ESRI warns Croke Park deal may have to be scrapped

THE Economic and Social Research Institute (ESRI) has warned the Croke Park agreement may have to be torn up as the economy faces massive cutbacks of €15 billion to correct the budget deficit.

That is twice the sum agreed by the Government and the EU Commission under the 2014 deadline.

In its latest economic review the Government think tank warns it has been forced to raise the question of the Croke Park deal and “if mandatory redundancies in the public sector might have to form part of the adjustments”.

If implemented over four years, the ESRI warns the swingeing cuts could turn out to be a “tipping point” for the economy.

Report author Ide Kearney said by that she meant unemployment could stay above 10% indefinitely if the economy gets stifled under the burden of budget cutbacks. In effect it could lead to a “protracted recession”, she said.

Over the next two years, unemployment is forecast to stay above 13% as consumer demand stays depressed.

Given the scale of the challenge, the ESRI said the timeframe to correct the deficit should be extended out to 2016.

Alan Barrett, co-author of the report, said an extension if granted by the EU could be achieved without damaging further our reputation with the markets.

Most of rating agencies and other economic experts do not believe we can get the deficit down to 3% by end 2014. Conversations between the ESRI and the rating agencies suggest not many people believe Ireland is going to achieve a 3% deficit within the agreed timeframe, Mr Barrett said.

He was not “convinced” Ireland would further damage its credibility with the markets if a longer adjustment time was negotiated with the commission to get back to within the EU guidelines. “We have grave doubts over the wisdom of the parameters of an austerity programme where such a high level of savings will be sought in such a timeframe,” he said. “We are deeply concerned with the austerity road which Ireland will have to pursue in the coming years,” he warned.

Due to the scale of the problems now emerging, the ESRI questioned the sustainability of the Croke Park agreement and warned that mandatory redundancies may have to form part of the large scale fiscal adjustment facing the economy over the four years.

It said the scale of the adjustment will require adjustment in current and capital spending and in taxation. Mr Barrett refused to say if the €4bn adjustment targeted for 2011 should be increased given the scale of the cutbacks on the table.