EU warning to keep spending within limits

IRELAND will have to keep its spending to the limits agreed with the EU, whatever the global economic situation, the EU’s economic and monetary affairs commissioner Joa-quin Almunia has warned.

country will be given the three extra years it requested, to 2013, to reduce the budget deficit to less than 3% of GDP from this year’s expected 9.5% deficit.

This will mean slashing spending and raising extra taxes over the next four years.

But the EU’s economic experts have warned that the Government has not provided enough information on how it will achieve the radical cuts after this year. The Government will have until October to show exactly how it intends to achieve the budget deficit limit of 9.5% this year.

Mr Almunia said he was very happy that the Government had announced it was starting to make the necessary adjustments in coming weeks [with the April 7 budget], and he encouraged it to follow this path.

General government debt increased from 24.8% in 2007 to more than 40% last year and is expected to exceed the EU average of 60% next year.

Finance Minister Brian Lenihan welcomed the endorsement of the Government’s aim to reduce the deficit below 3% by 2013 and looked forward to the continuing support of the commission and the finance ministers.

Dan McLoughlin, chief economist with Bank of Ireland, said the 9.5% deficit at the end of this year would not be easily achievable.

But if inflation continued to drop — and it could go to -2.5% this year, he believes — it could be possible. However, if the economy slows even more sharply than it has so far, the deficit could be much higher.

The country’s first hurdle to meet the targets will be next month’s budget when the Government must find anything up to e6.5 billion between spending cuts and extra taxes over the rest of this year.

Dan O’Brien from the Economist Intelligence Unit said whatever measures are necessary must be taken.

“Ireland is at risk of defaulting on its debts and the Irish authorities have not shown the political capacity or technical ability to put together a stabilisation strategy so far,” he said.