Minister for Finance Brian Lenihan today warned that further austerity measures will have to be imposed after the Central Bank revealed the total cost of the bailout for Irish banks will be almost €50 billion.
The measures, which will be published as part of a four year budgetary plan in early November, are part of the Government?s commitment to reducing the deficit below 3 per cent of gross domestic product by 2014.
The Central Bank this morning announced the total cost of the bank bailout to the Irish taxpayer would be just under €50 billion, up from previous estimates of €33 billion. That includes up to €34.3 billion in the worst case scenario for Anglo Irish Bank, and an additional €2.7 billion for Irish Nationwide Building Society.
The general Government deficit will be around 32 per cent of GDP, with the capital support for the banking system accounting for almost 20 per cent of that.
?The overall level of State support to our banking system remains manageable and can be accommodated in the Government?s fiscal plans in the coming years,? Mr Lenihan said this morning.
?It is important to note that the Exchequer is fully funded through to the middle of next year,? he said. ?However, in order to fully underline the strength of our resolve and to ensure the necessary fiscal adjustment we will make an additional significant consolidation effort in 2011 over and above the already announced target.?
In a press conference today, the Minister refused to speculate on how severe the cuts would be, saying only that it would be a higher amount than previously announced, and would require a significant adjustment this year.
"The Government isn't rushing in to giving this figure or that percentage. The Government is going to analyse the data present a pre-budget outlook which will set out the data, set out the forecast for next year and base its judgments on that," he said.
"But what's important here is that we establish a credible track to meeting the 3 per cent borrowing requirement that is required from us as a State, and as a people and for our own good, by 2014. For that reason, a plan will be announced by the Government in early November which will set out the precise estimates of expenditure and proposals in relation to revenue receipts and also any additional revenue that may be required to meet the target of eliminating out borrowing to below 3 per cent by 2014."
Speaking separately, Taoiseach Brian Cowen refused to rule out further tax increases in the forthcoming Budget and said "revenue raising" options would be required as well as spending cuts in the Budget, which is due to take place in December.
Speaking on RTE radio at lunchtime, Mr Cowen refused to outline how much would have to be found through austerity measures.
"We have to be responsible here. It's not about speculating on a figure...it's about recognising that there is a serious challenge ahead of us," he said. "We have to get on with dealing with the realities in front of us, horrendous as the outcome has been."
Mr Lenihan had earlier ruled out any outside intervention. "The Irish banking system is at rock bottom today," he said in a Bloomberg Television interview. "It can only revive from now because it's recapitalised and reformed."
He told a press conference today that the Irish people are entitled to be angry with bankers who lent "recklessly".
?It's clear that these losses were installed in our banking system and in some of the banks by the middle of the decade, and it's clear that some of the banks have spent considerable period of time trying to conceal the existence of these losses,? he said.
?With the establishment of Nama, the State went in, established exactly what the losses were and we're now dealing with them. In the case of Anglo and INBS, the State has to downsize these institutions over a period of time, to prevent them becoming a systemic threat to the state itself. That's how serious the position that was developed in those banks was.?
Mr Lenihan said Anglo had developed to a size where in its annual turnover was half the national wealth and it became "a systemic threat" to the financial viability of the state
?That particular nightmare the Government has had to live with, the Irish people have had to live with and I have had to live with since Sept 2008. We?re now bringing closure to that.?
He criticised a "pattern of reckless lending" in Irish Nationwide Building Society, and said AIB needs a new beginning so it can be restored to its former greatness.
In his statement, the Minister said there were no plans to impose losses on holders of senior debt in through legislative measures. However, he signalled there may be some ?appropriate burden sharing? by holders of subordinated debt, and he expected them to make a ?significant? contribution towards meeting the costs of Anglo.
?As can be seen from the figures outlined above, the losses in the bank are substantial and it is right that the holders of Anglo?s subordinated debt should share the costs which have arisen,? he said.
?In keeping with this approach, my Department in conjunction with the Attorney General is working on resolution and reorganisation legislation, which will enable the implementation of reorganisation measures specific to Anglo Irish Bank and INBS [Irish Nationwide] which will address the issue of burden-sharing by subordinated bondholders.?
The Minister said reinforcing market confidence in the country?s banking system was an urgent and immediate priority.
?Greater certainty on the final costs of repairing the banking system in Ireland will provide reassurance to investors on the capacity of the Irish State to accommodate these costs within the Government?s overall framework for the restoration of Ireland?s public finances to long-term sustainability,? he said in his statement.
In his statement earlier, Mr Lenihan moved to allay fears that the additional cost of the bank bailout would lead to more borrowing.
?Our ongoing cash funding requirements for these measures will be spread over more than ten years. Funding the banks in such a manner lessens the immediate impact on the Exchequer,? he said.
Mr Lenihan said the National Treasury Management Agency would return to the bond markets ?in the normal way? in early 2011. However, the remaining auctions for the rest of the year are being cancelled, due to high bond yields.
?It is true that the NTMA do not propose to conduct auction in October and November and that is because the inter rates are so high, and we are funded until the middle of next year," he said.
Mr Lenihan said it would give the markets time to digest today's news, and also for the country to demonstrate the credibility of its fiscal track.
"What is important now is that our banking strategy is now brought to completion, as it is, and the budgetary position is made clear."