The Department of Health will receive in excess of €2 billion from the exchequer to deal with the coronavirus crisis, it is understood, part of a fiscal cost that could reach €10 billion, insiders say.
While the Government announced an initial €3 billion allocation to deal with the crisis last week, sources familiar with discussions in Government say that Ministers agreed earlier this week that an additional €2 billion will need to be allocated to the Department of Health.
Both health and central government sources also expect that figure to rise, perhaps significantly, especially if the crisis continues through the summer, as indicated by Taoiseach Leo Varadkar in his televised address to the country on Tuesday evening.
In addition to these sums, a dramatic growth in the number of unemployed is expected to cost into the billions, while a sudden fall-off in tax receipts could cost a further €2 billion-€3 billion according to unofficial estimates within Government. All in, some informed sources believe that the total cost could be as much as €10 billion – and that is if the crisis lasts only a number of months, and not, as some fear, into next year.
Like other countries, Ireland will fund the costs principally through a dramatic increase in borrowing, which will lead to a large deficit this year, and consequent growth in the national debt. However, senior officials have been briefed by the National Treasury Management Agency – which manages the national debt – that Ireland is in a good position to borrow on the bond markets. A reasonably prudent fiscal position in recent years, allied to strong economic growth, has put the Government in a comparatively healthy position entering the crisis.
In addition, the announcement by the European Central Bank after an emergency meeting of its governing council on Wednesday night that it would launch a €750 billion bond-buying programme to shore up the European economy and stand behind the public financing needs of its member governments, was greeted with relief in Government circles, with one source describing it as an effective backstop for whatever the costs of the crisis turn out to be.
The move also calmed bond markets yesterday and was taken as a signal that the ECB was especially prepared to stand behind Italy, where the large national debt and turbulent politics have often made the country vulnerable to bond market jitters. The ECB’s commitment to buy the country’s bonds led to a sharp fall in the price of borrowing for Italy on Thursday following recent increases in borrowing costs.
The ECB move came after announcements in London and Washington that the British and US governments were also preparing huge fiscal provisions to deal with the costs of the public health crisis and to limit the economic damage. All over the EU, governments have been announcing massive increases in public spending to respond to the crisis, which will see a huge economic hit to the world economy. Irish Government sources are hopeful of a strong rebound in the economy when the crisis ends – though few are prepared to estimate when that will be.
