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EU Welcomes Ireland's Economic Progress

by Robert Lee,, London

14 September 2011

Ireland has secured the third installment of its bailout loans with the successful completion of the latest European Commission review, which has praised the introduction of reforms and plans for fiscal consolidation.

The third joint European Commission/ECB/IMF (the so-called 'troika') mission took place in Dublin at the beginning of July, with the Commission releasing its comments on the review on September 9. This means that Ireland can receive a further loan installment of EUR5.5bn, which will be disbursed in two tranches, by end-September and end-October.

In particular, the Commission noted that important progress has been made in the areas of fiscal consolidation, strengthening of the domestic financial sector and growth-enhancing structural reforms. In addition, Ireland has seen a gradual return to positive growth, with strong exports and an improvement in competitiveness driving the recovery.

The Commission judges the government's austerity programme to be on track and well financed, with fiscal performance satisfactory and the 2011 budget deficit projected to be well below the 10.5% ceiling set by the troika. The government's establishment of a new watchdog, the Irish Fiscal Advisory Council, designed to provide an independent assessment of public finances, is also noted.

The government's action in the banking sector is also acknowledged, and, in particular, the completion of the recapitalization of domestic banks. Budget sharing with subordinated debt holders and the sizable infusion of private capital into one of the two pillar banks have meant that the budgetary costs of such work are significantly lower than originally anticipated. Progress has been seen in meeting deleveraging targets and the completion of two planned mergers, all of which is noted by the Commission.

Structural reforms are seen to be advancing, with government plans to improve the functioning of the labour market and enhance job creation done in conjunction with work to remove restrictions on trade and competition in sheltered sectors, in order to lower costs and boost purchasing power. Moreover, the Commission stresses that the determination of the government to fully implement the programme and subsequent commitments have enabled a noticeable reduction of yields on Irish sovereign bonds on the secondary markets in recent weeks.

Finance Minister Michael Noonan is due to publish a medium-term fiscal consolidation plan for 2012 to 2015 in the coming weeks, a move welcomed by the Commission. The plans will outline the changes the government intends to introduce to secure a deficit target of below 3% by 2015. In the Commission's opinion, the early specification of the plans and supporting measures would help sustain the recent improvements in market sentiment towards Ireland.

The mission for the next programme review is scheduled for October, 2011.

TAGS: individuals | tax | economics | business | European Commission | Ireland | fiscal policy | public sector | banking | gross domestic product (GDP) | budget | International Monetary Fund (IMF) | agreements | unemployment | tax reform | standards | regulation | trade | European Union (EU) | Europe

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