End default debate, says Lenihan

 

Minister for Finance Brian Lenihan has called for an end to discussions about Ireland defaulting on its debt, saying the debate has done "huge damage" to the country.

Speaking on The Today with Pat Kenny Show on RTÉ radio this morning, where he defended yesterday's Budget, Mr Lenihan said the idea that a bank default would assist Ireland was "entirely wrong".

"People should not be surprised that there's a huge erosion of trust in the Irish banking system when we've an endless debate on whether we should be defaulting on the payment of our obligations," he said.

"A small country like Ireland cannot default without the support of a central bank because you have to have the bank loaded with cash while you're engaged in such a default and it's not feasible for us to do this."

"We really need to face up to this because we've allowed public discussion to become dominated by it and it has done huge damage to the country," he added.

Mr Lenihan said plans to force senior bondholders to renege on senior bondholders had been rejected at a European level.

The Minister said no European bank had dishonoured senior bondholders throughout the economic crisis but added junior bondholders had been impacted to a large degree with discounts of as much as 80 per cent applied.

"Junior bondholders are sharing the pain. Already, several billion have been obtained from them in discounted prices for their investments and I'm introducing legislation in the Dáil next week to extend the amount of the discount," he said.

Mr Lenihan defended cuts to social welfare rates announced in yesterday's Budget. He said given the country's economic situation "there had to be a certain minimum contribution from social welfare."

"Every Government of whatever colour will have to ensure that social welfare is kept under strict control because it is now €20 billion of our total expenditure. That is not sustainable for this country. We cannot afford to pay this."

Mr Lenihan also outlined a number of initiatives in the Budget that he claimed would help stimulate economic growth and highlighted the changes in stamp duty and the investment in extra training placements as evidence of changes which would assist those affected by the recession.

Defending his decision not to increase tax on "old reliables" such as alcohol and cigarettes, Mr Lenihan said that to have done so would have stimulated cross-Border trade and thereby damage the retail sector.

The Minister also repeated his claim that the State had no option but to back Anglo Irish Bank. "I have great regrets about how the bank was let grow to the size it grew," he said. However, he claimed that allowing Anglo to fail would have harmed the country.

"The simple fact is that this bank was let become too big relative to the size of the country. The balance sheet of the bank was two-thirds the size of Bank of Ireland or Allied Irish Bank so it wasn't some private casino, it was an enormous bank which had grown way beyond its proper size."

"As a result, if the bank would have been allowed to fail it would have collapsed the economy," he added.

Answering questions on the Budget from members of the public, Mr Lenihan said Government ministers are now earning €52,000 less than they did in 2008.

He also said a decision was taken not to cut the overseas aid budget too severely because while Ireland had been badly affected in recent years, it was still a relatively wealthy country and there were those who are far worse off than people here are now.