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EU wants our next Budgets to focus on reducing debts

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IBEC said families should be 1% better off due to the Budget

IBEC said families should be 1% better off due to the Budget

IBEC said families should be 1% better off due to the Budget

The European Commission and European Central Bank have said that any leeway in the next two budgets should be used to pay off debt, rather than to ease up on households and businesses.

Officials from the Commission and the IMF were in Dublin this week on a four-day so-called "post-programme surveillance" mission.

In a statement released at the end of the trip, the officials said this year's budget deficit is set to be slightly above the most recent budgetary forecast of 3.7pc of gross domestic product, but still well inside the original target to reach 5.1pc in 2014.

"The economic situation has continued to improve in Ireland since the end of the EU/IMF financial assistance programme, with the recovery broadening," the EC and ECB said.

Growth rates of 4.6pc this year and 3.6pc in 2015 are projected, but officials raised concerns about the export sector, which could be hit by a sustained slow down in the Euro area, which is drifting dangerously close to recession.

Earlier in the week, sources close to the Commission told the Irish Independent that they were concerned that changes to the Irish Water model announced this week could hurt efforts to get the deficit below the Troika's 3pc target in 2015.

In their official statement, the Commission and ECB said they do expect the deficit to fall below the 3pc target, but warned ministers here to be on the alert for potential slippage: "The Government needs to stand ready to adopt additional measures to address potential future fiscal risks."

They also recommend cutting the deficit faster in order to cut the national debt - much of it owed to EU rescue funds.

"More ambitious deficit targets for 2015 and 2016 would help to bring the still very high government debt-to-GDP ratio firmly on a downward path."

In the housing market, they blamed the combination of rising demand and lack of new supply for pushing up prices rapidly, especially in Dublin.

Loose credit was not cited as a factor in the price hikes - although the statement made a note of the Central Bank's plan to cap mortgage lending.

Sources close to the Commissions had indicated broad support of the Central Bank's plan to cap most mortgages at 80pc of the value of a home, seeing it as a response to the previous credit bubble.

Away from progress on the financial and economic fronts "structural reforms are progressing at varying rates," the statement said.

The Government's slow progress in liberalising the legal profession, specifically by allowing solicitors and barristers to work for a single firm, was also on the Troika agenda this week.

"Enactment of the Legal Services Regulation Bill will not take place as planned in 2014 and the establishment of multidisciplinary practices faces increased uncertainty," according to the end of mission report.

Irish Independent