Euro chief Juergen Stark demands Ireland cuts more to meet bailout terms

Euro chief says cut more

By: PADDY CLANCY | Published Thursday, September 22, 2011, 3:50 PM | Updated Thursday, September 22, 2011, 3:50 PM

Government ministers have lashed outgoing European Central Bank (ECB) chief economist Juergen Stark for demanding that Ireland step up its already severe austerity program aimed at meeting its international bailout terms.

As pressure from Frankfurt stirred tension in Dublin several ministers and trade union leaders reacted with fury.

Stark’s comments, made hours before his shock resignation last Friday, heaped pressure on Taoiseach (Prime Minister) Enda Kenny and his coalition government of Fine Gael and Labor to go beyond the €3.6 billion in austerity measures planned for next year and put his government’s pledge to protect public sector wages under scrutiny.

Ireland has cut public sector pay by an average of 15% since 2008, but Stark said Irish and Greek workers were still better paid than their counterparts across Europe despite both countries being forced into emergency bailouts.

Kenny, elected to office in February, has vowed to honor the previous government’s pledge not to cut public sector pay again and avoid forced job cuts as long as unions agree to voluntary redundancies and longer working hours.

Stark, who remains on the ECB board until a successor is appointed, said the Irish government should be even more ambitious in cutting the public deficit ratio, which is still at double-digit level.

He said one needed to consider that other countries of the euro area provided financial support to Ireland, countries in which the wages of the civil service were significantly lower. He added, “This needs to be corrected.”

As soon as Stark’s comments appeared in a lengthy interview in The Irish Times on Monday, Tanaiste (Deputy Prime Minister) Eamon Gilmore, who is also minister for foreign affairs, said his government was “annoyed” at the call for cuts in public sector pay in Ireland.

Gilmore, who was in Brussels attending a meeting of foreign and European affairs ministers, said Stark’s remarks were unhelpful and that the troika of the European Commission, the ECB and the International Monetary Fund had not asked the government to push for public sector pay cuts.

“Inventing new agendas isn’t helpful,” Gilmore said.

Minister for Public Expenditure and Reform Brendan Howlin also dismissed the call by Stark for cuts in public sector pay.

In addition, Minister for Communications, Energy and Natural Resource Pat Rabbitte also warned against “too much austerity.” “You can come to a situation where you can have too much austerity, and that would appear to be the position he is advocating,” Rabbitte said.

Referring to the forthcoming budget, Rabbitte said €3.6 billion in savings would be “painful.”  He argued against “further depressing the economy.”

“There is no more low-hanging fruit, and an additional €3.6 billion euro, to which both parties are committed, will be extremely painful to try and secure. And I think arguments that we should further depress the economy because of an inflexible ideological position, is not the way to go,” he said.

Jack O'Connor, general president of Ireland’s largest trade union, SIPTU, said workers would not stand for Stark’s prescriptions.

“It's a good day for Europe that he resigned,” he said, "Stark is departing for “personal reasons,” but his move is widely believed to reflect his growing unhappiness at the ECB’s purchase of sovereign bonds.

However, his views on Ireland represent the position of the ECB which is a member of the “troika” that is overseeing Ireland’s bailout program.

Stark, the top German official in the ECB, argued that public sector pay in Ireland is too high by euro zone standards and should be cut to help restore order to the country’s public finances.

Any such move would bring down the Croke Park deal, which obliges the government not to cut public pay.

However, Stark said the government should consider from a political point of view that civil service pay in many of the countries supporting the Irish bailout was considerably lower than in Ireland.

He insisted the Fine Gael-Labor coalition had the benefit of a very strong mandate from the electorate and should take advantage of that to adopt a tougher deficit-cutting target in the 2012 budget.

Stark said, “I think the Irish government has the chance to surprise the market positively. We know that after a certain period of time there is always a risk of reform fatigue. The government should be even more ambitious in cutting the public deficit ratio, which is still at double-digit level.”

Although he insisted it was not for him as a central banker to call for social welfare cuts, he said entitlements should be examined. Reform of the welfare state was an issue throughout the euro zone. He argued that the need for adjustments to pension, health and unemployment benefit schemes was obvious.