THE EUROPEAN Commission has backed the outline economic plan published by the Government this week, but is set to seek further economic reform.
Markets remain unconvinced about the plan, with the interest rate on Government bonds remaining close to record highs.
Olli Rehn, European commissioner for economic affairs, will press for measures to improve competition when he travels to Dublin to meet Minister for Finance, Brian Lenihan, on Monday. Demands that Ireland increase its corporation tax rate are not expected to figure in the talks.
The commissioner wants to discuss all aspects of Ireland’s four-year economic plan in detail, said a spokesman. “It’s very important that this consolidation effort will be backed also by a structural reform.”
The spokesman would not be drawn on the precise “structural” reforms the commission wanted to put in place. Structural reforms usually refer to competitiveness-enhancing changes, such as the opening of sectors of the economy in which there is limited competition.
Support for the economic plan outlined on Thursday came yesterday from European commissioner for internal markets and services, Michel Barnier, and also the commission’s most senior civil servant, Irishwoman Catherine Day.
Mr Barnier expressed confidence the Irish economy could “bounce back” from its difficulties.
In Dublin to address the Oireachtas Joint Committee on EU Affairs, among other engagements, Mr Barnier said he could see light at the end of the tunnel for Ireland.
“My conviction is that Ireland has a lot of trump cards,” he said, referring to the educated workforce and Ireland’s ability to attract high-tech companies. “I personally am a very strong believer in your country.”
When discussing corporation tax issues with the committee, Mr Barnier dismissed fears that power to decide rates would be wrested from member countries.He said Ireland’s “huge budgetary efforts” were “very courageous”. Ireland is on a difficult path, “but it’s the right one”.
Ms Day, secretary general of the commission, told the Institute of European Affairs that heavily indebted European countries would not be allowed to “sink”. But she added euro zone member states would face much tighter scrutiny of their budgets, both from other member countries and the commission.
Taoiseach Brian Cowen, also speaking in Dublin, called on people to “look to our strengths rather than magnifying our weaknesses”.
In an upbeat speech, Mr Cowen emphasised the difference between Ireland and other so-called peripheral euro zone member states, which have been subject to what he called “the bond market attack”.
He said Ireland attracted 80 times the US investment in Greece and 23 times that in Portugal. “We are moving into a balance of payments surplus next year, which is unique among those that have high deficits in the euro area.”
The economic situation was “something we will have to manage over the next 10-15 years”.
Despite the commission’s support, the risk premium demanded by lenders to Ireland remained stubbornly high yesterday, as the announcement did little to assuage concerns that Ireland’s finances are on an unsustainable path.
The effective interest rate on Irish Government 10-year bonds was largely unchanged at about 7.6 per cent, some 5 percentage points ahead of the rate paid by Germany.
