EN    EN EN 
 
EN    EN  EUROPEAN COMMISSION 
Brussels, 3.12.2010 
SEC(2010) 1515 final 
  
Recommendation for a 
COUNCIL RECOMMENDATION  
With a view to bringing an end to the situation of an excessi ve government deficit in Ireland 
 
EN 2   EN Recommendation for a 
COUNCIL RECOMMENDATION  
With a view to bringing an end to the situation of an excessi ve government deficit in Ireland 
THE COUNCIL OF THE EUROPEAN UNION, 
Having regard to the Treaty on the Functioning of the European Union, and in particular 
Article 126(7) in conjunction wi th Article 126(13) thereof;  
Having regard to the recomm endation from the Commission, 
Whereas: (1) According to Article 126(1) of the Trea ty on the Functioning of the European Union 
(TFEU) Member States shall avoid excessive government deficits.  
(2) The Stability and Growth Pact is based on the objective of sound government finances as a 
means of strengthening the conditions for pric e stability and for strong sustainable growth 
conducive to employment creation. 
(3) The 2005 reform of the Stability and Growth Pact sought to strengthen its effectiveness 
and economic underpinnings as well as to safeguard  the sustainability of  the public finances 
in the long run. It aimed at ensuring that in particular the economic and budgetary background 
was taken into account fully in all steps in the excessive deficit procedur e (EDP). In this way, 
the Stability and Growth Pact provides the framework supporting government policies for a 
prompt return to sound budgetary positions taking account of the economic situation. 
(4) According to Article 3(5) of Council Regul ation (EC) No 1467/97, if effective action has 
been taken in compliance with a Recommendati on in accordance with Article 126(7) of the 
Treaty and unexpected adverse economic events  with major unfavourable consequences for 
government finances occur after the adop tion of that Recommendation, the Council may 
decide, on a recommendation fr om the Commission, to adopt a revised Recommendation 
under Article 126(7) of the Treaty. 
(5) On 27 April 2009, the Council decided, in accordance with Article 104(6) of the Treaty 
establishing the European Community (TEC), that  an excessive deficit existed in Ireland and 
issued recommendations to correct the excessive  deficit by 2013 at the latest. The Council 
also set a deadline of 27 October 2009 for effective action to be taken.  
(6) On 2 December 2009, the Counc il concluded that the Irish au thorities had taken effective 
action in compliance with the Council recommenda tions of 27 April 2009 but that unexpected 
adverse economic events with major unfavourable consequences for government finances could be considered to have occurred in Ir eland. The Council therefore adopted a revised 
Recommendation under Article 126(7) of the Treaty, postponing the deadline for the 
correction of the excessive deficit to 2014.  
 
EN 3   EN (7) On 13 July 2010, the Council concluded that the Irish authorities had taken effective 
action in compliance with th e Council recommendations.  
(8) According to the Commission services' au tumn 2009 forecasts, which provided the basis 
for the Council's December 2009 recommendations issued to Ireland under Article 104(7) of 
the Treaty, real GDP was expect ed to contract by 1.4% in 2 010, followed by an expansion by 
2.6% in 2011. According to the Commission serv ices' autumn 2010 forecasts and the most 
recent assessment made by the Commission servi ces, the decline in output in 2010 is now 
expected to have stood at ju st 0.2%. However, the economic outlook has worsened over the 
last months, with real GDP growth now proj ected at 0.9% in 2011 and 1.9% in 2012 in the 
Commission services autumn 2010 forecast. Mo reover, the impact of the crisis on the 
financial sector has turned out to be much more pronounced  than anticipated. The support 
measures deemed necessary to preserve financ ial stability and restor e confidence in the 
banking sector and thereby support the economy's re turn to sustainable growth have a very 
large additional budgetary cost. Due to the unfores een capital injections in the banking sector 
and an increase in the sovereign funding costs,  interest expenditure relative to GDP is 
projected to increase by 2.3 pps. by 2014 compar ed to the projections  in the December 2009 
Stability Programme. 
(9) As a consequence, the fiscal situation is  significantly worse than expected, with the 
Commission services' autumn 2010 forecast pr ojecting the headline general government 
deficit to reach 32.3% of GDP in 2010. This reflects the large one-off banking sector support 
measures. Without these measures , the deficit would have been expected to measure12.5% of 
GDP in 2010. This is worse than the 11.6% of GDP projected in the December 2009 Stability 
Programme update but markedly better than the 14.7% of GDP pr ojected on the basis of a no-
policy-change assumption in the Commission services' autumn 2009 forecast underlying the 
December 2009 Council Recommendation. Relative to  this no-policy-change path, and in line 
with the December 2009 Council Recommendation, a fiscal consolidation package of 2½% of 
GDP was included in the budget for 2010, and fully  implemented. The cyclically adjusted 
deficit net of one-off effects is estimated to ha ve widened by 1¼ percentage points of GDP to 
around 11% of GDP in 2010. However, this refl ects developments in revenue elasticities 
during the deep recession rather than discre tionary measures. On the contrary, large 
consolidation packages have been adopted since mid-2008, amoun ting to some 9% of GDP in 
2009-10.  
(10) The Irish economy is projected to record lower growth rates in the immediate post-crisis 
period compared to the pre-crisis boom pe riod. In the Commission services autumn 2010 
forecast, real GDP growth is projected at 0.9% in 2011 and 1.9% in 2012. According to current Commission projections real GDP gr owth of 2.5% in 2013, 3.0%  in 2014 and 3.0% in 
2015 is expected. Price developments are also expected to be moderate. Nominal GDP is 
projected to increase by 1.3% in 2011 and 2.7% in 2012 in the Commission services autumn 
2010 forecast, while increases by 3.8% in 2013, 4.6% in 2014 and 4.8% in 2015 are expected 
according to current Commission projections . Given these macroeconomic assumptions, 
reducing the government deficit to below 3% of GDP by 2015 would require an improvement 
in the structural balance of at l east 9½% of GDP over the period 2011-2015.  
(11) Overall, in view of the above consider ations, unexpected adverse economic events with 
major unfavourable consequences for government  finances can be considered to have 
occurred after adopti on of the Recommendation under Article 126(7) of the Treaty. Moreover, 
the conclusion reached by the Council on 13 July 2010 that Ireland had taken action 
representing adequate progress towards the correction of the excessive deficit remains valid. 
 
EN 4   EN Finally, the higher starting point for the gove rnment deficit, compounded by the worse 
macroeconomic outlook and higher than foreseen interest expenditures make the achievement 
of the initial deficit reduction path unf easible. Against this  background, revised 
recommendations under Article 126(7) of the Tr eaty extending the deadline for the correction 
of the excessive deficit by one  year to 2015 are justified. 
(12) Gross public debt increased from 25% of GDP in 2007 to 65.5% of GDP at end 2009, 
thereby breaching the 60%-of-GDP reference value of the Treaty. The ratio is projected to increase to 97.4% of GDP at end 2010 in th e Commission services' autumn 2010 forecasts. 
The increase relative to the low pre-crisis level has been fuelled by a large primary general government deficit emerging in th e course of this cr isis. Measures to su pport the vulnerable 
banking sector made a significant contribution to the in crease in deficit a nd debt in 2009 and 
2010 of around 22½ percentage points of GDP in cumulative terms over the two years. 
Moreover, increased interest payments are fe eding into debt developments. Achieving a 
revised deficit reduction path leading to a defi cit below 3% of GDP in 2015 would imply that 
the debt ratio would stabilise in 2013 and st art declining thereafter. Debt dynamics are 
affected by several below-the-line operations , which are projected to increase the debt-to-
GDP ratio by 5.3 pps. of GDP in 2011, 0.8 pp. in 2010 and reduce it by 1.3 pps. in 2013, 1.1 
pps. in 2014 and 1 pp. in 2015. These include proj ected capital injec tion into banks and 
reductions in cash reserves in 2011, as well as differences between accru ed and cash interest 
payments. 
(13) On 24 November 2010 the authorities published a comprehensive National Recovery 
Plan 2011-2014 setting out detailed fiscal consol idation plans aiming at putting gross public 
debt on a firm downward path by reducing the de ficit over the horizon of the plan. An overall 
consolidation effort of EU R 15bn is envisaged over the period, effectively doubling the 
adjustment of EUR 7.5bn foreseen in the December 2009 Stability Programme update. The 
adjustment is clearly frontloaded, with a EU R 6bn consolidation package planned for 2011. It 
is foreseen that two thirds of the adjustment should be made on the expenditure side. The plan also sets out structural reforms, notably in the labour market. Moreover, the authorities have 
developed a comprehensive strategy to overhaul the financial sector. The strategy aims at 
restoring confidence in the sector, achieving a s ubstantial downsizing of the sector, isolating 
the viable parts of the system and returning th e sector to healthy functionality, supported by 
adequate recapitalisation measures.  
(14) In order to further enhan ce the credibility of the medium-term consolidation strategy, it 
will be crucial to address the weaknesses of the budgetary framework. Ireland should adopt 
and implement the fiscal rule that any additional unplanned revenues in 2011-2015 will be 
allocated to deficit and debt reduction. In accord ance with the proposal set out in the National 
Recovery Plan 2011-2014, Ireland sh ould establish a budgetary advisory council to provide an 
independent assessment of the Government's  budgetary position and forecasts. Finally, 
adoption of a Fiscal Responsibility Law intr oducing a medium-term expenditure framework 
with binding multi-annual ceilings on expenditu re in each area would support the planned 
adjustment. This shall be made taking into account any revised economic governance reforms 
at EU level and build on re forms already in place.  
(15) The long-term budgetary impact of ageing in  Ireland is above the EU average, mainly as 
a result of a relatively high projected incr ease in pension expend iture over the coming 
decades. The budgetary position in 2010 com pounds the budgetary impact of population 
ageing on the sustainability ga p. Improving the primary balance over the medium term and 
 
EN 5   EN further reforms would contribute to reducing the risk to the long- term sustainability of public 
finances. 
(16) Enhanced surveillance under the EDP, which seems necessary in view of the deadline for 
the correction of the excessive deficit, will  require regular and timely monitoring of the 
progress made in the implementation of the fiscal consolidation strategy. In this context, a separate chapter in the updates of the Irish stability programme which will be prepared 
between 2009 and 2015 could usefully be devoted  to this issue. Moreover, monitoring of 
fiscal targets will be undertaken in line with the provisions of the financial assistance programme for Ireland as also set out in the [7] December 2010 Council Decision on granting 
Union financial assistan ce addressed to Ireland.  
HEREBY RECOMMENDS:  1. Recognising that Ireland’s worse budgetary position in 2010 resulted from the impact 
of the crisis on government revenue a nd the financial sect or, requiring the 
implementation of very large financial sect or support measures, th e Irish authorities 
should put an end to the present excessive deficit situation by 2015. 
2. The Irish authorities should bring the gene ral government deficit below 3% of GDP 
in a credible and sustainable manner by ta king action in a medium-term framework. 
Specifically, to this end, th e Irish authorities should: 
(a) Implement measures such that the general government deficit does not exceed 
10.6% of projected GDP in 2011, 8.6% of GDP in 2012, 7.5% of GDP in 2013, 5.1% 
of GDP in 2014 and 2.9% of GDP in 2015, and where the projected annual deficit 
path does not incorporate the possible di rect effect of potential bank support 
measures in the context of the government's financial sector strategy as set out in the 
Memorandum of Economic and Financial Polices (MEFP) and specified in the Memorandum of Understanding to be signed by the Commission and the Irish 
authorities. Ireland shall stand ready to ta ke additional consolidation measures to 
ensure reducing the deficit to below 3% of GDP in 2015 in case downside risks to 
the deficit targets materialise. Further, this  path is consistent with the preliminary 
view of Eurostat on the ES A95 accounting treatment of time  of recording of interest 
payments on promissory notes payable to Anglo Irish Bank
1, such that a revision of 
that view would result in a revision of the deficit path; 
(b) Achieve an improvement in the structur al balance of at least 9½% of GDP over 
the period 2011-2015; 
3. In addition, the Irish aut horities should sei ze opportunities, including from better 
economic conditions, to accelerate the reduction of the gross debt ratio back towards 
the 60% of GDP reference value. 
4. To limit risks to the adjustment, Ireland should establish a budgetary advisory 
council to provide an independent asse ssment of the Government's budgetary 
position and forecasts. Ireland should adopt a Fiscal Responsibility Law introducing 
                                                 
1 See 
http://epp.eurostat.ec.europa.eu/portal/page/portal/g overnment_finance_statistics/methodology/advice_
member_states . 
 
EN 6   EN a medium-term expenditure framework with binding multi-annual ceilings on 
expenditure in each area. 
5. To reduce the risks to the long-term sust ainability of public finances, the Irish 
authorities should pursue fu rther reforms to the social security system. 
6. The Council establishes the deadline of 7 June 2011 for the Irish government to take 
effective action to specify the measures that  will be necessary to progress towards the 
correction of the excessive deficit. The assessment of effective action will take into account economic developments compar ed to the economic outlook in the 
Commission services' autumn 2010 forecast.  
The Irish authorities should report on prog ress made in the implementation of these 
recommendations in a separate chapter in the updates of the stability programmes which will be prepared between 2011 and 2015. 
Further, the Council invites the Ir ish authorities to implement re forms with a view to raising 
potential GDP growth. In addition, Ireland is invited to foster a swift adjustment to 
sustainable medium-term growth by productivity- enhancing measures and appropriate wage 
policies to help restore competitiveness. 
This Recommendation is addressed to Ireland. 
Done at Brussels, […] 
 For the Council 
 The President