Friday 17 November 2017

Rehn urges Ireland to 'stay the course' as challenges remain

Sarah Collins in Brussels

Sluggish growth and a weak banking sector pose "major risks" to Ireland's public finances, the EU has warned the Government.

In a report issued as part of a Europe-wide budget screening exercise yesterday, the EU Commission said that while Ireland had made progress under its bailout programme, "major challenges remain".

The commission's economics chief Olli Rehn said Ireland should "stay the course and implement the programme" if it wanted to avoid being hit by the debt crisis gripping Greece, Spain and Italy.

"Even though it is painful often, at the same time it is also paying off because the Irish exports are growing and industrial production as well is growing, which has facilitated Ireland to recover and return to positive economic growth," Mr Rehn told reporters in Brussels.

But the report said: "Major short and medium-term risks relate to obstacles to bank deleveraging and funding to the complexity of the reorganisation of the financial sector; and to the fact that economic activity may prove weaker than anticipated."

This was on top of the dangers from an adverse external environment and developments in the euro area.

The commission says Ireland is on track to reduce its deficit to below the bloc's upper limit of 3pc of GDP by 2015, but predicts that the jobless rate will stick at 14.3pc this year, one of the highest levels in the EU.

The jobs shortage has led to "serious outward migration" from the country, the EU's employment chief Laszlo Andor said yesterday. "People have lost hope," he said.

The EU yesterday issued report cards to all 27 of its member governments, part of an ongoing drive to centralise fiscal and economic policy as the debt crisis bites.

"Sometimes there are difficult choices to be made," said commission chief Jose Manuel Barroso. "If you leave this to the member states, no changes will happen."

France and Spain were warned to make extra spending cuts or risk missing a 2013 budget deficit target, with Spain offered an extra year's grace as the government wrestles with the costs of bailing out ailing giant Bankia, formed from the merger of seven regional savings banks last year.

Mr Barroso called for a "banking union" to help deflect speculation against individual countries' banks and avoid costly government bailouts.

His plan includes a Europe-wide guarantee fund for bank deposits and powers for the eurozone's new bailout fund, the European Stability Mechanism (ESM), to inject funds directly into ailing lenders.

In a staff report on the eurozone published yesterday, the commission says that "to sever the link between banks and the sovereigns, direct recapitalisation by the ESM might be envisaged".

Mr Barroso is to press the issue at a June summit of EU leaders in Brussels, where he will also raise the idea of commonly issued eurobonds.

The Taoiseach has already backed the plans, which are also backed by Spain, France and Italy.

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