European Commission raises concerns over Irish debt and rising rents that could scupper economic recovery

The European Commission has issued a series of “early warnings” on potential pitfalls that could scupper Ireland’s economic recovery, a day after the government’s budget watchdog admonished its “imprudent” spending plans.

The Commission highlighted a number of areas of concern including the country’s continuing high level of public and private indebtedness and stuttering property market.

House prices, which have climbed 7.6% in the past 12 months despite the dampening effect of Central Bank lending rules, are singled out as one area of concern while issues in the rental sector are also identified.

Spiralling rents which are more than 10% higher than this time last year are also noted. “Recent [housing] pressures largely reflect supply constraints especially in large urban areas. Pressures are also mounting on the rental market,” the report reads.

The concerns over public and private debt follow another warning from the Commission and the European Central Bank last week that the Government should cut public debt faster while economic conditions allow.

Despite falling from a peak of 120% in 2012 to what is anticipated to be a gross government debt of below 100% next year, the European authorities are continuing to urge the Government to reduce the country’s “over-indebtedness”.

“Public sector debt as a percentage of GDP fell for the first time in 2014 but remains very high.

"A significant part of the drop in 2014 was due to technical factors but the downward trajectory is expected to be sustained.”

Private debt is also highlighted as a concern in the Commission’s Alert Mechanism Report as Irish households remain among the most indebted in Europe.

Despite the “persistent decline” in the unemployment rate since early 2013, the jobless rate continues to be a concern.

The Commission states that, along with its troika partners, the ECB and IMF, it will further examine the risks created by persistent economic imbalances.

The report follows the Irish Fiscal Advisory Council’s criticism of the Government which it said exploited a loophole to splash an additional €1.5bn on top of the planned €1.5bn of tax cuts and spending increases in October’s budget.