European Commission ‘may force more austerity on Irish State’

Ireland may face years more of damaging budget cuts because of the European Commission’s erroneous way of calculating structural deficits, a leading economist has said.

Willem Buiter, Citigroup global chief economist, said Ireland may have to implement unnecessary austerity measures because the European Commission calculated Ireland’s structural deficit using a population estimate taken from the height of the economic crisis, when emigration levels were rampant.

“It completely underestimated the elasticity of the Irish labour market,” said Mr Buiter. Over the past two years, the economy has rebounded strongly, which has led to net migration narrowing significantly. Mr Buiter, formerly a member of the Bank of England’s Monetary Policy Committee and a lecturer at Yale University, expected Ireland’s growth rate to be the highest in the EU for the foreseeable future.