Even the EC appears to question hopes for strong economic recovery

Maybe it was because it was released on St Patrick's Day, but the grimly depressing prescription from the European Commission (EC) for Ireland and other European countries to get out of recession has received little attention. This is what the Irish-watchers in Brussels, written at times in the near-impenetrable language of official economists, had to say about the Government's management of the growing national debt burden: "Due to the interplay of a severe recession and significant consolidation efforts, the deficit widened further in 2009 but is now planned to stabilise in 2010, at 11.6 per cent of GDP. Thereafter, the programme envisages a deficit reduction to below the three per cent of GDP reference value by 2014 in line with the Council recommendation of 2nd December 2009. Debt would peak at 84 per cent of GDP in 2012 and then start to decline." So far so good, then. Brussels has already set the terms and conditions for Ireland, amid the biggest slump the economy here has ever suffered, to reduce government borrowing by the end of 2014. It's a time deadline that Ireland shares with Britain, which is less stringent than those imposed on others - even Greece was recently faced with criticism, a tad unreasonably, for failing to set a credible target to slash its borrowing by a deadline two years earlier than our own. Striking a more worrying tone, the St Patrick's Day message on Ireland from Brussels continues: "Deficit and debt outcomes could be worse (here) than targeted, mainly due to (i) the lack of specification of the consolidation measures after 2010; (ii) the programme's favourable macroeconomic outlook after 2010; and (iii) the risk of expenditure overruns." Translated from the official-speak, this means that Brussels is concerned that the deep cuts already announced may not be enough if Ireland is to hit that 2014 deadline. Or it points to the strategy from Brussels to keep up the pressure on the Department of Finance to identify more spending programmes to axe for the 2011 budget next December. Hence the EC's reference to "lack of specification" and the risk that spending could be greater than anticipated. However, Brussels' reference to the Ireland's strategy needing to rely on "favourable" economic growth, presumably world growth, is deeply worrying. I have written here before about the many Irish economists and other commentators whose views range from the political right to the left identified the big weakness in the Government's and the EC's prescription on the Irish economy. Economists may bicker about whether they want more or less public sector spending, but economists point out the Government's forecasts are based on hopes that the world economy will recover to cap the rise of unemployment here by the end of 2012. It's an economic strategy that has been described as a casino wager: cut public spending, do little to bolster the confidence of consumers here to spend their rising savings and pray that the world economy lifts the economy out of the gloom to create jobs sometime into the vague future after 2015. Even the EC's updated assessment, released last week, appears to be less than confident, and concludes: "Continuing to implement a credible consolidation strategy, facilitated by a stronger budgetary framework, should foster a return to sustainable economic growth. There is also a need to regain competitiveness through productivity-enhancing measures and adequate wage policies, and to limit the increase in long-term unemployment. To improve the long-term sustainability of public finances, further pension reforms will be important. The invitations to Ireland concern the specification of the budgetary strategy to correct the excessive deficit, and improvements to long-term sustainability and the fiscal framework." Other European countries were also reprimanded last week. The Financial Times reported that the EC also forecast a slowing of the European economy but hoped that it would be short-lived. "The European Commission warned the eurozone's four largest countries - Germany, France, Italy and Spain - that their economic growth forecasts for the next three years were too optimistic, putting at risk their ability to cut their budget deficits in accordance with the EU's fiscal rules. The Commission asked these four countries, and others including Austria, Belgium, Ireland and the Netherlands, to spell out exactly how they intended to meet their medium-term deficit reduction targets of three per cent or less of gross domestic product - the EU's ceiling in normal economic times. Britain has been warned that its plans to cut its deficit, which is estimated to be £178bn this financial year, were too timid," the newspaper said. It seems remarkable that the EC's answer to the budget crisis caused by the economic slump is to suggest more spending cuts, in case world economic growth fails to cap unemployment. Economic recovery is being built on shaky foundations.