EUROPEAN CENTRAL Bank (ECB) chief Jean-Claude Trichet moved yesterday to shore up confidence in the Government’s economic plan as Irish borrowing costs spiked to a new record.
Mr Trichet told reporters that the Cabinet’s decision to front-load the €15 billion four-year austerity plan with a €6 billion package next year was of “extreme importance”.
He said the scale of the overall plan was “not insufficient” but declined to comment on a drastic rise in the interest rate on Irish sovereign bonds, which broke through the 7.8 per cent barrier for 10-year money yesterday.
His tone was highly guarded, however, as he emphasised the requirement for the Irish authorities “to be alert permanently” as they try to balance the books.
Preparations for the budget have been under exceptionally close scrutiny in the ECB and in the European Commission.
The Irish Times has established that senior ECB official Jürgen Stark, a member of the bank’s executive board, was present at a meeting in Brussels last week when Mr Lenihan discussed his plans and the economic situation generally with economics commissioner Olli Rehn.
Reliable sources say the ECB stands ready to significantly escalate its purchases of Irish sovereign debt if yields remain under pressure as the Government prepares to return to the market in the new year.
The bank has already been in the market several times since beginning its purchasing programme last May.
The same sources say there is some confidence in Frankfurt that the Irish authorities have demonstrated a clear commitment to do whatever is required to restore order in the public finances.
The sources attribute the pressure on borrowing costs to market anxiety about a German initiative to develop insolvency procedures for distressed euro governments.
Mr Trichet has opposed such measures, which would force private investors to take a “haircut” on sovereign liabilities. He declined yesterday to set out his concerns in any detail, but said rescue procedures should foster stability and not the opposite.
Speaking before Mr Lenihan published the Government’s target for the 2011 budget, Mr Trichet said he had “no negative appreciation” of the decision to adopt €15 billion as the four-year objective.
“This message of the Government, which will be a message on particularly the frontloading of the programme, is of extreme importance. I have no reason myself to think at the present moment that the observers will be disappointed.”
He also said Ireland’s fiscal problems were not comparable to those of Greece, which sought a bailout earlier this year.
“We have situations that are very different by many means. The Irish situation is more of a commercial banks nature in comparison with the Greek situation.”
Mr Trichet was speaking after the bank’s governing council kept its main refinancing rate steady at a record low of 1 per cent.
