Belfast Telegraph

We must not be blinded by light at end of tunnel

By Brendan Keenan

An old colleague from long ago suffered under the nickname of the man who blew out the light at the end of the tunnel.

Even with that awful danger in mind, this is surely the time to remind you that our public finances are worse than those of Greece.

Yes, I know they are going to miss their targets, although one has considerable sympathy if they are missing the deficit/GDP target because GDP is less than it was meant to be, rather than the deficit being bigger. It seems to be a bit of both.

And I know that Greek statistics are distinctly elastic - unlike ours which are generally quite firm but often don't cover the things which most need covering.

Even so, the Greek misses are not so large, or the statistics so elastic, as to negate the fact that their public finances are better than ours.

The two statistics that matter most are among those one has to hunt a bit for in the published Irish data. It is easier to go straight to last week's estimates from the International Monetary Fund (IMF).

These put the actual public finance deficit - the difference between what is raised in tax and spent on services - at 1.3% of GDP in Greece this year - and 6.8% of GDP in Ireland.

The Greeks are not going to miss their target by anything like enough to make a significant difference to that gap. The surprising truth is that, on the public finances at least, we have a good deal more still to do than them.

The reason this seems a good time to point this out is precisely because of the light which some discern at the end of the tunnel.

Investors on the market are willing to buy the bonds of the Irish government at the lowest yields since the debt crisis began. There has been an inflow of corporate funds into the Irish banks.

There is also not much doubt now that growth will be positive in 2011, and might beat the IMF forecasts of 0.4% for the year. If it does, 2012 could improve on the Fund's 1.5% forecast for GDP growth.

Most importantly, and related to all of the above, is the impact of the deep cuts in the interest rate charged on bailout loans.

This should save up to €15bn over the life of the loans but it could have an even bigger impact if it enables Ireland to meet the deficit targets in the bailout plan earlier than the due date of 2015, or return to some cautious market borrowing in 2013.

All of which is to be greatly welcomed. They are not exactly green shoots - more a change in the weather. But they could start the process of turning round the fear and despair, still evident in the flight of ordinary deposits from the banks, into the beginnings of hope and activity. If so, it will be just in time. The IMF's accompanying Financial Stability Report contains the words, "It is essential to prevent these (bank) withdrawals from moving into a more virulent phase, as has happened in past emerging market crises".

The report was talking about the Eurozone banking system of which, of course, Ireland is the most stricken. The loss of funds is of the order of 17%, which compares, if you want to know, with 10% in the Greek banks.

It was a big warning in a short sentence, but endorses what has been said in these columns of the dangers in the official policy of pretending to be unworried about the palpable, and surely preventable, loss of confidence among ordinary folk in the safety of their high street banks.

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