Donohoe warns jobless will hit 22%, and debts will cost us dear

UNEMPLOYMENT could peak at 22% and GDP may fall by more than 10% this year, Finance Minister Paschal Donohoe has said.

He also warned that the current low interest rates will not last forever, saying we’ll have to pay back our borrowings at a higher interest rate.

‘When that normal changes – if you have a national debt of well in excess of €200billion – change in those interest rates can have a very significant effect on the day-to-day operation of the Irish State,’ he warned.

Mr Donohoe told the Institute of International and European Affairs yesterday that the country’s current level of borrowing will have to be either paid back or refinanced at a higher interest rate in the future.

He warned about Ireland’s rising debt levels during the Covid-19 crisis.

‘To respond back to this, the Government has already committed exceptional financial supports for workers and businesses, amounting to €13.3billion, or 7.5%, of gross national income,’ Mr Donohoe said.

‘We have been able to act decisively and proportionately because we managed our public finances with care in recent years.

‘And there is a clear reminder to us from our recent history. Some appear to be arguing that we make the same mistake about public debt for Ireland as was made about private debt a decade ago.

‘The low interest rates of today will not be the low interest rates of forever. That which is borrowed now will have to be either paid back or refinanced at a higher interest rate in the future.

‘The foundation of our economic stability is paying for our living standards – and our public services – ourselves. Central banks and savers in other countries will not pay for this decision.

‘So, over time and as our economy grows, we need to reduce our borrowing.’

Mr Donohoe added that, given his role in setting policy, he would not be drawn into revealing views as to when and how he expects interest rates to change.

And he said that what is currently in place is not going to become the norm.

‘This has happened to us twice before in my lifetime and I’m very determined that we get the balance right between avoiding that risk of developing again, while at the same time borrowing the right amounts of money that we’re going to need to protect incomes here, and restart our economy,’ he said.

‘That is a balance that myself and the Taoiseach are committed to identifying and then trying to implement.’

The minister also said there is a need to ‘reassess’ the balance between the efficiency of supply chains and its resilience.

He referred to EU commissioner Phil Hogan’s call for greater ‘strategic autonomy’ in areas including the production of medicines and medical devices.

‘And amidst this change, Ireland will, again, identify strategic opportunities and pursue them,’ Mr Donohoe said.

‘I recognise that this potential for change is a significant development for Ireland.’

‘We managed our finances with care’