THE WORST is over for the Irish economy and it is “quite likely” that the Republic will return to the markets as planned, the head of the euro zone’s bailout fund, the European Financial Stability Facility (EFSF), said yesterday.

EFSF head Klaus Regling also said Greece’s IMF-EU programme is not working and its citizens may have to accept a decline in living standards.

“The objective [of EU/IMF aid] is clear, it is to buy time. This is now working in Ireland and Portugal but it is not yet working in Greece,” Mr Regling said during a panel discussion organised by the Social Policy Association.

“In Ireland the worst is over,” Mr Regling said. “Ireland is a success story.”

“The ultimate test is can they go back to markets, if they continue on the current path it looks quite likely to be the case.”

Mr Regling said “the assumptions that Greece will go back to the markets in 2013 will not be reached”.

He added that monetary union meant countries such as Greece were unable to use tools such as currency devaluation to aid their plight, leaving the painful process of cutting internal spending and driving down wages as the only way of restoring economic competitiveness.

“The ugly truth is that countries have to cut their standard of living,” Mr Regling said. “In most [problem] countries this is unavoidable.”

Further pressure was heaped on Greece last night when Luxembourg’s Jean-Claude Juncker, who leads the group of euro-area finance ministers, said the next payment of financial aid to Greece cannot be guaranteed unless the government fulfills all the conditions.

Greece is due to get €8 billion later this month, but first needs to prove it is hitting budget targets.

“Conditionality is of prime importance and before deciding on the next disbursement of the loan to Greece in mid-September, all the conditions as defined by the eurogroup have to be respected,” Mr Juncker said in Varna, Bulgaria.

“If this isn’t the case, it’s not certain that the disbursement of the next tranche of loans can happen,” he said, according to a statement issued by his office.

Olli Rehn, the EU’s top economic official earlier said that he did believe Greece would be able to get the next disbursement of financial aid from its EU and IMF bailout.

“I trust that Greece will take the necessary decisions in order to ensure that the sixth disbursement can be done and we can continue the economic reforms in Greece,” Mr Rehn, the EU’s economic and monetary affairs commissioner, told reporters at the European Parliament. – (Reuters/Bloomberg)