Leadership

Europe gives Ireland extra year to reduce deficit

11.11.2009
As expected, the European Commission has today given Ireland an extra year to correct its budget deficit. This means that Ireland has until 2014 and not 2013 to whip its deficit into shape.

The decision came following a routine review by the European Commission under the excessive deficit procedures of the EU’s Stability and Growth Pact.

The pact requires EU countries to keep their budget deficits to 3pc of GDP.

The Commission also upped the time limit on budget deficit corrections by one year for the UK, Spain and France.

However, despite giving the Government some extra budgetary breathing room, the Commission urged it to press ahead with its targeted €4bn in public-spending cuts in the December Budget, and indeed to even do more to reduce its budget deficit.

The Commission is recommending that the Government ensures an average annual structural budgetary adjustment of 2pc of GDP over the period 2010- 2014.

This is a 0.5pc increase on the 1.5pc budget adjustment the Government agreed with the Commission last May.

The Irish Government should “accelerate the reduction of the deficit if economic or budgetary conditions turn out better than currently expected”, the Commission said, and should “seize every opportunity, beyond the structural adjustment, to accelerate the reduction of the gross debt ratio towards the 60pc of GDP reference value”.

The EU Economic and Monetary Affairs Commissioner Joaquín Almunia (pictured) said he believed the new deadlines proposed by the Commission are “appropriate and realistic".

EU raps Greece on the knuckles
In its examination of the budget deficits of EU states, the Commission concluded that Ireland, the UK, Spain and France were taking “effective action” in response to the European Council’s recommendations last April for the need for budget reductions.

However, it singled Greece out as not having taken effective action in reducing the size of its budget deficit.

Greece’s budgetary position in 2009 has deteriorated to -12.7pc of GDP, according to the autumn forecast, versus the -3.7pc committed by the previous government.

This deterioration, the Commission said, is “mostly the result of an insufficient response by the Greek authorities”.

Pictured: EU Economic and Monetary Affairs Commissioner Joaquín Almunia