–Adds more details, quotes

BRUSSELS (MNI) – Ireland’s current sovereign borrowing costs are
unsustainable, the country’s central bank governor and ECB Governing
Council member Patrick Honohan said Wednesday.

“I’ll readily say that the current rate is well above the rate at
which one would go back in [to the markets],” Honohan told lawmakers in
the Irish parliament in Dublin. His testimony is being broadcast live on
the Web.

It is “unsustainable and you couldn’t imagine them going forward,”
Honohan said.

“It’s pretty visible to everybody now that we have to jump to what
the lenders expect,” Honohan said. He acknowledged that “there will be a
damaging effect [from the cuts], but the damaging effect of attempting a
much lighter reduction in the deficit, particularly for 2011, I think
would not work, and would be more damaging.”

He said Ireland “will never get back to the yields of 2005, 2006
when just being in the Eurozone was enough,” because “the crisis has
exposed the scale of the risks that are involved and investors will want
to be compensated for that.”

Ireland’s borrowing costs have been rising sharply in recent weeks
as investors speculate that the country won’t be able to manage its debt
burden without outside help. Honohan said the only way for Ireland to
bring down the current record high spread on Irish debt was to convince
the markets that the country could manage its debt and shore up the
banks.

The costs of bailing out the banking system will push Ireland’s
budget deficit to 32% of its GDP this year. The Irish government has
committed to getting the deficit below the EU’s 3% limit by 2014.
Stripping out the banks, the deficit is expected to be around 12% this
year.

“I strongly endorse the Government’s decision to set out a
multi-year budgetary plan,” Honohan told a committee of lawmakers in
Ireland’s parliament, adding that he regarded the parameters of the plan
“as being within the credible range and a good basis for rebuilding
confidence.”

He said there is “no reason to believe” that the government won’t
achieve its deficit cutting targets, adding “this should be quite
viable.”

“The need to announce and implement a clear and fully specified
plan to bring the public finances onto a credibly convergent path of
debt dynamics is of the utmost importance in order to restore domestic
and international confidence and thereby unblock growth dynamics and
restore access at reasonable cost to international capital markets,” he
said.

Asked if the Irish government might have to tap the International
Monetary Fund for aid, Honohan said he didn’t think the IMF would impose
a plan that was very different from the current one and that the IMF
usually stepped in to correct policies that had gone awry.

“In this case, knowing where they are coming from, I would assume
that the IMF’s view on the policies that have been proposed by
government, that they would sign up to those, so I think…an IMF
package wouldn’t look that much different,” he said.

“Clearly this is a time of considerable risk and balance sheet
stress in Ireland,” Honohan said.

“Banks, households, firms and the Government have all been under
pressure and what will inevitably be a lengthy period of balance sheet
repair involving consolidation of net spending is in progress,” he
added.

–Brussels: 0032 487 (0) 32 803 665, echarlton@marketnews.com

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