The Minister for Finance Brian Lenihan has delivered an upbeat assessment of the Government's ability to ride the recession, while suggesting it is "somewhat worse" in Ireland than in the rest of the world.
Addressing the Foreign Press Association in London today, Mr Lenihan rooted his economic confidence in Ireland's membership of the euro zone and the backing of the European Central Bank - while predicting the Government would deliver a 'Yes' vote in the second referendum on the Lisbon Treaty widely expected in the autumn.
In answer to questions about last week's murders of two British soldiers and a police constable, the Minister was also robust in his determination that dissident republicans would not be able to damage the "full agreement" now in place - between the British and Irish Governments, and the two communities there - on the governance of
Northern Ireland.
The Minister's appearance before some thirty foreign journalists came at the mid-point of a three-day visit to London combining attendance at a series of traditional St Patrick's Day celebrations with a number of economic and media events in line with the Government's commitment to use this National Day to convey a positive
message to global markets.
Mr Lenihan had been scheduled to give an address on 'Ireland: a Euro Zone economy in transition'.
Arriving late as a result of "back to back meetings" however, the Minister proceeded straight to questions from his audience. These ranged over Government debt and public unrest over spending cuts, rising unemployment, possible Fianna Fail losses in the European elections in June, credit-default swap bets on Irish companies,
and the possible break-up of the euro zone - with concern about dissident republican activity and the possible impact of recession on still-divided Northern Ireland communities a recurring theme.
Mr Lenihan was asked if recent public unrest would have been so severe had the Government told people "the whole story" about the economic crisis and the measures necessary to deal with it. This was coupled with
the suggestion that it had appeared "timid" in its response to the crisis and a direct question as to whether the upcoming G20 summit had any "relevance" for the Republic.
The Minister said: "I welcome the conclusions of the G20. Clearly it's important that we all work together on resolving the international monetary and financial problems that are there."
In relation to Irish opinion, he continued: "One of the big problems with the Irish economy is that we have had two decades of extraordinarily good growth. We doubled our workforce between 1987 and this year, so we've gone from one million at work to two million at work. We had record budget surpluses, some of which we've harvested into a pension reserve fund. We also find ourselves now with a very low net to gross domestic product ratio, only 30 per cent. So we've a lot of positives heading in to this world recession, but we've some negatives as well.
"At the latter stages of the Celtic Tiger there was irrational exuberance, there was too much lending by the banks in property related matters. The banks are not exposed to toxic paper, we're quite satisfied about that. But there was excessive property exposure and asset prices and house prices rose too far. And of course up to 2007 we still had a 6 per cent growth rate, in 2008 we had minus 1 per cent, so that was a drop of 7 per cent in a year. This year it is forecast there will be a six and a half per cent drop in GDP."
The Minister continued: "These are very dramatic drops in gross domestic product. Of course it means that public opinion is far from malleable. When you have a change of that speed and magnitude it is difficult for public opinion to accept the necessary adjustments. But be assured the Government has a mandate to govern
Ireland until 2012 and we will make the necessary adjustments."
Mr Lenihan said: "We do find ourselves in a very difficult recession, like the rest of the world. Our recession is somewhat worse than the rest of the world because there's a domestic housing contraction taking place at the same time. That has put pressure on the banking system and on the state finances but we will address those issues."
Mr Lenihan added that since last June there had been two sets of expenditure reductions, public sector pay cuts and the first of two budgets. "I don't think that's a sign of any timidity," he said.
Mr Lenihan confirmed the government "will have to increase taxes" and continue to reduce expenditure, while stressing it would "insist" on maintaining the current Corporation Tax rate in order to remain attractive to international investment.
More fundamental than Ireland's own "sovereign" guarantee to back its banking system, the Minister said, "is our position in the Euro Zone, and the fact that we are members of the euro zone and that the European
Central Bank stands behind the Irish banking system, ensuring its liquidity and its solvency."
He continued: "That's very important for us. As far as we're concerned we're in a strong position.The great
advantage of Euro Zone membership for us is that, just as Sterling would have the Bank of England behind it, we have the European Central Bank behind us. It's a great guarantee of the stability of your banking and
monetary system. The penalty for Ireland is that with the devaluation of Sterling it means the damage is inflicted on the economy rather than the banking or monetary system."