Ireland is facing a very difficult recession which is worse than in the rest of the world, but its membership of the euro zone will help to mitigate the downturn, Finance Minister Brian Lenihan said on Monday.
Ireland was having a tougher time grappling with the recession than other countries, he said, adding that the effects of a domestic housing crisis had fed into its banking system.
“Ireland is facing a very difficult recession, somewhat worse than the rest of the world,” he told reporters in London. He added that tax cuts included in an upcoming Irish budget will not be in corporation tax.
Ireland is scheduled to announce a mini-budget next month as the country takes more measures to address the severe deterioration in public finances as the ‘Celtic Tiger’s’ economy slides deeper into recession.
But Lenihan said that the country is in a strong position to deal with the global recession as a member of the euro zone. “The advantage of euro zone membership is having the European Central Bank behind us,” he said.
Yet he added that the Irish economy was feeling the sting of a weak sterling, which is hovering in range of a record low against the euro.
“The penalty (of being in the euro zone) is the devaluation of sterling,” he said.
He said that Ireland’s competitiveness with the “sterling economies” had been reduced substantially due to the UK currency’s dramatic depreciation since the autumn, and that the Irish government would attend to that issue by keeping labor costs down. Still, he added that Ireland would not leave the euro zone and emphasized that the euro zone could not break up.
Lenihan also said that the Irish economy will contract 6-6.5% in 2009, reiterating comments made by Prime Minister Brian Cowan earlier this month, and added that unemployment would rise to around 12% by the end of 2009. That was in line with analysts’ forecasts. Cowan said earlier this month said that unemployment had risen to 10.4% in February. (Reuters)