Ireland has formally exited a seven-year period of economic scrutiny by the European Commission first imposed at the height of the economic and financial crisis.
The Commission today recommended that Ireland leave the so-called Excessive Deficit Procedure after acknowledging that the Government had reduced the budget deficit below the threshold of 3% of GDP.
However, the announcement was accompanied by a warning to the Government to keep public spending under review.
It was also urged to reduce bottlenecks in infrastructure and to broaden the tax base in order to avoid any potential economic shocks arising from problems the global economy.
In a wide-ranging report, the Commission also warned of the legacy impact of a build up of public and private debt, as well as problems in the health system, water infrastructure, housing, and transport sectors.
There are also concerns about households where too many members are unemployed, and where householders are prohibited from seeking work because of the high cost of childcare.
"As a percentage of wages, net childcare costs in Ireland are among the highest in the EU, the second highest for couples and the highest for single parents," the report stated.
The Commission urged the Government to widen the tax base and to make the overall tax system "more efficient and growth friendly."
The report is part of the ongoing scrutiny of all 28 member states' budgetary positions and economic policies.
The "Country Specific Recommendations" are part of the EU's response to the financial crisis which erupted in 2009.
Each year the Commission sets out its binding recommendations on each country, following an anaylsis of member states' macroeconomic situation.
Based on this year's review of the Irish economy, the Commission found "that Ireland is experiencing macroeconomic imbalances".
"In particular, it is essential to tackle the large stocks of net external liabilities and of public and private debt which constitute vulnerabilities, despite improvements."
It is understood the Commission is concerned that there be no repeat of the financial collapse in 2009 due to unexpected shocks in the global economy.
Now that Ireland has emerged from the Excessive Deficit Procedure, it comes under what is called the "preventive" arm of the Stability and Growth Pact.
The pact is the rulebook governing euro zone countries, and was recently strengthened following the crisis.
The Commission today warned that when the figures are presented next spring looking back at 2016, Ireland could be at risk of deviating from its "structural balance", that is the country's budget situation regardless of which point we are at in the economic cycle.
The Government, however, believes that using a different growth metric, Ireland will be compliant with all the EU's rules under the Stability and Growth Pact.
The Commission has reaffirmed its recent recommendations on bottlenecks in the Irish economy.
The report states that "cost-effectiveness, equal access and sustainability remain critical challenges to the healthcare system.
"Specific strands of reforms are progressing, but spending on pharmaceuticals, in particular owing to the high cost of single-supplier medicines, continues to weigh on cost effectiveness."
"Approximately 40% of the population has free access to general practitioners, while the rest bear the full cost. Significant uncertainty surrounds the broad reform of the healthcare system as the universal health insurance model is in a quandary," it also stated.
The Commission warned that, following a peak of 5.2% of GDP in 2008, public investment fell to a low of 1.8% in 2013 before slightly recovering in 2014, when it was still well below the EU average.
It also said there has been a shift in general government expenditure away from investment towards current spending.
"Seven years of sharply reduced government investment have had a negative impact on the quality and adequacy of infrastructure and the government support for intangible investments," the Commission said.
"There are key weaknesses in housing, water, public transport and climate change mitigation capacity. Demand for new housing currently exceeds supply by a wide margin in the country's main urban areas. "As a result, residential property prices and rents in urban areas increased sharply in 2014, before growth slowed in 2015," it added.
Commission defers action on Spain and Portugal deficits
Meanwhile, the European Commission has deferred any disciplinary action against Spain and Portugal over their excessive budget deficits until after a Spanish general election on June 26.
The EU executive had been due to recommend today whether to fine Madrid and Lisbon for their repeated breaches of the European Union's deficit limit of 3% of gross domestic product.
This would have been the first time such a sanction would have been applied, even though it was likely to be purely symbolic.
Instead, the Commission told Spain and Portugal to take further action to reduce their deficits this year and next, and said it would review both countries' position in early July.
Spain's caretaker Prime Minister Mariano Rajoy vowed to cut taxes further if he is re-elected in an interview with the Financial Times today.
This has raised the prospect of further clashes with Brussels over Madrid's chronic fiscal shortfall.
The Commission also said that Italy, Belgium and Finland were complying with the EU's budget rules on government debt levels, but that it would review its assessment of Italy in November, singling Rome out for closer vigilance.
Italy said earlier this week that it had been granted the maximum flexibility by the Commission under the EU budget rules, allowing it to discount the equivalent of 0.85% of GDP for spending on refugees, labour market reforms and investment.