The European Commission has called on the Government to restore 'sustainability' in the public finances and to boost productivity.
In a review of the Irish economy, it says the country is vulnerable due to the aftermath of the housing boom and the global financial crisis.
The Commission says public spending should be 'carefully prioritised', but investment in education, training and infrastructure should continue. The Commission also says more competition in the retail sector is needed.
It also says there is also a need to reform the pensions system and move towards a low-carbon economy.
It estimates that the economy shrank by 2% last year, and expects a further contraction in 2009.
