Friday, 4 June 2010

EU: Stability programme Ireland

Start by reading the background remarks on economic policy coordination in the European Union, in the blog post EU: Useful stability and convergence programmes? (3 June 2010).

You can then move on to the EU Council opinion on the stability programme of Ireland, published in the Official Journal of the European Union (OJEU):

COUNCIL OPINION on the updated stability programme of Ireland, 2009-2014; OJEU 1.6.2010 C 142/7

Economic background

The Council of the European Union started its 26 April 2010 assessment of the updated stability programme of eurozone country Ireland, which covers the period 2009 to 2014, with the following introductory remarks:

After the period of very high growth of the second half of the 1990s, Ireland settled down to a more steady growth phase supported by buoyant domestic demand in 2001- 2007. Ireland's competitive position weakened somewhat during this period, due to price and wage inflation together with declining productivity growth. The sharp correction in the housing market from the peak in 2006 led to a severe economic downturn, aggravated by the global financial crisis and the recession in Ireland's main trading partners.

Despite five consolidation packages adopted since mid- 2008, these developments have also produced a dramatic deterioration in the Irish public finances, with the general government balance moving from a surplus position in 2007 to a double-digit deficit ratio in 2009 and government debt exceeding the 60 % of GDP reference value in 2009. On 27 April 2009, the Council thus decided under Article 104(6) TEC that an excessive deficit exists in Ireland and on 2 December 2009 set a deadline for its correction by 2014. A first key challenge for the years ahead relates to implementing a broad-based and credible fiscal consolidation strategy, building on the significant efforts already made. A second is to return to sustainable growth, which will involve the re- and up- skilling of the newly-unemployed and regaining competitiveness through productivity-enhancing measures and adequate wage policies, and to foster an orderly restructuring process in the financial sector. With a view to improving the long-term sustainability of public finances, reforming the pension system is another important challenge.

Council recommendation

After a detailed discussion, and in the light of the recommendation under Article 126(7) TFEU of 2 December 2009, the Council welcomed the substantial consolidation measures which have been implemented and invited Ireland to:

(i) rigorously implement the budget for 2010 and back up the envisaged consolidation packages for the following years with concrete measures within a broad-based consolidation strategy in order to achieve the recommended average annual fiscal effort of 2 % of GDP in line with the Article 126(7) Recommendation, while standing ready to adopt further consolidation measures in case risks related to the fact that the macroeconomic scenario of the programme is more favourable than the scenario underpinning the Article 126(7) Recommendation materialise; seize, as prescribed in the EDP recommendation, any opportunities beyond the fiscal efforts, including from better economic conditions, to accelerate the reduction of the gross debt ratio towards the 60 % of GDP reference value;

(ii) in view of the significant projected increase in age-related expenditure, and also of the further increase in debt expected over the programme period, improve the long-term sustainability of public finances by implementing further pension reform measures;

(iii) to limit risks to the adjustment, strengthen the enforceable nature of its medium-term budgetary framework, as well as closely monitor adherence to the budgetary targets throughout the year.

Ireland is also invited to provide more information on the path and the broad measures underpinning the envisaged consolidation in the outer years in the EDP [excessive deficit procedure] chapters of the forthcoming stability programme updates.

These assessments and Council opinions are hardly “media sexy”, but they are important. Should you take an interest?

Ralf Grahn