The European Commission is putting renewed pressure on the Government to implement €2 billion in cuts in the coming budget, echoing the views of both the IMF and the Irish Fiscal Advisory Council.

The commission fears the strong exchequer figures in the second quarter may not be sustainable for the remainder of the year and has concerns about the “volatility” of Irish quarterly GDP estimates.

As with all euro zone member states, the Department of Finance must submit its budgetary plan to the European Commission before October 15th, with the EU's executive arm reserving the right to demand changes.

Discussions are ongoing between officials in the commission in Brussels and the Department of Finance in Dublin on the budget, which will be unveiled in two weeks’ time.

Big cuts not needed

Minister for Finance Michael Noonan has said that cuts of €2 billion will not be required to bring the budget deficit to 3 per cent by next year, as mandated by the EU.

The European Commission, however, is pushing for Dublin to press ahead with a €2 billion fiscal retrenchment.

Last week the Irish Fiscal Advisory Council, the statutory body set up in the wake of the financial crisis to monitor economic policy, also warned against a “premature easing” of fiscal adjustment.

Speaking to The Irish Times, a European Commission spokesman said that the strong acceleration in the Irish economy in the first half of the year was "very encouraging", but that Ireland "should maintain a prudent approach to fiscal policy at the current juncture".

Reduce debt

The commission is pressing the Government to use the better-than-expected economic performance to reduce the government deficit and debt, with concerns in particular centring around Ireland’s debt-to-GDP ratio, one of the highest in the EU.

There are also fears that the strong economic performance in the second quarter, which saw GDP race ahead by 7.7 per cent in the first half of the year, may not be maintained.

The commission expressed concerns about the “volatility” of Irish quarterly GDP estimates.

“Given the volatility of quarterly GDP estimates in Ireland”, it was particularly important that the Government take a prudent approach in the forthcoming budget, the spokesman said.

New rules introduced in the wake of the financial crisis require euro zone countries to submit their national budgets to Brussels for scrutiny each year by October 15th, a development which led to the Irish budget being switched from December to October.