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October 8, 2013 7:16 pm
Dublin has won approval from its bailout masters to ease back on €3.1bn in planned austerity measures in its 2014 budget as long as it meets existing deficit targets in its programme.
The European Commission said on Tuesday that Ireland’s latest plan to implement €2.5bn in tax rises and spending cuts next year, rather than €3.1bn originally agreed with Ireland’s international lenders, “provided a sound basis for taking forward the necessary consolidation”.
The decision by Brussels paves the way for the ruling Fine Gael/Labour coalition to present an easier than anticipated budget next week, before Dublin exits its international bailout in December.
The IMF has provided tacit approval for the lower budget adjustment next year, saying any shortfall in the budget adjustment could be made up in 2015.
Michael Noonan, Ireland’s finance minister, said the country could afford to implement a lower than planned adjustment because some recovery in the economy had provided “other savings in the system”.
He told cabinet ministers on Tuesday that economic growth next year was forecast at 2 per cent of gross domestic product. Dublin is forecasting its budget deficit at 4.8 per cent of GDP in 2014, below the 5.1 per cent deficit figure outlined in its adjustment programme.
Labour, the junior coalition partner in the government, has strongly resisted implementing the full €3.1bn adjustment.
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Last month Eamon Gilmore, Labour leader and deputy prime minister, accused the so-called “troika” of lenders – the European Commission, International Monetary Fund and European Central Bank – of treating Ireland as some kind of “economic experiment” by forcing it to implement more cutbacks than were necessary to meet deficit targets.
The Labour party is under intense political pressure in Ireland, where its poll ratings have slipped to the lowest level in a quarter of a century.
Ireland’s central bank and the Irish Fiscal Advisory Council, a body set up in the wake of the financial crisis to provide advice to the government, have warned against easing up on austerity.
Last week the central bank said scaling back the adjustment ran the risk of “starting to unwind the positive effects” of the considerable consolidation effort to date for the sake of a “relatively short term fiscal easing”.
A government spokesman said everyone had been heard in the debate on the scale of the adjustment but ultimately it was a decision for government to make.
Conall MacCoille, chief economist with Davy Stockbrokers, said it was disturbing that there was slippage in the bailout programme so early in the electoral cycle. But he said markets would probably give Dublin the benefit of the doubt.
Since Ireland’s financial crisis struck in 2008, successive governments have implemented seven austerity budgets containing €28bn in tax rises and spending cuts. Ireland is due to exit its bailout programme in December but has promised to reduce its budget deficit below 3 per cent of GDP in 2015.
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