Cowen warns of 'financial storm' facing Ireland

Taoiseach Brian Cowen has warned that Ireland is facing a financial storm unseen in generations and drastic measures must be taken to ensure the country’s economic future.

Speaking during a Dáil debate on the economy this morning, the Taoiseach warned that the world was facing the most difficult economic conditions for 70 years. He said the IMF was expected to make significant downward revisions to global forecasts and most of the world’s economies were now in recession.

Ireland is particularly exposed to the continuing decline in international trade, he said.

“Exports of goods and services represent around four fifths of our national output, which is over double the EU average, and means our fortunes are inextricably linked with those of global and European markets.”

Mr Cowen said the Irish economy could contract by 10 per cent by 2010, “a scale of decline that is without precedent here in Ireland and with few international parallels” and predicted a further 100,000 jobs could be lost over the next year.

However, Mr Cowen insisted the Government has a “clear strategy” to address the crisis, involving both medium and short-term measures.

The Taoiseach said that unless measures to cut Government spending were taken, the Exchequer could face a revenue deficit of up to 12 per cent each year until 2013.

He said the Government would have to cut Exchequer borrowing by a total of €17 billion over the next five years. “This will involve a combination of expenditure and taxation measures over the period,” he said. Two independent bodies - the Commission on Taxation and the Special Review Group on Public Service Expenditure – had been established to explore what options are available.

On the banking crisis, Mr Cowen said the Government was acting with “care and prudence” to preserve the sector. “We are determined to ensure that our two main banks continue as strong, independent institutions, while our financial system as a whole can enjoy international confidence and provide adequate liquidity flows to business,” he said.

The Government is also acting to support mortgage holders who get in trouble with repayments, he added. The Financial Regulator is developing a statutory code of practice on mortgage arrears and home repossessions and funding under the mortgage interest scheme has been greatly expanded, Mr Cowen noted.

He called for an improved code of ethics within the banking industry. “Poor standards of behaviour on the part of well-paid executives must not be allowed to result in ordinary decent people losing their jobs and businesses struggling to stay afloat.”

On unemployment, Mr Cowen said the Government was working to help those who have lost their jobs find new ones or learn new skills.

He said the Framework for Sustainable Economic Renewal, published by the Government last month, outlined measures to help Ireland benefit from the global economic recovery when it comes.

Central to this strategy was investment in the knowledge economy and an emphasis on reducing Ireland’s dependence on fossil fuels. “The critical mass we are building means that R&D investments accounted for over four-in-ten of all new projects announced last year by the IDA,” he said.

The Taoiseach said the Government was currently drafting a framework agreement with the social partners on taking radical decisions to protect the economy.

Mr Cowen said achieving significant reductions in public service pay and pensions costs “will only be realistic if the burden of the adjustment is fairly spread across society and the proposed framework identifies some of the implications of such an approach”.

He warned that there was a need for moderation in executive pay, particularly in the banking sector, and that those who benefit most from the economic boom must “make a particular contribution to the adjustment required”.

Labour Party leader Eamon Gilmore also warned that Ireland was facing a “grave national crisis”.

“People want to know is there somebody, somewhere in Government, who has a grip on this situation,” he said. “What they will see here today, is the Dáil gathered to debate a Government plan that doesn’t exist, drafts of which it is not allowed to see, including a set of cuts that the cabinet will not publish.”

Mr Gilmore called on the Government to bring forward a National Recovery Plan to stimulate the economy based on confidence among consumers, credibility among investors and competitiveness on world markets. He said it was now clear “there is a requirement to broaden the tax base” to ensure that the wealthy pay a “fair share”.