2010.09.2007:07:00UTC+00Ireland's Bank Guarantee Cost 'Manageable': ECB's Honohan

Ireland's cost of extensive guarantee of bank liabilities is manageable from the point of view of the national public finances and a good deal less than some alarmist commentary had suggested, Central Bank of Ireland Governor Patrick Honohan said on Monday.

According to Honohan, who is also a European Central Bank Governing Council member, the budget profile of the nation requires reprogramming to assure lenders. "Some explicit reprogramming of the budgetary profile for the coming years is clearly necessary soon if debt dynamics are to be convincingly convergent," he stated.

Recent movements in the yield spread on government debt, demonstrate the costs that can result unless international lenders remain convinced that the budget is going to be kept on a convergent path, as indeed the Government is committed to ensuring, Honohan said in a speech in Dublin.

If the economy stays close to the track as originally envisaged, he said, the deficit would come close to 3% by 2014. But as the International Monetary Fund and others have noted, the real economy, the price level and also interest rates on government borrowing, have evolved in a less favorable way. Further, servicing of the additional debt from the bank restructuring is another negative factor, added Honohan.

"It is important now to re-set the fiscal path to ensure a virtuous cycle of lower borrowing rates contributing to even faster fiscal adjustment and a lower overall cost of the adjustment to society at large," he said.

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