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Finance firm cautions of €2.6bn deficit hike for 2011

Official figures for Ireland's 2011 budget deficit could rise by €2.6bn once they are finalised in September, according to research by Glas Securities.

In April, Europe's official statistics agency Eurostat forced Ireland to reclassify €5.8bn of the €16.5bn spent recapitalising banks because it treated the money as part of the spending deficit, rather than as an "investment."

The decision increased the headline budget deficit for 2011 to 13.1pc of GDP from 9.4pc.

At the time Eurostat said it had a reservation even about that higher figure, adding that it would revise its views on cash injected into AIB and IL&P this summer, once restructuring plans are finalised for the banks.

Yesterday, Glas said that revision could see as much as €2.6bn added to last year's "headline deficit" if the agency believes the Government is unlikely to get the money back.


However, even a substantial revision of headline deficit would not damage Ireland's standing with the EU/IMF, according to Glas Securities' Michael Cummins.

That's because the targets in Ireland's four-year deal with the bailout lenders are based on managing down the "underlying deficit," a figure that excludes one-off costs including bank rescues.

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