Return to market will be 'challenging'

A “MODEST amount” of additional fiscal adjustment to what the Government plans is warranted given the fragile position of the public finances, the chairman of the Fiscal Council has told an Oireachtas committee.

Prof John McHale also told the committee that many of the rules in the fiscal compact already existed. The compact was more about improving enforceability.

He told the Joint Committee on Finance, Public Expenditure and Reform that the council’s remit did not include taking a view on the compact, and he was speaking in a personal capacity. In the “post-bubble Irish economy” normal uncertainty about future growth levels was heightened. Irish debt sustainability was “very fragile” and it would be worthwhile to have the “insurance” of faster debt reduction.

Prof McHale said the Government was faced with a difficult decision and that its deficit target of 3 per cent by 2015 was in the range of appropriate action.

He told Michael McGrath TD (Fianna Fáil) that Ireland’s desire to return to the markets would be “challenging” and the best chance would arise if it had a “back-up source of funding”.

Council member Dr Donal Donovan said that by the middle of next year the Government would be preparing its budget for 2014 and would need to know where it would access funding.

Mary Lou McDonald TD (Sinn Féin) said that most people at this stage thought of the council as “the group that comes out saying you are not cutting enough”.

It lacked credibility to argue that Ireland might find itself in need of funding and be rejected by the European bailout mechanism. It struck her that that would be catastrophic, and not just for Ireland.

Council member Prof Alan Barrett said foreign direct investment and exports do not produce the same level of employment they used to 20 years ago. Domestic demand was needed to get employment growing again.

Richard Boyd Barrett (Independent) noted the council’s calculation that a 1 per cent shortfall in economic growth in the period to 2015 would require additional cuts of more than €4 billion if the Government wanted to maintain its deficit target.