Minister for Finance Michael Noonan and Minister for Public Expenditure Brendan Howlin have met representatives of the troika of ECB, IMF and EC at the Department of Finance in Dublin today.
The talks, which lasted some 90 minutes, ended shortly after 5pm, with interest rates on Ireland’s bailout and corporation tax believed to be the main issues raised.
In new forecasts for the world economy, published yesterday, the IMF said it expects Irish gross domestic product (GDP) to expand by 0.5 per cent this year. The previous IMF forecasts on Ireland, published immediately after the bailout in December, had anticipated growth of almost twice that rate – 0.9 per cent – in 2011.
Speaking this morning Mr Howlin said the downgrade was not “completely unexpected” as the domestic economy is “vulnerable”.
Mr Howlin said because of the “straightjacket” the State is tied into by the EU-IMF deal, further deep cuts in public expenditure would be needed.
"The Croke Park process will be reporting next month so we will see what is achieved by that and if the targets are not achieved then we have to look again," he told RTÉ's Morning Ireland.
The Minister said although the Croke Park agreement has delivered public savings in the past, it “has to deliver more”.
He said there has to be an “understanding among the community” that the country is “in a dreadful bind” and it can’t be “business as usual”.
Following a special Cabinet meeting to begin the comprehensive spending review promised in the programme for government last night, Mr Howlin said the process would be completed in September before the annual estimates process.
One cost-saving measure departments will be allowed to explore is the outsourcing of non-essential activity to the private sector.
Mr Howlin said he had brought two memorandums to Cabinet last night; one dealing with a process to curtail current spending and the other with capital spending.
“I wanted it to happen early in the life of the Government so that people wouldn’t be captured by their departments and have to defend every line of spending,” said the Minister. The changes in the budget process approved by his Cabinet colleagues involve individual departments being given responsibility for coming up with savings by the end of June.
After discussion at Cabinet the broad shape of the spending cuts for 2012 should be clear by September, when the Cabinet will begin detailed consideration of departmental spending estimates.
Mr Howlin said the McCarthy report on savings to be made through the sale of some State assets and the abolition or merger of quangos will be brought to Cabinet next week, when savings of €2 billion would be sought.
In advance of the Cabinet meeting, Taoiseach Enda Kenny warned that further deep cuts in public spending are urgently needed.
Mr Kenny said it was vital that significant savings were achieved. As Ireland was now unable to borrow on international markets, there would have to be “real scrutiny” about how public money was spent in the future.
Mr Kenny said the IMF was on Ireland’s side over the cost of the €85 billion bailout loan.
“The IMF themselves have recognised the validity of the government’s call for a reduction in the interest rates, which would be important but which is only part of the evolution of discussions that are taking place here,” he said.
Mr Kenny said a department-by-department spending audit signed off by Cabinet last night would show how money is spent, reveal value for money and illustrate how effective it is.
The Taoiseach said it would ensure ministers are not left sitting at the end of November wondering what level of cuts they were facing or if they had achieved any value for money.
“I think that this is a serious change in the way that we look at the expenditure of taxpayers’ money in this country here,” Mr Kenny said.
Before the meeting, Mr Howlin said that further public service pay cuts could be avoided only if necessary savings were made under the terms of the Croke Park agreement. He said the public sector unions would have to accept that money was finite. “We can’t think in the old way. The status quo is no longer acceptable,” he said.
The Minister expressed the hope that the required savings could be achieved without the imposition of further pay cuts. “That’s the task I have set myself and the Government has set itself in the coming months.”
Two other Labour Party Ministers, Ruairí Quinn and Pat Rabbitte, also warned further public service pay cuts might be necessary.
Mr Quinn said pay cuts for teachers could be back on the agenda unless the Croke Park agreement delivered real savings. He said discussions with the teaching unions ahead of the Easter conferences would focus on the need to implement the agreement.