EU says low growth will blow €5bn hole in State's finances
Published 14/02/2011 | 05:00
THE European Commission has warned that low growth rates over the next four years could knock a €5bn hole in the country's finances.
The commission has previously published growth forecasts which were much lower than projections from the Department of Finance but has never said publicly what this might mean for Ireland's debt problems.
Yesterday it was revealed that commission officials believe the Government will have to cut an extra €5bn from the country's budget if the economy grows as slowly as Europe fears.
European officials have clashed with officials from the International Monetary Fund about how much the Government should be forced to save in return for a bailout.
Officials from the IMF, which is less concerned about EU deficit targets and more interested in growth, argued successfully that the Irish economy was simply unable to sustain bigger spending cuts on top of the €15bn which both the IMF and European Commission are demanding.
The warnings that Ireland must slash another €5bn from state spending if we are to reduce borrowing to 3pc of gross domestic product by 2014 were contained in an unpublished report presented to Commissioner Olli Rehn last November.
It was this pessimism about Ireland's ability to reach the 2014 deadline that encouraged the commission to extend the deadline to 2015.
So far, both the Government and Fine Gael have said that they plan to meet the 3pc target by the end of 2014.
Labour has said that it wants to extend the deadline to 2016 -- one year longer than the EU currently allows.
Forecasting economic growth in a small, open economy such as Ireland's is remarkably difficult as exports, the main motor of growth, depend on currency fluctuations, oil prices and economic progress in our main trading partners.
The Department of Finance has argued repeatedly that its forecasts are more accurate than those of most outside observers but no set of forecasts over the past decade have captured the size of the boom or the bust that followed.
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