Central Bank chief Patrick Honohan says market confidence due to ‘rigorous adherence to fiscal goals’
Central Bank Governor Patrick Honohan has said that the EU-IMF programme for Ireland “delivered what it said on the tin”.
Speaking to a European Commission economics and finance conference today in Dublin, he said that as well as fiscal discipline, better financing terms had emerged in various manners over the course of the programme.
This, he said, represented a major contributing factor to the improvement in debt sustainability and market confidence. This has allowed the Irish State to fund itself in the coming years, he added.
“The key to the return of market confidence to the extent that now exists has undoubtedly been rigorous adherence to fiscal goals”, Professor Honohan stated.
He said he believes that most of the specific measures urged on the Government by the Troika were “sensible or inevitable”, while few were “really bad ideas”.
Professor Honohan also pointed to the fact that has been a substantial increase in the proportion of poor households suffering deprivation in the years since the financial crisis started. But he said a return to higher levels of employment will be key to reversing this situation.
He warned that the financial crisis will have a “lasting unfavourable legacy” on the country. “The accumulation of debt, public and private, will continue to weigh on growth prospects in a variety of ways. And many households are being affected by long term unemployment,” the Central Bank chief said.
He said that limiting the legacy damage is the rationale for the Central Bank’s persistence in urging the banks to speed up their work to ensure that non-performing loans are brought back on track, and dealing with over-indebtedness by moving to sustainable solutions.
“In cushioning the impact of the loss of market confidence resulting from the crisis, the programme did no more and no less than was promised on the tin. The rest is up to us,” Professor Honohan said.
Meanwhile, some euro zone banks are restricting lending to boost their performance in financial stress tests this year, Professor Honohan told the Dublin conference today.
The ECB will publish health tests of Europe’s biggest banks before it takes over their supervision in November and there are concerns that lending will remain constrained until then and hamper the moderate economic recovery that is taking shape.
“At the moment, across Europe, there is a lot of concern that banks have been holding back lending to look good for tougher stress tests,” he said. “To some extent, some banks are doing that, but I don’t see that in Ireland,” he added.
The ECB, which underlined its determination to take action if necessary after it kept interest rates at a record low yesterday, could try to revive credit activity with another run of the cheap long-term loans (LTROs) it fed into the banking system in late 2011 and early 2012.
Executive board member Peter Praet was quoted as saying last month that Frankfurt could offer lenders more such liquidity if the bank tests crimped their lending.