IRELAND MAY be given extra time to cut its budget deficit and fall into line with European targets, the European Commissioner in charge of economics has suggested.
Olli Rehn has written to the finance ministers of the 27 EU member states noting that individual members states can be given “extra time to correct its excessive deficit, provided it has delivered the agreed structural effort.”
This is in cases where the prospects for economic growth in any individual country have deteriorated rapidly, Rehn writes, in a letter which does not specifically refer to Ireland’s case.
In 2012 Spain, Portugal and Greece were all given extra time to meet their deficit deadlines under the EU’s extended deficit procedures.
The extended deficit procedure is separate to Ireland’s EU-IMF bailout; Ireland was in such a procedure since 2009 and had compiled a four-year economic plan in September 2010 – just two months before entering a bailout – as part of its procedure.
That plan originally required Ireland to reduce its budget deficit to 3 per cent of its GDP by 2014, but the deadline was extended to 2015 by agreement with the Fine Gael-Labour government almost immediately after they came to power.
The fact that the two programmes are separate, however, means the decision to extend the deadline is largely a matter between Dublin and Brussels, with the IMF taking a much smaller role.
The €6.1 billion question
The excessive deficit procedure, as it currently stands, requires adjustments worth a total of €6.1 billion in the next two Budgets.
However, its 2015 target was set at a time when economic growth in Ireland and across the Eurozone were expected to be much higher – with the prevailing logic now that Ireland needs other European economies to grow if it is to escape the bailout and return to the financial markets on a full-time basis.
Rehn’s letter makes it clear that extending any deadlines would not be a decision taken lightly, however.
He points out that it is not EU-backed budget measures which stand in the way of economic growth for many countries – and that the measures are actually the basis on which economies will grow more sustainably in future.
He also writes that there is “a convincing economic and political case for maintaining a steady consolidation pace throughout the ups and downs of the cycle.”
The letter follows talks between the EU finance ministers at a summit in Brussels earlier this week.