THE European Commission will not object to Ireland’s massive budget deficit this year, but will hold the country to reducing it dramatically over the next four years
A spokesperson for the body tasked with ensuring euro area rules are kept described Tuesday’s emergency budget as “decisive, broad-based action in very difficult economic circumstances”.
Under the Stability and Growth Pact no euro member’s budget deficit should be more than 3% of GDP. Ireland said in January it would reach 9.5%, but revised this up to 10.75% in the budget.
The spokesperson said that the reality is that forecasts are being continually reviewed worldwide in this time of economic crisis.
“We cannot avoid this and the key to restoring stability to national finances is to take measures that will lay the foundation to have the deficit corrected by 2013,” said spokesman Mark English.
There were fears that if the EU insisted on the Government meeting its original estimate of a 9.5% deficit, the country would be reprimanded at the end of the year, which would further undermine confidence in Ireland economy.
Now, however, when the EU’s recommendations to Ireland on correcting its budget deficit are finalised before the end of the month the only figure likely to be mentioned is the return to a deficit of less than 3% by 2013.
The adjustment will be formally made in the May economic forecast from the European Commission when a host of other countries are expected to join Ireland with an even greater decrease in growth and exploding budget deficits.
The Government has until October to submit a full plan to the EU outlining exactly the measures it will take to bring the budget back into line, including taking into account recommendations such as broadening the tax base and turning the levies into permanent tax.
The national debt — for a long time one of the EU’s lowest — is now expected to rise to 59% of GDP, just less than the upper limit for euro area countries of 60%.
The Government also discussed the setting up of the bank toxic assets scheme and the establishment of the National Treasury Management Agency with the Commission in advance of Tuesday’s announcement.
The scheme, to spend up to e90 billion buying bad loans from the main Irish banks, must not breach state aid rules. Competition spokesman Jonathan Todd said: “They have kept us in the loop and they are to notify us of the details at a later stage.”
Elsewhere, the New York Times described the harsh budget measures as a reaction to the country’s “spectacular decline” from the Celtic Tiger era “driven by bank lending and property speculation”.
The Financial Times referred to the hike in taxes on the middle classes and Mr Lenihan’s mention of Ireland’s rejection of the Lisbon Treaty in his speech.
The Daily Telegraph described the budget as the harshest in the history of the State and referred to the Mr Lenihan’s “funereal speech”.
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