AMSTERDAM (Reuters) - Throwing Ireland out of the euro zone or splitting the single currency area into a weak and a strong bloc should be ruled out as potential responses to Dublin’s debt crisis, the Dutch Finance Minister said on Tuesday.
“Throwing Ireland out of the euro is not a good idea, it would provoke a chain of unwanted effects,” Jan Kees de Jager told the RTL 7 television broadcaster.
“If you ... (allowed) southern countries to devalue, then this would hurt our exports and our economy.”
Investors in Irish banks will have to take haircuts as part of a restructuring of Ireland’s banking system, just like the country itself will have to pay dearly for outside help, he added.
The amount of public funds needed to clean up Irish bank was not yet known, but there would be no free ride for private investors.
“Shareholders and holders of subordinated bonds in Irish banks will have to bleed in a restructuring,” he said.
Dublin has already said it will intensify reforms of its banks and surplus businesses will have to be discarded.. Analysts said there was limited scope to sell assets.
De Jager said Ireland would need to cut spending but had to be careful about raising taxes. “It could be better to raise the VAT rate than the corporate tax rate,” he said.
Reporting by Marcel Michelson; Editing by John Stonestreet