EU has doubts about our ability to hit bailout targets
Published 11/02/2011 | 05:00
There is "considerable uncertainty'' over whether Ireland can hit the economic and banking targets included in the €85bn EU/IMF programme, an EU report on the bailout has said.
An overview of the plan and the reasons Ireland ended up in such a deep slump are examined in the report issued yesterday.
"While prudent, the macroeconomic and banking sector projections underlying the programme are subject to considerable uncertainty,'' the report states.
The chief worry is that growth comes in lower than current forecasts, with a lack of demand from consumers the main cause of concern.
If lending remains low this is likely to happen, say the authors. Low growth will produce "negative surprises'', the EU predicts.
The US and UK economies remain highly important for Ireland.
"With an export-led recovery being projected, growth prospects depend strongly on the outlook for Ireland's main trading partners, as well as on exchange rate developments,'' it states.
The report also raises a concern about the impact of inflation, saying that lower-than-expected inflation could be a significant blow.
"While lower-than-expected inflation would further support the economy's competitive adjustment, it would add to the real burden of debt. This could have negative implications for households with high mortgage debt,'' it states.
While the authors accept the key assumptions of the programme and say "national'' support for it is present, they emphasise there are unlikely to be any quick changes in sentiment towards Ireland.
"Market sentiment could also deteriorate were adverse developments in other euro-area member states to occur.
"Also, the new legislation on resolution and restructuring which has addressed the issue of burden sharing by subordinated shareholders could affect the price of new bond issuances,'' the authors write.
Ireland has no need to return to the bond markets until 2012 at the earlier, the EU said.
Just getting the reforms through will be the key challenge, it adds.
"The planned reforms are substantial, will take a number of years, and engage a wide range of stakeholders both public and private. An election in Ireland is now imminent and a change of government is very likely."