The European Commission has told the Government to stand ready to intensify its austerity drive after warning that key assumptions underpinning its economic recovery plan may be too “optimistic”.
In a blunt assessment of a programme that already foresees €3 billion in new cutbacks and tax measures in 2011 and a further €3 billion in 2012, the EU executive says the plans for the entire 2011-2014 period should be strengthened to avert the risk that targets might be missed.
"As regards Ireland, yes, the scenario is assessed to be on the optimistic side. In particular in the outer years, the growth assumptions look quite optimistic to us," a senior Commission official told reporters.
Although the Commission says the Government should now set out the concrete measures it plans to take in the coming years, Minister for Finance Brian Lenihan said future measures would be decided only at budget time in the years concerned.
Following a stringent series of cutbacks in his budget this year, Mr Lenihan has expressed cautious optimism that the Irish economy is turning the corner after a wrenching contraction.
In a new review of his recovery plan, however, the Commission warns that the strategy from 2011 onwards "may not be consistent" with recommendations from the European authorities.
"In particular, the deficit targets for 2011-2014 need to be backed up by concrete measures and the plans for the entire period need to be strengthened to address the risks from less favourable GDP growth and slippages on the expenditure side."
The overall conclusion of a report prepared for economics commissioner Olli Rehn is that Ireland "responded swiftly and with determination to counter the widening of the government deficit". The "significant" size of the savings package for 2010 was broadly in line with the recommendation from EU finance ministers last December, it adds.
However, the report says the five-year strategy "may not be sufficient to bring the Government debt ratio back on a declining path by the end of the programme period" in 2014.
Given the likely need for further support measures for the financial sector, the report warns that the debt ratio could turn out higher than planned.
A Government spokeswoman said Mr Lenihan notes "a call in the report for greater detail" in respect of budget plans in the coming years.
"In this regard, the Minister has reiterated the Government's commitments in relation to the public finances and would remind all of the multi-annual plans that have been set out to ensure that our deficit is reduced," she said.
"He added that in line with other member states the specific budgetary measures for the years beyond 2010 would be announced in the context of the relevant Budgets and will of course take account of the then prevailing economic circumstances."
