Coronavirus: Varadkar and Donohoe warn over borrowing for Covid-19 downturn

Plan for deficit reduction will be required once growth returns, says Leo Varadkar

Taoiseach Leo Varadkar and Minister for Finance Paschal Donohoe have warned of the need to limit borrowing and control the budget deficit once the Covid-19 crisis passes.

In his Dáil speech yesterday, Mr Varadkar warned that Ireland cannot “borrow cheaply forever”, and suggested that once sustained growth returns to the economy, a plan for deficit reduction will be required.

This morning, in a speech to the Institute of International and European Affairs (IIEA), Mr Donohoe will reinforce the Taoiseach’s message, warning “the low interest rates of today will not be the low interest rates of forever. That which is borrowing now will have to be either paid back or refinanced at a higher interest rate in the future”.

Mr Donohoe will also say the “foundation of our economic stability is paying for our living standards, and our public services – ourselves. Central banks and savers in other countries will not pay for this decision”.


“So, over time and as our economy grows,” he will warn, “we need to reduce our borrowing.”

Yesterday, Mr Donohoe indicated in an interview with Reuters, that the eventual budget deficit this year could be even greater than the “worst case” €30 billion already mooted by the Government.

“If we are completely successful in implementing our plan, it definitely reduces the chances of us going beyond the €30 billion threshold, but there is still risk there,” he said.

‘Free money’

Earlier Mr Varadkar, in a speech to the Dáil, gave a blunt warning about the limits of borrowing, marking a significant change in tone on the subject.

“I am concerned that there is a growing narrative and belief that we can, as country, borrow cheaply forever and that this is the solution to our problems. It’s the free money argument and it’s coming from the right, as well as the left. There is no such thing as free money and there is no such thing as a free lunch either,” Mr Varadkar said.

Mr Varadkar also warned: “If conditions change, the countries with the biggest deficits and the largest debts will be first to feel the ill wind. We need to ensure that isn’t us. The consequences for our society would be too grave.”

Mr Varadkar also issued a warning about the task facing the next government, saying it would “have to sail the ship of state through the hardest of rocks and the toughest of hard places”.

Sources close to Mr Varadkar denied that this was intended as a message to the Green Party and Fianna Fáil, though it is understood that deficit reduction has not been discussed in detail at the negotiations on a programme for government.

Despite Mr Varadkar’s warnings, the extraordinarily favourable environment for raising funds was illustrated again yesterday when the National Treasury Management Agency (NTMA) raised €750 million in five-month borrowings at an interest rate of minus 0.43 per cent, receiving a record level of demand from investors.

Meanwhile, the latest figures from the National Public Health Emergency Team show another 12 people with Covid-19 have died in the State, bringing the total to 1,583 while another 76 cases were confirmed.

Pat Leahy

Pat Leahy

Pat Leahy is Political Editor of The Irish Times