Mansergh warns of default's 'cataclysmic consequences'

SEANAD REPORT:A DEFAULT by Ireland on bondholder debt would be disastrously irresponsible and would have totally unpredictable and cataclysmic consequences, Minister of State at the Department of Finance Martin Mansergh warned in response to calls for such a step to be taken.

It would involve a breach of faith and would raise the question of why anyone should trust any Irish government.

Dr Mansergh said that those who argued in favour of a default, such as Financial Times columnist Wolfgang Münchau, in yesterday’s Irish Times, never spelt out in anything other than the vaguest detail what the consequences would be.

Such “outside” commentary should be discounted, he believed, because its proponents had different interests and perspectives.

When this approach was advocated from inside our community there was an equal onus on those favouring it to spell out the consequences.

Dr Mansergh was referring to the view expressed by Shane Ross (Ind), that in the recent negotiations with the IMF/EU institutions we should have been prepared to indicate our willingness to default and to take the consequences. He could not understand how this vital stratagem had not been deployed.

The main European powers might have said, “hey, you can’t do that. We’ll fix you up somehow.” No convincing evidence had been adduced that defaulting would hurt us nationally.

He did not believe it would cause Intel, Google and other such enterprises to flee Ireland. It was strange that the idea of not paying senior bondholders would be acceptable from 2013, but not at present.

He doubted that the Spaniards, the Italians or the Portuguese would put up with the kind of treatment that had been meted out to us.

Responding to the contention of Ivana Bacik (Lab), that the adoption of the IMF/EU plan would require a Dáil vote, Dr Mansergh said that lawyers had broadly supported the Government’s argument, in contributions to The Irish Times.

Deputy Seanad leader Dan Boyle (Greens) said he thought the Government’s growth projections were ambitious.

He believed that the rate for 2011 could not be taken as the average rate for the three- to four-year period. He accepted that, given the set of circumstances that had arisen, what we were facing did constitute a humiliation.

Marc MacSharry (FF) said he regarded as laughable in the extreme the IMF suggestion that there needed to be public sector pay cuts if the Croke Park agreement was not realised within the next nine months.

There should be public sector pay cuts if the necessary changes in work practices were not made immediately, he said.

Those in the lower pay grades should be protected but the “sacred cows” above a certain pay level needed to face up to the reality of the need for a downward adjustment.