danish Prime Minister and current President of the Party of European Socialists said it was time for the Labour Party and trade unionists to "set a new direction for Ireland" where the markets serve society and not society the markets.

Echoing other speakers, he said investment in education — from national free pre-school education which would provide thousands of jobs, to adult training which would co-exist with social welfare — must be at the
heart of economic recovery.

"Publicly financed training, with part-time work and part-time training. This is essential and we are going to do it in Europe."