The Republic of Ireland yesterday got the formal nod of approval from euro zone finance ministers for the seventh round of its post-bailout inspection reports.
The report, published in May, broadly endorses the Government’s economic strategy but urges fiscal caution, saying that although the prospects “remain bright, external risks are significant”.
Minister for Finance Paschal Donohoe stressed the resilience of the Irish economy to Eurogroup ministers and promised what he called a "broadly balanced budget" to continue the work. He said he looked forward confidently to the time when Ireland would be out of post-bailout supervision and just an ordinary member of the euro zone.
Although he acknowledged the report’s warning of risks to the Irish economy outside our borders, it was “another indication of how the economy was on a very different path”.
After the meeting Mr Donohoe spoke of his strong commitment to seeing the completion of key elements of economic and monetary union, in banking and the capital markets, and said there was a palpable sense of a new determination among ministers, “a growing momentum in the euro zone”, with political prospects across the area creating new opportunities to go forward.
The report, which was debated in the Dáil a couple of weeks ago, is part of the post-bailout supervision process to assess the State’s continued capacity to repay outstanding loans to the European financial stability facility and bilateral lenders, a joint financing package of some €85 billion, including €17.5 billion from Ireland, agreed in 2010.
Ireland remains subject to twice-yearly inspections until at least 75 per cent of the loans are repaid. Barring early repayments, that is until at least 2031.
Fiscal policy
The report was produced by the seventh post-bailout surveillance mission to Ireland. It warned that “risks to the economic outlook remain tilted to the downside. Uncertainty surrounds the final outcome of the negotiations between the UK and the EU under Article 50 of the Treaty on European Union. Moreover, possible future changes to international tax and trade policies are another potential source of asymmetric shocks.
“High external uncertainty puts an even greater premium on prudent fiscal policy amid calls for a ‘recovery dividend’. The general government deficit continues to decline, yet the underlying fiscal effort diminished in 2016. This reflects the Government’s policy of exhausting all available fiscal space, which received a boost from corporate tax windfalls in 2015-16.
“In the future, it would be prudent to use such funds to accelerate deficit and debt reduction, in particular as many indicators suggest that the economy is already operating close to its potential. Moreover, prudent expenditure management remains essential also to ensure compliance with EU fiscal rules in 2017.”
The full Ecofin council of finance ministers will give formal approval on Tuesday to the individual 2017 “semester” recommendations on the Irish and 27 other economies, part of the EU’s economic co-ordination process, and will debate a major report on “non-performing loans” in the banking sector.
