Ireland has met all the economic conditions imposed on the country in return for its €85bn bail-out package – but the country still faces major challenges, the European Commission said today.
In a report on the performance of all member states under increased monitoring powers in the wake of the economic crisis, the Commission says Ireland met its fiscal deficit target last year, beat its target for cutting bank debt, and returned to “modest” growth.
But the country still faces unemployment of 14.3% this year and is exposed to risks in the rest of the euro area and the chance of extra pressure on the domestic budget from weaker economic activity than anticipated.
The report says the EU-IMF “Economic Adjustment Programme” Ireland agreed as the price of a bail-out is designed to restore the confidence of the financial markets in the sustainability of Irish public finances and in the Irish banking sector. That should lead to a return to robust economic growth and market funding, acccording to the report.
“Ireland has made significant progress in programme implementation, but major challenges remain” it says.
“All the programme’s conditions have been met, and available information suggests that the policy conditions associated with future reviews are also broadly on track to be met.
“Key challenges and risks in the period ahead relate to the adverse external environment and in particular the risk of unfavourable developments in the euro area; increasing related challenges to bank deleveraging and funding; the complexity of the reorganisation of the financial sector; and possible pressure on the budget should economic activity prove weaker than anticipated.
“To minimise vulnerability, it is essential that the programme continues to be steadfastly implemented.”
Last year, Ireland returned to “modest, export-driven growth” of 0.7%. Employment fell by 2.1% in 2011 as a whole, but grew by a seasonally adjusted 0.6% in the final quarter of last year. Unemployment is expected to reach 14.3% in 2012.
The report says: “By 2015, Ireland plans to reach a deficit below 3% of GDP. The recapitalisation of domestic banks has for the most part been completed.
The deleveraging of domestic banks exceeded the programme’s targets for 2011.
“Sheltered sectors of the economy are being opened up with the publication of several reform bills, while steps are being taken in retail sector and to strengthen competition law enforcement.”
But the report warns: “Beside the adverse external environment and in particular developments in the euro area, major short- and medium-term risks relate to obstacles to bank deleveraging and funding to the complexity of the reorganisation of the financial sector; and to the fact that economic activity may prove weaker than anticipated, putting pressure on the budget.”