THE EUROPEAN Commission has told the Government that its projections for correcting the economy are too optimistic and the cuts may have to be more severe than planned. It has also called on Ireland to set out in detail the economic measures it proposes to take in coming years.
In a blunt assessment of a programme that already foresees €3 billion in new cutbacks and tax measures in 2011 and a further €3 billion in 2012, the EU executive says the Government’s plans for the entire 2011-2014 period should be strengthened to avert the risk that targets might be missed.
“As regards Ireland, yes, the scenario is assessed to be on the optimistic side. In particular in the outer years, the growth assumptions look quite optimistic to us,” a senior commission official said yesterday.
Although the commission says the Government should now set out the concrete measures it plans to take in the coming years, Minister for Finance Brian Lenihan said future measures would be decided only at budget time in the years concerned.
After a stringent series of cutbacks in his budget this year, Mr Lenihan has expressed cautious optimism that the Irish economy is turning the corner after a severe contraction.
In a routine review of his recovery plan, however, the commission warns that the strategy from 2011 onwards “may not be consistent” with recommendations from the European authorities.
“In particular, the deficit targets for 2011-2014 need to be backed up by concrete measures and the plans for the entire period need to be strengthened to address the risks from less favourable GDP growth and slippages on the expenditure side.”
The overall conclusion of a report prepared for economics commissioner Olli Rehn is that Ireland “responded swiftly and with determination to counter the widening of the Government deficit”. The “significant” size of the savings package for 2010 was broadly in line with the recommendation from EU finance ministers last December, it adds.
However, the report says the five-year strategy “may not be sufficient to bring the Government debt ratio back on a declining path by the end of the programme period” in 2014.
“The budgetary outcomes could be worse than targeted throughout the programme period, mainly due to (i) the fact that the consolidation efforts planned after 2010 are not underpinned by broad measures and are of an indicative nature only; (ii) the programme’s favourable macroeconomic outlook after 2010; and (iii) the risk of expenditure overruns in 2010 and also beyond, to the extent that the still to be spelled out strategy should rely on expenditure restraint.”
Given the likely need for further support for the financial sector, the report warns that the debt ratio could turn out higher than planned.
“It will be important to address the above-mentioned risks, by spelling out the measures underlying the consolidation strategy and adopting additional consolidation measures if growth turns out weaker than projected in the programme or if the risk of expenditure slippages materialises.”
A Government spokeswoman said Mr Lenihan notes “a call in the report for greater detail” in respect of future budget plans, adding that the commission made similar requests of other member states.