EUROPEAN REACTION:THE EUROPEAN Commission has given a guarded welcome to the Government's plan to get its budget deficit below the EU limit of 3 per cent of gross domestic product (GDP) by 2013.
It has also noted that the deteriorating economic situation had caused the Government to miss its earlier target of restricting its deficit to 9.5 per cent of GDP in 2009.
“The commission’s preliminary assessment is that decisive broad- based action has been taken in this supplementary Budget in very difficult economic circumstances.
“We note that given the economic situation seems worse than expected earlier this year, the original deficit target has been increased,” said a commission spokesman yesterday.
The spokesman refused to comment further on the Government’s new target of running a budget deficit of 10.75 per cent this year. But he welcomed the Government’s confirmation that it would introduce new measures in subsequent budgets in 2010 and 2011 to return the budget deficit to a position of no more than 3 per cent of GDP by 2013.
The commission stressed that its comments were based on a preliminary assessment of the Budget measures and that it would still have to look at the detail of the budgetary measures.
EU finance ministers will also assess the Budget in coming months as part of an excessive deficit procedure that was formally triggered last Friday against Ireland for breaching the 3 per cent deficit limit set out in the EU’s stability and growth pact.
Last Friday, EU monetary affairs commissioner Joaquin Almunia said that the Government had committed itself to achieve a deficit of 9.5 per cent in 2009 and the commission fully supported that commitment.
The commission will now monitor very closely the Irish budgetary situation to ensure that no further slippage occurs in the coming months.
The commission also said that it was in close consultations with the Irish authorities over its plan to deal with toxic assets prior to the announcement of the Budget.
“We are now looking forward to the full notification of the details,” said a commission spokesman.
The EU executive has published strict guidelines on how member states should deal with the bad debts that banks have amassed on their balance sheets to ensure that they do not break European competition and state aid rules.
In a statement yesterday, the commission revealed that EU states’ bank guarantees and state aid to financial institutions were currently worth about €3 trillion or some 25 per cent of the EU GDP.
Guarantees to the banking sector worth about €2.3 trillion accounted for most of this figure.