EU is confident Budget cuts can reduce growing deficit
Published 25/09/2010 | 05:00
EU AUTHORITIES have reiterated their faith in the Irish Government's ability to make swingeing budget cuts next year to bring down the ballooning deficit by a 2014 deadline.
The comments come after CSO figures showed a 1.2pc dip in growth in the second quarter of the year, which could have knock-on effects for the public purse.
Speaking to the Irish Independent yesterday, a spokesman for EU economics chief Olli Rehn said: "We remain confident that the Irish authorities will take the necessary measures to meet the fiscal consolidation targets in the Budget next year."
The European Commission this month revised up growth prospects based on figures gleaned from the bloc's seven strongest economies, saying the EU could be in for a 1.8pc boost in output this year.However, its most recent forecast for Ireland said economic activity would remain subdued until 2011.
"We always said recovery was on track but fragile," the spokesman said. "And that there were a number of uncertainties that could have adverse effects."
He said the quarterly Irish figures would "change nothing" when it comes to the 2014 deadline. Mr Rehn singled out Ireland for special attention during a speech to economists on Thursday, saying the Government needed to sort out the banking sector and "substantiate its commitment to bring the public finances on a sustainable path by 2014". His comments come just days before he releases a crucial package of legislation to punish serial overspenders.
The proposals seek to impose a fine of 0.2pc of gross domestic product -- close to €300m in Ireland's case -- on countries that flout EU debt limits.
Under the bloc's existing rules, countries are in breach if they borrow more than the equivalent of 60pc of their GDP, but they cannot be fined for doing so.
Sanctions can be imposed on countries that break a 3pc of GDP deficit limit, but they have never been deployed.
Ireland is running a deficit of just under 12pc of GDP, although official sources say this will rise to 24pc once the cost of Anglo Irish Bank is taken into account.
The EU says gross debt will reach almost 80pc of GDP this year. The new rules also seek to introduce a fine of 0.1pc of GDP a year for countries in an "excessive imbalance procedure", where house prices, inflation or trade deficits stray from yet-to-be-defined norms.
The EU executive says it will gradually move to a system where EU funds are withheld from persistent offenders.
The proposals have been on the cards since the Greek debt crisis engulfed the 16-member single currency zone earlier this year.
A special taskforce of EU finance ministers, chaired by European Council president Herman Van Rompuy, will release its own report on fiscal and economic overhaul later next month.