Ireland tops Greece with biggest deficit

IRELAND recorded the biggest budget deficit in the EU last year — well above Greece, which came second.

The EU figures include the cost of the bank injections and, as a result, Ireland’s deficit was 32.4% of economic output.

This news comes as Ireland plans net borrowings of €14.8 billion in 2011 and expects gross domestic product (GDP) to total €156bn.

This is according to a submission to the European Union, published yesterday.

Senior adviser with Ernst & Young, Marie Diron said the 2010 deficit data provides a “stark reminder” of the steep road ahead.

She said last year was a year of announcements while 2011 is the year when fiscal austerity starts being implemented in earnest.

“Fiscal austerity is one main factor behind our forecast of subdued growth in the eurozone. We know that it will hit growth in peripheral countries hardest and we forecast falling or, at best, stagnant GDP in these countries.

“But even outside the periphery, some countries need quite a drastic tightening of public finances,” she said.

The figures from Eurostat showed Greece having the second-biggest deficit at 10.5% of GDP, while Britain was third with 10.4%. Spain and Portugal recorded just over 9%.

Greece’s deficit went up to 10.5% of GDP as experts are increasingly anticipating a need for the country to restructure its massive debts, estimated at almost €330bn.

Greece’s deficit in 2009 was 15.4% and it had aimed to report a deficit of 8.1% this year.

However, the EU said that Greece’s budget deficit remains a “cause for concern” as the 2010 shortfall exceeded government estimates. Spokesman for EU economic and monetary affairs commissioner Olli Rehn said the figures were still a cause for concern, but they were improving.

He called the revision to the Greek figure “pretty routine,” noting that “there have been a number of corrections for a number of” EU countries. “It’s not because they have failed in what they are doing” to reduce the deficit, Mr Altafaj said.

“This is a normal process and it happens every six months,” he said.

Across the eurozone, the average deficit in 2010 fell to 6%, from 6.3% in 2009.

However, this is still double the notional permitted limit under an EU agreement, the Stability and Growth Pact, that is being rewritten to introduce financial sanctions for states that repeatedly breach shared targets.

Ms Diron said the figures highlight the “tight links” between the public and financial sector.

“Large contingent liabilities, worth 6.5% of GDP, imply that a worsening of the situation in the banking sector would imply significant costs to the public purse. One can imagine a vicious circle whereby a worsening in public finances has a negative impact on banks’ balance sheets which requires government bailout of some institutions which in turn worsens public finances further,” she said.

Ireland expects 2011 GDP to hit €156bn from 153.9% in 2010, according to the EU document, implying GDP growth of 1.34%.