COALITION CRISIS:THE GOVERNMENT'S four-year economic plan is a "cornerstone" of the bailout package under discussion with Europe and the IMF, the EU Commission has said.
Many of the measures in the €15 billion plan will be embraced in the EU-IMF rescue package, but the bailout agreements are for three years only and conditional on the execution of strict policy guidelines.
The four-year plan must still be “validated” by the commission and the European Central Bank (ECB), said the spokesman for EU economics commissioner Olli Rehn.
The document, seen as a medium-term policy “road-map” for the State, will provide the foundation for annual budgets into the years to 2014, starting with measures worth €6 billion in the looming budget for 2011.
Twice in the past week, however, euro zone finance ministers agreed that the plan should be subject to an annual review by the European authorities.
“It’s not a rigid scenario and this [review provision] was included the other day in order to make that very clear,” Mr Rehn’s spokesman said.
This means cutbacks and taxation measures would increase over time in annual budgets if fiscal targets were not met or economic conditions deteriorated.
In principle, the measures could be relaxed if conditions improve, but the ECB prefers governments to exploit any positive developments with faster fiscal consolidation.
With a general election now on the horizon, the annual reviews would also provide an opportunity for any new government to recast elements of the plan.
“We will have to be monitoring, not only the implementation of the programme but also the parameters in this programme in order to make necessary adjustments and we will discuss that with the government in place in 2011, in 2012 and in 2013,” Mr Rehn’s spokesman said.
“It’s a road-map if you like from the Irish authorities to meet objectives that they have subscribed to with their European partners . . .
“So each year, year-in year-out and sector by sector there will be a consolidation process to end up with the 3 per cent [budget deficit objective by 2014] reconfirmed by the Irish authorities,” he continued.
“In this we do not dictate measures as some people say we do, that’s not the case.
“What we do is we look at the measures proposed in the plan and ensure that they are correct, that they point the country if you like down a safe road, a risk-free road.
“This plan may be based on expected growth levels and other macroeconomic parameters agreed with the European commission and our services will check to make sure that the measures proposed will lead to the budgetary impact which we expect as a result.
“We simply have to ensure that the road map is solid and will help us to reach the final objective,” he said.
Based on this guiding document, tax and spending measures designed to improve the public finances by €6 billion will be front-loaded into the 2011 budget.
Mr Rehn’s spokesman said the annual budget stands in a separate category as it is “far more detailed” and is subject to a parliamentary vote.
The implementation of the bailout agreements with the commission and the IMF will be reviewed quarterly.
The spokesman said these agreements, known as memoranda of understanding, will lay down the rules governing the release of financial support to Ireland.
“There the process is far more interactive. It’s not just a budgetary impact which we look at here or the macroeconomic factors. It’s much more than that, it’s a more open discussion,” he said.
Such discussions will examine “budget aspects” and “aspects linked the country’s debt and deficit levels”.
The execution of structural reforms in terms of bank restructuring would also be examined.
Still in question as talks on the intervention proceed is the precise amount of external aid required from each of the schemes controlled by euro group countries, the IMF and the European Commission and the sequence in which they are deployed.
The Government itself plans a contribution to the bank rescue and bilateral aid has been promised from Britain, Sweden and Denmark.
While the breakdown of contributions from each of these sources remains to be decided, the IMF will provide one-third of the external aid.
