European Commission may tell Ireland to further curb spending

IRELAND could be asked to make further cuts to government spending next month when the European Commission finalises its assessment of the country’s deficit and debt.

Spain and Portugal reduced their spending drastically last week when the EU said their spending was still too high and they were not reducing their deficits fast enough.

They are now going to halve their deficits to around 5% by next year following a mixture of tax increases and spending reductions such as pay and pension cuts and abolishing a new-baby bonus.

But Ireland appeared to be ignored by EU ministers, despite having the highest deficit in the eurozone and a forecast for about 10% next year – double that of Spain and Portugal. However, Economics Commissioner Olli Rehn indicated this could soon change as their attention turns to Ireland.

“We are certainly looking to Ireland and while Ireland took early and quite substantial measures to help bring down the spreads, there is a constant need to stay vigilant.

“Ireland will be one of the countries in focus. We are expecting fiscal consolidation,” he said following a meeting of EU finance ministers in Brussels yesterday.

In the past Ireland’s debt to GDP was well below the EU average at around 25% but following the crisis it is forecast to rise to more than 80% later this year.

In the longer term the Commission said last year that they expect it could go as high as 150% of GDP by 2020, exacerbated by an aging population as well as by deficit spending.

Ireland exhibited the effects of the crisis before most EU countries when the housing market collapsed and was the first member state to take drastic action to reduce borrowing.

The ministers also discussed the Commission proposal to have the broad outlines of their budgets assessed by the Commission and peer reviewed by ministers from the other member states before being finalised and adopted by national parliaments.