Britannia Radio

I've seldom read such a complete condemnation of any government by an 
outside body.  It has no 'saving grace' in it anywhere to soften the 
blow.

However. note the reference to the loss of goodwill over the 
rejection of the Lisbon Treaty.  Now this could - cynic that I am - 
be a subtle bit of arm-twisting to get the Irish government to fix 
things so that they can sign up to the treaty.  But the snag in that 
is THE IRISH PEOPLE.   They will not take kindly to yet further arm-
twisting.

Failing that the outlook for Ireland is grimmer than for most.

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IRISH TIMES    6.11.08
Ireland can expect no kid gloves over EU rules breach

OPINION: Despite strong warnings, the Government massively breached 
euro zone budget rules. Now the EU Commission wants to censure 
Ireland, and Ireland should be glad of it, writes DAN O'BRIEN

THE GOVERNMENT and its advisers apparently expected the EU Commission 
to ignore its breach of budget rules by invoking the "exceptional 
circumstances" clause in the (revised) Stability and Growth Pact. 
They miscalculated badly.

The frightening collapse of the public finances was entirely 
foreseeable. It was therefore avoidable.

For the commission to have invoked the clause would not only have 
been to
exonerate the Government for a disaster entirely of its own making, 
it would have removed one of the few sources of pressure that can 
make the Government recover its fiscal senses.

Budget 2009 amply demonstrates that the Government has yet to 
internalise the scale of the crisis. The assumptions upon which it is 
based were the triumph of irrational hope over plausible expectation.

Nothing illustrates better the unreality of the Budget than the 
absence of a contingency sum to cover spending overruns and/or 
revenue shortfalls.

Normally, the greater the risks to budget forecasts, the larger the 
contingency should be. With unprecedented risk domestically and 
internationally, a very large contingency allocation would have been 
appropriate. Astonishingly, no contingency sum was set aside in 
Budget 2009.

As a result of mismanagement, Ireland next year will almost certainly 
register the largest budget deficit of any euro zone country since 
the currency was launched a decade ago (this comes on top of the 
2007-08 collapse, for which there are only two parallels over the 
past quarter century across the entire 30-member Organisation for 
Economic Co-operation and Development)

We at the Economist Intelligence Unit forecast a general government 
deficit of 8.5 per cent of GDP in 2009. Using less conservative 
assumptions, the imbalance could very easily reach double digits.

If the Government is obliged to recapitalise the banks and if yield 
spreads on its bonds continue to widen, the fiscal outlook will 
become even more alarming.

Neither the commission nor a majority of other euro zone member 
states will allow their shared budget rules, and ultimately their 
common currency, to be undermined by the recklessness of one member 
state. This will become clear in the months ahead.

Next February, the commission will report to the member states on 
Ireland's current fiscal position. That report will not be kind.

The commission's assessment of the Government's handling of its 
finances, contained in its 2007 report The Public Finances in EMU, 
placed Ireland last among the 18 countries it examined.

Worse still, it found not a single measure in place to protect the 
public finances in the event of an economic shock (and this despite 
the warning lights that had been flashing about the property market 
since at least 2005).
The other euro member states will not take this well. All governments 
have endured political pain in their efforts to respect the rules. 
Even now, under extraordinary circumstances, that is still the case.

Twelve of the 15 countries should remain under the 3 per cent of GDP 
deficit threshold in 2009. Only two - France and Greece - look 
certain to exceed it, and they will do so by a relatively small amount.

Given other countries' efforts and Ireland's limited goodwill in 
Europe - owing to the rejection of the Lisbon Treaty and perceived 
unilateralism in halting the recent liquidity crisis in the banking 
system - there is no reason to believe that Ireland will be treated 
with kid gloves by its partners. On the contrary, the expectation 
should be that they will demand that the Government make real efforts 
to restore order to the public finances.

This should be welcomed.

Input from the commission and others is clearly needed given the 
failure of the Government and those who advise it to understand the 
magnitude of the problem and formulate an appropriate response.
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. Dan O'Brien is a senior editor at the Economist Intelligence Unit