Draghi warns economy is vulnerable to overheating and hard Brexit

The ECB president says Ireland must build fiscal buffers to deal with the rocky road ahead

Draghi warns economy is vulnerable to overheating and hard Brexit

File photo of the ECB President Mario Draghi in Frankfurt, Germany, 25-10-2018. Image: Luo Huanhuan/Xinhua News Agency/PA Images

The European Central Bank is warning that the Irish economy is at risk of overheating – and would be among the hardest hit by a hard Brexit.

ECB President Mario Draghi is addressing the Oireachtas Finance Committee this afternoon.

He told the gathered politicians that the economy is performing well – but remains highly exposed to the risks of a no-deal Brexit.

“With negotiations ongoing and less than five months to go until the United Kingdom’s departure from the European Union, it is essential to prepare for all possible outcomes, including a no-deal scenario,” he said.

“While the direct trade effects of a hard Brexit would be limited for the Euro area as a whole - Ireland is more exposed due to its very close trade relations with the United Kingdom.”

He also warned that the risk of the Irish economy overheating remains, noting that it “would not be the first time” if it happened.

“The Irish economy has seen a particularly strong expansion in recent years. Ireland is now growing at the fastest pace of any euro area country,” he said.

“Unemployment has been falling too, and now stands well below the euro area average.

“This is all the more impressive given the severe crisis Ireland went through and the legacies it is dealing with, including high private debt and arrears.”

He said policies need to put in place to protect the exchequer and deal with “legacy vulnerabilities” in the system – especially the level of non-performing loans.

He urged the Finance Minister Paschal Donohoe to begin re-building “fiscal buffers” in the economy and noted that “it is a good time [to do it] because things are going well.”

At the outset of proceedings the committee chairman warned that questions should be about current and future challenges facing Ireland and Europe.

However, Sinn Féin finance spokesman Pearse Doherty and Solidarity TD Paul Murphy have been grilling Mr Draghi about the ECBs roll in the Irish bank guarantee over the past hour.

The committee hearing is continuing.