The Government’s economic recovery plan lacks detail and is predicated on overly optimistic growth forecasts, the European Commission warned today.
The comments were made in a report, published today by the Commission which formally initiated an excessive deficit procedure against Ireland and five other member states.
The report said the measures adopted by the Government were “adequate given the high deficit and a sharply increasing debt position” and were in line with the European Recovery Plan.
But it warned “the growth scenario is somewhat optimistic and the consolidation measures presently lack detail”.
The Stability and Growth Pact requires the Commission to prepare a report whenever the deficit of a member state exceeds 3 per cent of GDP.
The Commission’s report said the recovery plan was at risk from the measures in place to support the financial sector, in particular bank guarantees and the possibility of further capital injections or nationalisations of banks.
After more than a decade of strong economic growth, Ireland is now going through a severe recession, the report noted.
“The downturn was caused by the financial crisis, the sharp correction in the housing market and the recession in Ireland’s main trading partners, the US and the UK." it said.
"The combination of these factors has led to sharp deterioration of public finances, deteriorating from a small surplus in the Exchequer finances in 2007 to an estimated deficit of 6.3 per cent of GDP in 2008 and widening to 9.5 per cent in 2009,” it added.
The report urged the Government to limit the widening of the deficit in Government finances in 2009 “and specify and rigorously implement a substantial broad-based fiscal consolidation program for 2010 and beyond”.
It also called for a strict monitoring of budgetary targets throughout the year to limit the risks of adjustments.
Minister for Finance Brian Lenihan will get an opportunity to debate the reports with EU finance ministers at an informal meeting of finance ministers in Prague in April.
Yesterday, German finance minister Peter Steinbruck said Ireland may need assistance from other members of the euro zone. His officials later said he was “listing hypothetical options”.
