MINISTER FOR Finance Michael Noonan has swatted away speculation of a potentially devastating policy split over Europe’s debt crisis, after the head of the International Monetary Fund warned that too much austerity could hurt the region’s weaker economies.
“I think Europe has turned the corner,” said Mr Noonan in Tokyo, where he was attending the annual meeting of the IMF and World Bank Group. “But what is absolutely essential is that once the decisions are made and the route is mapped out, everyone who has signed on should stick to [it] and get on with the implementation.”
IMF managing director Christine Lagarde triggered controversy on Friday when she advocated higher welfare spending and lower tax revenues if economic growth deteriorates faster than predicted. “One lesson, though, is clear from history,” she said.
“Reducing public debt is incredibly difficult without growth. High debt, in turn, makes it harder to get growth, so it’s a very narrow path to be taken.”
Her statements followed the release of a damaging IMF report admitting that the organisation underestimated the impact of austerity on national economies and that its growth forecasts for Ireland should have been lower.
Ms Lagarde’s comments were picked up by German finance minister Wolfgang Schäuble, who appeared to criticise the IMF head: “When there is a certain medium-term goal, it doesn’t build confidence when one starts by going in a different direction.”
Mr Noonan said Ms Lagarde was merely pointing to the “risk” of pushing austerity too hard in countries such as Greece and Spain when there is insufficient growth in the economy.
“In essence, she was saying a balance should be struck between correcting fiscal deficits and not restricting consumer demand unduly. And if one doesn’t strike that balance, there’s a difficulty. She’s essentially saying, give Greece and Spain more time.”
The Tokyo conference wrapped up over the weekend with a statement urging more economic structural reforms, and warning that “global growth has decelerated and substantial uncertainties and downside risks remain”.
Mr Noonan dismissed speculation that the euro zone may refinance some of the €64 billion the Government borrowed to rescue its banking system. Moody’s Investors Services said on Friday such a move might prompt it to revise its negative outlook on the Irish economy, making it easier for the Government to borrow at lower costs.
“Our position is that the statement of June 29th stands,” he said, referring to a European Council statement that appeared to permit funds from the European Stability Mechanism to be used to retrospectively refinance Irish banks.
Lawmakers in the US, China and Japan, the world’s top-three economies, continued to express disquiet in Tokyo about the prospects of the euro crisis dragging down economic growth elsewhere. EU leaders were at pains to insist that the crisis was under control, a point reinforced by Mr Noonan, who said there were “a lot of trends showing we’re moving in the right direction”.
Mr Noonan said advancing the European banking union would be his priority during Ireland’s upcoming EU presidency.
