EU praises Ireland for debt reduction but points to slow progress on climate targets

Ireland has been lauded by the EU for deleveraging sovereign and bank debt, with the European Commission declaring the country free of economic “imbalances”.

However, she warned that high house prices remain a “challenge” but pose no risk to the broader economy.

It also said that Ireland is lagging behind other EU countries in terms of recycling and waste water treatment, and that renewable energy projects are being hampered by planning delays.

And it pointed out that recent measures to tackle rising energy prices – like the €200 energy credit and cuts in excise duties – “are not targeting those most in need”.

Announcing its annual spring policy recommendations on Monday, the European Commission said it would suspend its debt and deficit rules for an extra year until the 2024 budget round due to Russia’s war in Ukraine.

The bloc cut its 2022 growth forecast by more than a notch last week due to the impact of the war, although Ireland avoided a significant downgrade.

Ireland has been part of the EU’s process on economic imbalances since its inception in 2012.

“In Ireland, debt ratios have fallen significantly over the years and continue to show strong downward momentum,” the European Commission said in a statement on Monday.

“Significant progress has been made in reducing public and private debt and net external liabilities both before and since the pandemic.

“Both private and public debt are expected to continue to decline and further strengthen external positions.”

The Commission said Ireland’s deleveraging is still “significant, albeit smaller” when adjusted for the contribution of multinationals to the economy.

Ireland’s debt as a percentage of gross domestic product (GDP) – which includes multinational transactions – is estimated at 56 percent last year, according to the Commission, below the EU limit of 60 percent.

The debt-to-GDP ratio is expected to fall to 50.3 percent in 2022 and 45.5 percent in 2023, the commission estimates.

The government measures debt as a percentage of Adjusted Gross National Income (GNI*), which removes some of the impact of aircraft leasing and patents on the Irish economy.

The Treasury expects gross debt to be 105.6 percent of GNI* this year, falling to 96.5 percent in 2022 and 89.9 percent in 2023.

The Commission found that Irish banks are reducing their non-performing loans.

But it pointed to rising property prices as a potential risk to the economy.

“High house price growth continues to pose a challenge to housing affordability, but risks to macroeconomic stability so far appear limited,” the commission said.

Ten EU countries are experiencing “imbalances” this year – including France, Germany, the Netherlands and Sweden – with problems in Cyprus, Greece and Italy described as “excessive”.

Last week, the European Commission revised GDP growth down 1.3 percentage points to 2.7 percent for 2022, while the Irish economy is expected to grow 5.4 percent, a very slight downward revision to its winter estimates.

“Russia’s invasion of Ukraine has undoubtedly brought Europe into extreme economic uncertainty,” said Commission Vice-President Valdis Dombrovskis.

“This has resulted in significantly higher prices for energy, commodities, commodities and food, hurting consumers and businesses.”

EU Economy Commissioner Paolo Gentiloni said the bloc would allow for another year of simpler fiscal rules because governments “must also have the flexibility to adapt their policies to unforeseen developments”.