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Troika wants Ireland to outline spending cuts for three years

The European Commission approves the latest €1.6 billion loan – but wants Dublin to say WHERE it will continue to cut back.

EU economics commissioner Olli Rehn: The Commission wants the Irish government to explain exactly where it intends to cut spending over the coming years.
EU economics commissioner Olli Rehn: The Commission wants the Irish government to explain exactly where it intends to cut spending over the coming years.
Image: Julien Behal/PA Wire

THE TROIKA has called on the Irish government to update its medium-term spending plans to ensure that public spending continues to remain under control long after Ireland escapes the EU-IMF bailout.

The latest European Commission report into Ireland’s bailout progress, published this afternoon, notes that while Ireland remains committed to bringing its Budget deficit below the EU limit of 3 per cent of GDP by 2015, it hasn’t identified exactly what measures it will introduce to cut spending beyond this year.

“The Troika has once again encouraged the authorities to spell out the policy intentions in the key spending areas of education, health and the welfare sector to buttress the credibility of their announced consolidation path,” the report says.

The report notes that this would also be helpful from the perspective of encouraging investors to lend to Ireland and help it to finance itself without the help of the EU or IMF.

The concerns follow previous reservations expressed by the Troika about the effectiveness of laws being planned by the government – tying every Government Department to a set spending limit – which can be circumvented if the Minister for Finance approves a request to breach them.

A main focus of the report – which was circulated to TDs earlier this month and had already been leaked to some newspapers – is the difficulty keeping health spending within the set limits.

It says the Cabinet Committee on Health is now to be briefed on a monthly basis about the efforts being made to rein in spending at the HSE, and calls for more diligence in ensuring that arrangements on drug pricing and drug substitution are monitored, so as to guarantee the maximum savings.

Bank losses still raising concerns

The report also expresses concerns about the continued losses being recorded at the country’s banks, which it says raises concerns about the level of losses they could incur – which could potentially leave banks needing further taxpayer assistance.

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“This underscores the need to complete a robust [stress testing] exercise according to schedule to eliminate a key source of uncertainty”, it says, noting that the next round of stress tests are due to be completed by the end of September this year.

The report also criticises the slow pace of banks in dealing with customers in mortgage distress – saying more comprehensive arrangements would help banks to build a picture of how much capital they may lose by writing off non-performing loans.

However, this was written before the government published its most recent code of practice for banks to deal with this issue – and before the publication last week of the new guidelines from the Insolvency Service of Ireland.

In spite of the concerns, the report says Ireland’s implementation of the bailout deal remains “strong overall” and marks the release of the latest €1.6 billion in loans from the EFSF bailout fund.

Read: Deficit beats Troika target but debt-to-GDP ratio to be higher this year

About the author:

Gavan Reilly

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