EU urges Ireland to maintain austerity
By Benjamin Fox
The EU commission has warned that the Irish economy is still vulnerable, urging the government to stick to budget austerity.
The warning is contained in a report published on Monday (23 June) by the EU executive assessing Ireland's economic progress six months after it exited its €78 bilion bailout in December 2013.
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"Ireland needs to continue with fiscal consolidation, reduce the private sector overhang, and further progress financial sector repair to safeguard and strengthen the momentum of the economic recovery," the paper says.
The report was based on findings from a four-day mission at the end of April.
Ireland was the first eurozone country to complete a bailout programme, and has been held up by the European Commission as an example of how to successfully implement an economic rescue.
"Irish authorities have so far consistently (over)delivered the recommended fiscal adjustment under the EU-IMF programme," the report notes.
Although Ireland's economy fell back by 0.3 percent in 2013, it is forecast to grow by 1.7 percent this year and 3 percent in 2015.
Meanwhile, unemployment, though high, has fallen from a crisis peak of 16 percent to 12 percent, and is forecast to fall to 10 percent next year.
It made a successful return to the financial markets, and sold €2.75 billion of 10 year bonds at a record low interest rate of 2.73 percent in May.
The Irish government also has cash reserves of around €21 billion which is expected to cover its financing needs for another two years.
With Ireland having had the repayment dates for its bailout loans pushed back until 2029, the report concludes that "repayment risks for the EFSM and EFSF loans are very low at present".
But despite being given a largely clean bill of health, the commission remains clear that there is no room for the centre-right led government to loosen the purse strings.
The Labour party, the junior coalition partner, is particularly anxious to move away from austerity policies following a disastrous performance in last month's European elections which saw the party lose all three of its seats and which prompted the resignation of Eamon Gilmore, the deputy prime minister and Labour leader.
For his part, finance minister Michael Noonan continues to resist demands by the EU executive to cut a further €2 billion from this year's budget, which the commission believes is needed to bring Ireland's deficit below 3 percent of GDP in 2015.
The commission warns against any tax or spending "giveaways" in the run to the next general election in 2016, noting that "the budgetary projections ... reveal no room for manoeuvre".