Internal EU report shows concerns over health spending, mortgages and unemployed

At each of the nine quarterly reviews of Ireland's performance under the bailout programme overseen by the European Commission, the International Monetary Fund and the European Central Bank, the Government has awarded itself a gold star, pointing out that it has fulfilled all the targets (or "conditionalities" to use troika speak) for the preceding three months.

But some months later, the internal staff reports of the commission and the IMF emerge. While they offer praise, there are also many home truths, with failures, slippages and delays identified. The gold star becomes “could do better”.

And so it is with the draft report for the period up to December 2012, prepared by staff of the European Commission, a copy of which has been seen by The Irish Times . It points out that the Government has, on the whole, been performing well but it also notes many shortcomings and risks.

It is clear from the report, which will be published ahead of the next troika mission to Ireland later this month, that the main concerns relate to overspending in the health sector; the substantial increase in the number of non-performing loans and mortgages in the banks; and the stubbornly high levels of unemployment.

A long section of the report is devoted to the health sector and the failure to implement promised savings from 2012.

Monthly report
Given the serious slippages, there is a huge emphasis on monitoring. Not only is a monthly report being drawn up for the Cabinet subcommittee on health, it also discloses the new requirement on the Government to report to the troika on a monthly basis. This reflects the dissatisfaction of the troika towards the pace of reforms.

On the high level of unemployment, the report says that it is “a pressing issue that needs to be addressed forcefully”.

While praising the Government's Action Plan for Jobs it also argues that the capacity to engage meaningfully with long-term unemployment remains short and criticises the Department of Social Protection for not redeploying enough resources to deal with this. "Reforms to activation policy have reached a point where the capacity of institutions to deliver services to the long-term unemployed is becoming the critical bottleneck. Fast progress and closely linking training programmes to labour market needs are now essential," it says.

The level of distressed loans and crisis mortgages is also a massive concern. The report states bluntly that progress in resolving non-performing loans has been slow.

'Source of concern'
"Banks have hitherto made very little use of the loan-modification options designed to durably deal with unsustainable mortgage debts. Long-term arrears have continued to increase, underscoring the need for stepped-up engagement with banks".

It adds that the high level of loan defaults on bank balance sheets raises concerns about potential future losses. “In particular, the high level of mortgages in default is a persistent source of concern.”

Government vagueness over how it is going to apply the scalpel in the education, health and social protection sectors over the next two years is also subject to criticism. Given what happened last year, it is argued they need to be fully spelled out.