Downgrade could cost the State €1bn, says Kenny

THE TAOISEACH dismissed a suggestion that the Government should stand down as the Fine Gael leader predicted that Ireland’s loss of its credit rating could cost the State up to €1 billion.

Enda Kenny said the cost of the downgrade by the Standard Poor’s agency could be between €200 million this year and between €400 million and €1 billion next year.

He asked Brian Cowen about the comment of the agency’s analyst that it did not trust the Government and the financial institutions. “The point made by the analyst is that the probability is that you have to have a change of faces behind the Cabinet table in order to restore some sense of trust and integrity and confidence in the Irish financial institutions and Government.”

Brian Cowen replied: “I have no comment to make in relation to the gentleman from the credit rating agency . . . other than to note that it is his job regarding credit rating. I don’t know what he knows about Irish politics or what the choices are.”

Mr Cowen said the important point to make was that the Government had, at every opportunity, reacted in the face of a deteriorating financial situation.

He said one broad agreement to emerge was a recognition that a structured deficit, of the order of 8 per cent, had emerged in the Irish public finance position.

Mr Kenny said the Taoiseach would have seen the “damning analysis” by Standard Poor’s.

“They argued that even if the global economy improves in 2010, Ireland is going to be left behind because of a seriously damaged banking system and a calamitous loss of competitiveness in the past five years.

“As a result, they say that there will be little or no growth in the economy before 2012, and we have been effectively demoted from division one of European economies.

“That means credit shortages, insurance indebtedness and, also, it means that it is going to be impossible, from that perspective, to export our way out of this particular recession.”

Mr Cowen said Ireland was not unique in that situation given that other countries had their credit ratings recently revised.

“A range of factors, both domestic and international, influence the ratings that countries attract.

“While we recognise that we have challenges here, particularly in relation to public finances and our banking system, the Government has been taking considered and deliberate action to stabilise and bring sustainability to the public finances for some time now.There will be further evidence in next week’s budget.”

Mr Cowen said Ireland was experiencing a very significant retraction in economic growth. While there was considerable pressure on the public finances, the State was coming to it from a position of relative strength because of the relatively low debt burden.

“While it will rise over the next few years, our debt levels should still be projected EU averages.

“It is worth emphasising too that many of the factors which facilitated Ireland’s economic success in recent years still remain.”