Government told stick to bailout plan

The Government should stick to the commitments made under the bailout programme, according to the European Commission’s director general of economic and monetary affairs, Mario Buti.

Mr Buti did not make any specific mention of October’s budget but did note the challenges facing the Government’s fiscal position.

“Ireland has made considerable strides towards putting public finances on a more sustainable footing, but the fiscal deficit remains large and the debt ratio high. Other challenges to public finances such as weak growth and an ageing population still loom.

“The authorities should continue to stick to their outlined course, and thereby continue to honour the commitments under the financial assistance programme, in a way that is as equitable, durable and growth friendly as possible.”

The Government had agreed a €3.1bn ‘consolidation package’ in the budget in order to reach a 5.1% fiscal deficit in 2014. But Tánaiste Eamon Gilmore has advocated an easing up on fiscal tightening because the Government is on target to exceed the budget deficit target for this year. The ECB, IMF, and commission have all warned against any reduction in budget cuts.

In a wide ranging speech made at the Institute of International and European Affairs in Dublin yesterday, Mr Buti commended the Government’s efforts to restore competitiveness and acknowledged the return to growth in the last quarter.

Overall, the recovery both in this country and the eurozone remains fragile and could be blown off course unless three key objectives are met — banking union; structural reforms; and a differentiated fiscal stance.

Mr Buti highlighted the ongoing problems of financial fragmentation and the challenges SMEs face in securing access to funding. He argued that a banking union had to be implemented in full, including an effective bank resolution regime.

There has been considerable differences between the German government and the commission over banking union proposals, with Berlin favouring a more gradual, piecemeal approach.

The EcoFin commissioner said there had been advances made in structural reforms in Ireland and across all eurozone countries.

He warned that labour costs be kept in line with productivity growth, and encouraged stronger competition in products and services across the region. He also wants member states to concentrate on innovation and moving their economies up the value chain. It is crucial, he said, that countries get their debt levels and fiscal positions in order, although allowances should be made for the pace of adjustment based on each member state’s flexibility.

“Ireland has been leading the way for vulnerable countries with its commitment to adjustment and staying the reform course, and the country’s efforts are paying off with a return to growth and renewed investor confidence.

“But it is not yet time to rest on our laurels. Instead, we must continue to work so that the vicious circles that have marred the euro-area economy in the past are turned into a powerful virtuous circle where growth feeds confidence and confidence further underpins the recovery. If we relax our efforts now, the hard-won gains achieved up to now will be lost,” he added.