IRELAND will need to provide evidence of its commitment to bring the budget deficit down to 3% by 2014, Economics Commissioner Olli Rehn said yesterday, to help safeguard the financial stability of the euro area.
The deficit is expected to jump to 24% this year from 14% last year as the full €20 billion for Anglo Irish will go on the bottom line.
Government officials, however, said they remain confident they can achieve the objective of cutting the deficit over the next three years since the underlying deficit is 11.5%, when the Anglo money is taken out of the equation.
Mr Rehn drew a direct parallel between countries like Ireland and Portugal tackling their financial and fiscal challenges, and the health of the euro.
He told the Economist conference in Berlin that: “The euro is back where it was before the crisis, the recovery has gained momentum and we are exiting from the crisis.”
But there was no room for complacency. “We must remain vigilant and continue our efforts to safeguard the financial stability of the euro area. In this sense I trust that countries such as Ireland or Portugal will continue to tackle with determination their respective financial and fiscal challenges”.
The commissioner berated US economist Nouriel Roubini, referring to him as “Dr Doom” for repeatedly predicting the demise of the euro and noting that he has extended its expected lifetime from one to five years recently.
Next week Mr Rehn will unveil his proposals for reinforcing the Stability Pact designed to protect the euro. Currently the emphasis is on curtailing budget deficits but he said in future debt levels will be given much more prominence.
Punishments for breaching the rules would be automatically applied, unless a majority of member states rejected them.
They would kick in at an early stage and gradually build up in severity.
Withholding EU payments with the possibility of losing them together with fines are believed to be part of his proposed sanctions.
Mr Rehn warned that Europe needs much stronger growth in the longer term if future challenges are to be met. Cutting spending and raising taxes will not be enough and would cause substantial social costs if growth remains under 1.5% as currently projected.
Reforms of pensions, labour markets, service markets and the completion of financial repair would all play a role together with structural changes to lift productivity and employment rates, he said.
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