Brussels predicts State will miss four-year targets
THE European Commission (EC) expects the targets in the four-year national recovery plan to be missed.
Its latest forecast for the Irish economy sees lower growth in the next two years than the Government projected in the four-year plan.
The differences explain why Ireland was given an extra year, to 2015, to reach the eurozone borrowing limit of 3pc of GDP.
Sources say the EC believes a budgetary adjustment of €17bn would be required to meet the deadline by 2014, but the Government won the argument that to go beyond €15bn would be politically unacceptable and economically damaging.
The commission sees the deficit remaining above 10pc of output (GDP) next year. At 10.3pc, its figure is more than one percentage point higher than the Government's target of 9.1pc of GDP.
The explanation lies in growth rates, with the Government forecasting 1.75pc in 2011, but EC economists seeing expansion of less than one per cent.
The commission's forecasts run only to 2012 but, whereas the Government expects a strong recovery in that year, Brussels envisages growth of just under 2pc.
One small consolation is that low inflation means there is no fall in national income. But the commission sees consumers continuing to retrench in the face of the economic difficulties, with personal spending falling by 2.8pc in real terms over the two years.
"After the steep increase in 2009, the household saving rate is expected to decline only gradually over the forecast horizon," the report says.
Based on these figures, the commission expects the national debt to reach 114pc of GDP by 2012. This is close to the Government's "pessimistic scenario" of 111pc of GDP, with the deficit continuing to rise to 119pc of GDP by 2014.
Announcing the rescue package on Sunday, Taoiseach Brian Cowen stuck to the "optimistic" scenario, where debt peaks at 102pc of GDP in 2013.
Despite having a lower forecast, the Commission says there is "considerable risk" that the economy could be even weaker.
Meanwhile, the Irish Independent has learned that Ireland will be the first EU member state to introduce new laws on bank resolution, although it is unclear if the changes will give regulators the power to force holders of senior bank debt to share in the costs of a wind-down.
Government sources say the rules will not apply to Anglo Irish Bank.