Vol. 407 No. 2
4 Mr. Noonan (Limerick East) asked the Minister for Finance if his attention has been drawn to the fact that Irish interest rates are the highest real interest rates in the EC; the steps he intends taking to put fiscal policies in place which will enable the Central Bank to reduce interest rates.
I am informed by the Central Bank, that real interest rates in Ireland as measured by the prime lending rate deflated by consumer prices are not the highest in the EC. For example, Irish prime lending rates, in inflation adjusted terms, are lower than those in Denmark and Belgium, and are approximately the same as those in Germany and the Netherlands.
As regards fiscal measures, the Deputy will be aware of the very considerable progress already made in reducing the Exchequer borrowing requirement and the debt as a percentage of GNP. This, together with the maintenance of a firm exchange rate policy within the EMS, has allowed us to make considerable progress towards reducing the relative level of Irish interest rates. To maintain this progress, the aim of fiscal policy will be, as set out in the Programme for Economic and Social Progress, to continue to reduce the national debt to GNP ratio towards 100 per cent by 1993 and, as part of this, to achieve broad balance in the current budget.
(Limerick East): Would the Minister agree that he is using the statistics to bolster a weak case when he is quoting prime lending rates? The overdraft rate in Ireland, which is the one that affects most people as the measure of interest rates, is the highest real interest rate in the Community. May I ask the Minister, in the area over which he has some discretion, the differential between Irish rates and German rates? Can he explain why the differential in Holland is .50 per cent, why the differential in Belgium is .75 per cent and why the differential here is over 2 per cent in circumstances when the three currencies are aligned to the Deutsche Mark?
It is not true to say that the differential is over 2 per cent here, it is about 1 per cent at the long end and a little more, perhaps 1½ per cent, at the short end. I would remind the Deputy that in 1987 the differential was 9 per cent. It has now been narrowed by the success of fiscal policies that have been implemented in the meantime to bring that differential down to what it is today, at about 1 per cent. It is true to say that there is a smaller differential between Holland and Belgium with the German Deutsche Mark. It is a matter for investors' confidence as to how they want to see the margin they believe they require. It is a matter for investors to decide into which economy they wish to put their money. The fact that borrowing has been reduced from between £2,150 million and £2,200 million in 1986-87 to about £460 million today is, indeed, responsible for the narrowing of the gap between our rate and the German rate, from 9 per cent then to about 1 per cent now.
A final and brief supplementary question from Deputy Noonan.
(Limerick East): Would the Minister agree that very high interest rates in Ireland are driving the economy into recession and are making it virtually impossible for the Minister and the Government to achieve the growth rates predicted eight or nine weeks ago in his budget speech and has the carry on effect of reducing tax buoyancy revenue?
I do not accept what the Deputy says about recession. The Deputy knows the definition of recession just as well as I do. The last two quarters show that no way is our economy in recession or heading for recession. What we are feeling is the effect of the general downturn in trade and economic activity throughout the world because of recessions in the British economy, the American economy, the Australian economy, the Canadian economy, or wherever. This is because we are an exporting country and because we must export £2 out of every £3 we produce. Inevitably, a downturn in foreign markets, or even in our nearest neighbour, the UK, where over 30 per cent of our exports still go, naturally will effect the Irish economy. The projection at budget time was for a 2¼ per cent growth in the economy. That is very far away from recession. It is hoped that the lack of confidence that existed in investment all over the world as a result of the Gulf War will now recede and that in the second half of the year we will be able to pick up again on activity where we left off before the Gulf War started.
