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29th Mar 2024

ECB urges Greece to follow Irish example

  • The Irish department of finance has made some tough decisions, with more on the way (Photo: EUobserver)

European Central Bank (ECB) chief Jean-Claude Trichet has urged the government of Greece to follow Ireland's example of taking tough decisions to bring its budget deficit down.

Forecasts suggest both countries will run deficits close to 12 percent of GDP this year, the highest amongst euro area members. The figures compare poorly to an EU average forecast of 6.9 percent.

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The Irish government has won praise in financial quarters however by taking a number of drastic steps to tackle the problem, including an emergency budget in April that doubled income tax surcharges and slashed spending.

"In Greece and Ireland we are in a situation which is particularly demanding," Mr Trichet told MEPs in the European Parliament's economic committee on Monday (7 December).

"In the case of Ireland very, very tough decisions have been taken by the government and rightly so," he said. "And I am confident that very difficult and courageous decisions will be taken in Greece too."

Greece caused widespread alarm in October when the newly installed Socialist government announced a large upward deficit revision compared to previous projections put forward by the former centre-right government.

Commission forecasts suggest both countries are headed for "business as usual" deficits in excess of 12 percent next year – assuming a lack of new budgetary measures.

However the Greek government hopes that new measures contained in its recently announced budget for 2010 will bring the deficit down to 9.1 percent for that year. The commission and EU finance ministers have indicated they will be monitor proceedings closely.

"The problems in Greece are problems of the euro area," the EU's economy commissioner, Joaquin Almunia, said recently.

The exact measures that need to be taken in the southeastern European country "are commanded by the situation," indicated the central bank chief on Monday.

Question of confidence

The Frenchman - whose term at the euro area's monetary helm is due to expire in 2011- indicated that restoring public confidence was crucial to recovery.

"For all countries without exception, it's extremely important to be able to reassure your households, your corporate businesses that you have a sustainable strategy for your public finances," he said.

For its part, Ireland's embattled government is expected to deliver the harshest budget in a generation this Wednesday, making €4 billion in spending cuts as part of a four-year program to cap its soaring debt.

The ruling centre-right Fianna Fail party is already the least popular in modern times.

Public servants staged the biggest strike in at least three decades last month, with about 250,000 workers protesting against plans to cut pay.

'Swiftly dial back' interest rates, ECB told

Italian central banker Piero Cipollone in his first monetary policy speech since joining the ECB's board in November, said that the bank should be ready to "swiftly dial back our restrictive monetary policy stance."

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