EU criticises state for over optimism on growth

THE Government should stand ready to make more budget cuts and raise taxes, European Union finance experts have warned.

They have criticised Ireland and a number of other countries for being dangerously optimistic about the rate of growth over the next few years.

This is bad news for the Government and for the credibility of the Irish recovery strategy that has seen spending cut by huge amounts and extra levies on workers’ pay.

The Government has predicted a return to growth in the second half of this year. They believe the economy could grow by an average of 4% a year from 2011 to 2014 – much higher than what is predicted for the rest of the EU.

This is an important element in their calculations that see them reducing the budget overrun from -11.6% this year to below -3% in four years’ time as demanded by EU rules.

But the return of emigration with more people leaving the country than coming in and the higher costs of financing the huge borrowings to run the state and bail out the banks, the EU believes will slow down growth.

They warn the state runs the risk of overspending and say more work is needed to cut the cost of employment to increase workers productivity and the country’s competitiveness.

The EU has also told the Government it wants more details of how it intends to achieve the cuts in debt and bring the budget back under control.

They single out pensions and emphasise they must be reformed if the state’s finances are to become healthy in the longer term.

The Minister for Finance in a statement said, in line with all other member states, details will only be announced in each year’s budget that will take account of the economic circumstances existing at the time.

The commission published its assessment of 14 countries stability plans yesterday as part of their regular oversight of the EU Stability and Growth Pact. The plans of the remaining 13 will be assessed next week.

The Economic and Monetary Affairs Commissioner, Olli Rehn, said most countries had overoptimistic growth assumptions so the state of their budgets might be worse than expected.

The reports comes as the Government continues to engage with the trade union movement in an effort to negotiate an end to the ongoing low-level industrial action.

The comments from Europe will strengthen the Government’s hand as it seeks to deflect efforts to reverse the pay cuts imposed in December’s budget.