IRELAND’S BAILOUT of Anglo Irish Bank, a key factor behind the country’s soaring budget deficit, is “costly but manageable”, the head of th Central Bank said yesterday.
Prof Patrick Honohan, who is also part of the European Central Bank’s (ECB) governing council, said the total cost of bailouts of all Ireland’s banks and financial institutions would be around 20 per cent of GDP.
He said last week the net cost of the recapitalisation would reach 15 to 16 per cent of economic output, though the final bill would depend on the price Anglo got on sales of loans to Ireland’s bad bank scheme.
“It’s a terrible shock to the system. It’s costly but it’s manageable,” Prof Honohan said yesterday during a speech to a business conference in Hong Kong.
The EU last week approved plans for up to €10 billion of State aid for Anglo, and Prof Honohan said over the weekend that plans to recapitalise the bank were well on track and had little impact on the Government’s overall deficit plans. However, this year’s deficit would swell.
“It’s a very high deficit measured this year because we’re taking the hit; we’re acknowledging the losses in the banking system and those losses which are being paid for by the Government have to be included in the deficit.”
Asked about recent calls from some Irish banks to extend the country’s bank guarantee scheme, Prof Honohan said he would prefer to see it phased out sooner rather than later.
“I’m not in a rush to remove the guarantee but I don’t want it to be in a period longer than quarters, rather than years, because if they’ve done the job properly that won’t be necessary,” he told Reuters.
The scheme was introduced at the beginning of the global financial crisis in September 2008 and the EU has approved an extension of it until the end of 2010, but only for debt of over three months’ duration: the guarantee period for shorter-term debt finishes at the end of September.
Prof Honohan also said he saw very little risk of the global economy falling back into recession.
“The US economy [has] some concerns; the European economy a gradual recovery. China and [the East] is the bright point so there’s not really anything surprising or different from my view,” Prof Honohan told reporters.
While there were still lingering uncertainties clouding the horizon, there appeared to be a “general recovery cycle” overall.
“It’s a weak recovery in Europe, it’s a weak recovery in the United States, but it is a recovery.”
He declined to comment on the implications for this on the ECB’s interest rate policies in the near future. – (Reuters)
