Rehn: €15bn cuts may not be enough

CUTS deeper than the €15 billion already on the way may be needed if Ireland’s slump economy fails to grow fast enough, EU Commissioner Olli Rehn signalled last night.

As the country’s debt crisis worsened with borrowing rates hitting a record high on international money markets, the EU economics supremo insisted taxes must rise and called for greater political consensus to stabilise finances and restore foreign confidence.

Asked if the four-year €15bn austerity package would be enough to balance the books, Mr Rehn warned it was “feasible” but depended on growth rates remaining on track. “I find it is important that, at the same time, there is sufficient flexibility to take further actions if needed in case the growth scenarios will not materialise as expected.”

As some Government backbenchers pledged to vote against any pension cuts in the looming budget, Mr Rehn insisted the front-loading of €6bn worth of spending decreases and tax hikes next year was “essential”. While Mr Rehn tried to talk up the “formidable” strengths that remain in the economy, he warned we would lose our low tax status and become a “normal tax country” over the next decade.

Mr Rehn said Dublin had not requested EU emergency bailout funds, but ducked questions about Europe’s attitude if Ireland failed to hit the target of getting the deficit down to 3% of GDP by 2014. “It’s better not to paint the Devil to the wall unless you know you can wash it out from there,” he said at a joint press conference with Finance Minister Brian Lenihan.

While Mr Rehn would not be drawn on the public service, he said “reforms of the labour market” were needed. The commissioner’s intervention came as the cost of the country’s borrowing hit a high of 8% for 10-year bonds. Mr Lenihan said Dublin had raised concern with France and Germany over how comments from Paris and Berlin were impacting on the markets.

Though Ireland is fully funded until the middle of next year, strong and persistent market doubts about the country’s ability to pay back debts may halt plans for a return to the bond markets in January.

Mr Rehn, who said he was briefed on the Irish political situation at least once a day, insisted cross-party consensus was needed to bring clarity to the markets and strengthen confidence.

The economics and monetary commissioner is to push that message again today as he meets opposition leaders, but Social Justice Ireland director Seán Healy said the EU commissioner had “insulted Ireland’s poor and vulnerable people” by refusing to meet with him.