Financial benefits resulting from the agreement on bank debt does not necessarily equate to an alleviation of austerity, the secretary general of the Department of Finance has suggested.
John Moran said that breathing space created by last week’s deal provided the Government with options for forthcoming budgets. But it does not automatically mean a dramatic shift in the State’s approach towards reducing the deficit.
“You basically have a choice with respect to the money that you are no longer spending,” he said.
“Do you spend it or do you actually say we have a country that is spending more than it is earning and we need to get back to paying the bills?
“And so you shouldn’t necessarily assume that just because you are paying now a billion less in a year that that means you should spend a billion, because we are already spending more than we are earning and we need to get that gap together.”
Mr Moran, who was speaking after his address to the Trinity Economic Forum in Dublin on Saturday, said the cost of borrowing on international markets would consequently reduce.
However, he stopped short of giving his own view on whether the savings should be spent or not, saying this was a policy decision for the Government.
‘Level of contraction’
Mr Moran said a number of different options could be taken and there is no perfect answer. “We have a plan that we put in place that we thought the economy could absorb a certain level of contraction.”
Nothing that happened last week has changed that, he said. The economy should be able to handle the level of contraction calculated to balance the books, should the Government decide to keep on that path.
“There is an advantage in getting to a primary surplus, to get to our 3 per cent deficit quicker rather than later,” he said.
“It’s a good healthy debate about choices we need to make . . . what do you do with the extra saving that we didn’t have a week ago? Well, it’s very helpful to have lots of different views on that so that as the Government tries to make an ultimate decision, they have as much information as possible.”
Regarding the circumstances surrounding last week’s announcement that the Irish Bank Resolution Corporation, formerly Anglo Irish Bank and Irish National Building Society, was to be liquidated, Mr Moran explained the importance of keeping it below the radar.
“All secrets are difficult,” he smiled, in deference to the leak that moves were afoot.
“You have never heard of the liquidation of a company happening over a week and there is a reason for it: because you want to actually protect the company and put it in that space where litigation can’t occur because in fact everybody knows that as soon as you announce, ‘we’re closing down the business’ or shutting it, people just run for stuff.”
While this scenario is easier to understand with a basic company, “in a bank it’s even harder because you don’t see them coming in”.
Troika funding
Mr Moran refused to be drawn on how the Government might proceed with policy regarding spending. But the deal, he said, had put the State in a good position concerning future EU-ECB-IMF troika funding.
“I think the market reaction that we have seen has been very positive,” he said.
He was equally guarded on how his staff had celebrated sealing this important deal, but he acknowledged that they were very happy. “It was actually a nice night. It was a good feeling to finally get this across the line; it’s been going on for a long time.”
