EU says Ireland may need to revise budget

Wed Feb 29, 2012 9:23pm EST
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BERLIN (Reuters) - Ireland may need to make further changes to its budget this year if the economy continues to deteriorate, the European Commission said on Wednesday in a draft of a report obtained by Reuters.

Halfway through an unprecedented austerity drive, Ireland is implementing 3.8 billion euros ($5.08 billion) worth of tax hikes and spending cuts to reduce its budget deficit to 8.6 percent of gross domestic product (GDP) this year.

Weaker than expected growth has forced Dublin to increase the target to 3.8 billion euros from the 3.6 billion initially proposed, and the commission suggested for the first time that further revisions to the government's target may be required.

"Although the fiscal forecasts incorporate some small buffers, a further deterioration of the macroeconomic backdrop could require additional fiscal tightening later in the year," said the draft of the report.

Commission officials cut their Irish gross domestic product growth forecast for 2012 last month to 0.5 percent from around 1 percent previously forecast. The government is still holding to its forecast of 1.3 percent.

The International Monetary Fund (IMF), one of Ireland's so-called "Troika" of lenders, also has predicted growth of 0.5 percent for 2012 but has argued that Dublin should not adjust its fiscal plans for this year, even if growth targets fall short of expectation.

The government suggested earlier this month that it may have to increase its planned tax increases and spending cuts for 2013 as the global economic slowdown hurts Ireland's growth forecasts.

The draft report, obtained in Berlin, follows a political storm caused last year by the leaking of confidential Irish budget information by German lawmakers in similar documents first revealed by Reuters.

New German laws give its parliament the right to be fully informed about the progress of countries in EU/IMF bailout programs before new tranches of funds are paid out.   Continued...