EU gives Ireland extra year on deficit

The European Commission says Ireland should be given an extra year - until 2014 - to get its borrowing levels back within the limits of EU rules. But it is calling for bigger cuts to the deficit over this period, because of the increasing amount the Government is borrowing.

As expected, the Commission has given Ireland - along with France Spain and Britain - an extra year to bring annual borrowing below 3% of gross domestic product. This is the target figure under EU rules.

This was done because, although these four countries have taken effective action to reduce their borrowings, their public finances have still deteriorated, as unemployment claims have gone up and the tax take down.

But in the case of Ireland the commission is calling for bigger corrective action - 2% of GDP per year instead of 1.75% of GDP. There was strong backing for the Irish Government's approach, in marked contrast to the Greeks, who are now facing a much tougher time, having misled the Commission about the true extent of their debt situation ,and taking no action to correct it.

The Commission action will re-inforce the Government in its efforts to cut €4 billion out of spending for next year, as this amount will just about meet the 2% of GDP adjustment needed to meet the new deadline.

Government marginally less gloomy on economy

Figures leaked yesterday suggest the Government deficit will reach 14.5% of GDP - but cutting €4 billion off spending will bring it back to 12%.

Yesterday's figures signalled that the Government is slightly more optimistic about the future of the economy.

At a weekly Cabinet meeting yesterday, Ministers discussed pre-Budget estimates, due to be published tomorrow. These are expected to show that the Department of Finance believes the economy will shrink by 7.5% this year and by a further 1.5% next year.

Grim as these figures are, they are still better than had been predicted. Earlier this year, when delivering the supplementary budget, the Minister for Finance Brian Lenihan forecast that the economy would contract by 8% this year.

Other figures from the Department of Finance will predict that unemployment will continue to rise. For the first half of this year the figure was around 12%, but it is expected unemployment will average around 13.75% in 2010.