EU chief: No immediate breathing room for Ireland

THERE are signs that the great recession stalking the global economy has bottomed out but there will be no immediate breathing room for Ireland, the EU’s economy chief, Joaquin Almunia has said.

Next week Mr Almunia will initiate action against Ireland over its excessive budget deficit — estimated to reach 1% this year — and tell the Government what he expects them to do about the exploding public debt.

He has indicated he will give the country as long as it says it needs — possibly five years — to rein in the budget deficit to less than 3% of GDP.

But the Government must show that its finances can be sustainable in the medium to long term to restore confidence, and abiding by the rules of the eurozone Stability and Growth Pact would achieve this, Mr Almunia said.

“We cannot solve our problems without taking care of the medium to long-term financial sustainability... If we send the message that our public debt levels are out of control, that will destroy the confidence needed to sustain demand and investment,” he said.

Even though Ireland had low debt levels before the crisis erupted last year, this has changed dramatically and the country’s room for manoeuvre economically had more or less disappeared, partly due to the comprehensive underwriting of the banks.

He also warned that countries like Ireland and Spain that built part of its prosperity in the past on property and financial services would have to find alternatives for growth in the future.

“Financial sector will not support growth in the future as it has in the past because of the excess of leverage and the imbalances,” he said.

Mr Almunia stressed that key to getting through the crisis was social dialogue and national welfare systems providing essential support and retraining to those who lose their jobs.

It was too soon to assess the effect of the actions taken so far, including the EU’s €400bn stimulus package but there were some positive initial signals.

Asked if he believed the crisis had reached its bottom, he said: “I think so, I hope so.”

Mr Almunia said reports of deep divisions between the US and the EU was incorrect. The US Treasury secretary Tim Geithner had commented to him that nobody would have believed a year ago that such a degree of consensus could be achieved.