THE TAOISEACH has insisted the Government will not follow Greece down the path of a debt default, saying any repudiation of the national debt would undermine Irish living standards for a generation.
Addressing the Dáil before he travelled to Brussels for last night’s EU summit, Enda Kenny said the imminent restructuring of Greece’s national debt was not a panacea for the country or a passport to painless adjustment.
“Nothing could be further from the truth,” he added. “Even after the haircut, it is likely that the Greek debt ratio will be higher than Ireland’s. Moreover, extremely harsh austerity measures, much harsher than anything that has been implemented, or is ever likely to be implemented here, will remain the order of the day in Greece.”
Mr Kenny said Dublin remained committed to honouring all its debts in full and on time, which was best for economic recovery and the growth of employment.
The best way forward was to work the EU-IMF rescue deal.
Without providing any detail, Mr Kenny said moves under way to overhaul Europe’s rescue fund may open up potential benefits for Ireland. The debt restructuring plan for Greece reflected its uniquely difficult situation and he was determined that Ireland’s fate would be better.
“I cannot say it often enough or strongly enough, we will not be going down the same road.”
To repudiate the bailout deal would be walk away from international commitments solemnly entered into, rejecting reasoned discussion and negotiation with international partners. The costs would be enormous, he said.
“In the first instance, since it would almost certainly bring about a sudden stop to international funding of the Government’s borrowing requirement, it would mean that the borrowing requirement would have to be eliminated by abruptly closing the gap between Government revenue and [non-interest] spending.
“This would require measures many times harsher than those that will be necessary in budget 2012 and would certainly plunge the economy back into recession.”
Ireland would also be faced with a large and enduring premium on its borrowing costs.
“Since the deal is seen to be working for Ireland and since Ireland is seen to be on the path to debt sustainability, repudiation would be viewed by investors as a situation of ‘won’t pay’ rather than ‘can’t pay’.
“The reputational damage inflicted on Ireland by repudiation would likely have serious negative consequences for our international trade and our attractiveness to foreign direct investors.”
Mr Kenny said the tax-free threshold for income tax in Greece would fall to €5,000 and pensions above €1,000 cut by 20 per cent. Some 30,000 civil servants would be suspended on partial pay.
“Who could possibly want that for Ireland?” he asked.
He was determined to improve the bailout plan. “The challenge of ensuring that the burden of debt taken on by the Government can be sustained is being surmounted, but surmounting it can be made easier by negotiating further improvements in the terms of the deal.
“We will continue to seek improvements in relation to the legacy costs that have been incurred by the State in rescuing the banking system.”
