The European Commission has issued a stark warning to the government over its budget targets for 2015 and 2016, in an assessment of the Irish economy published today.

The European Commission’s country-specific recommendations for 2015 highlights the progress made by the Irish economy, but has reiterated its criticism of the budgetary targets set by the Government in its Spring Statement last month.

“Budget 2015 complies with the Stability and Growth Pact, but the 2015 and 2016 deficit targets could have been more ambitious given strong economic growth, and expenditure ceilings still need to be strengthened,” the Commission said. The EU has consistently argued that Ireland should use strong economic headwinds to pay down debt rather than increase spending. In its report, it says that further deleveraging in the public and private sector is necessary “to ensure that debt levels are sustainable and do not weigh on the growth prospects.”

“Further growth-friendly tax reforms, including broadening the tax base, would support the adjustment process,” it adds.

Ireland is one of three EU countries who were identified with macro-economic balances “which require decisive policy action and specific monitoring,” and remains in the EU’s excessive deficit procedure.

While the Commission has not publicly commented on the latest pay talks between the Government and unions which commenced yesterday, it is understood that the EU’s executive arm is concerned that pay rises for public service staff in Ireland could spill over into greater demands for increases in the private sector.

Highly placed sources said that the Commission considered that any such occurrence would be very worrying devleopment for the country.

It is understood that European commissioner Pierre Moscovici is likely to raise the issue of Ireland's "cost-competitiveness" during a planned visit to Dublin on May 25th.

Informed sources said that the scheduled pay restoration for about 300,000 staff in the public service had been raised by officials with the Troika at the last post-bailout visit which ended on May 1st.

Ireland is subject to greater EU scrutiny than most EU countries because of its three-year bailout.

The Commission’s lengthy analysis of the Irish economy also raises particular concerns about the Irish health system, noting the trend of persistent over-spending in health. It says that while spending pressures intensified at the end of 2014, healthcare budget overruns were not offset by savings in other areas as was the case in other years. warns that the country’s ageing population is also projected to increase health care and long-term care costs.

Noting that Ireland’s healthcare sector is “atypical among EU Member States” it says that public expenditure on healthcare in Ireland is comparatively high. However, “in spite of higher public expenditure on health, population health status indicators such as life expectancy and infant mortality are by and large no better than in the rest of the EU,” the Commission says, adding that “the number of hospital beds and doctors per resident is comparatively low.”

It also notes that “limited progress has been made towards reducing the cost of legal services.”