REPORT FROM THE COMMISSION Ireland Report prepared in accordance with Article 126(3) of the Treaty on the Functioning of the European Union
Date: 2020-05-20
Institutions: Directorate-General for Economic and Financial Affairs, European Commission
Subjects: Ireland, budget deficit, budget policy, budgetary control, epidemic, gross domestic product, infectious disease, macroeconomics, public debt, stability pact

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 20.5.2020  COM(2020) 541 final  REPORT FROM THE COMMISSION Ireland  Report prepared in accordance with Article 126(3) of the Treaty on the Functioning of the European Union  
 
 
REPORT FROM THE COMMISSION 

Ireland 

Report prepared in accordance with Article 126(3) of the Treaty on the Functioning of 
the European Union 

1. 

INTRODUCTION  

On  20  March  2020,  the  Commission  adopted  a  Communication  on  the  activation  of  the 
general  escape  clause  of  the  Stability  and  Growth  Pact.   The  clause,  as  set  out  in  Articles 
5(1),  6(3),  9(1)  and  10(3)  of  Regulation  (EC)  1466/97  and  Articles  3(5)  and  5(2)  of 
Regulation (EC) 1467/97, facilitates the coordination of budgetary policies in times of severe 
economic downturn. In its Communication, the Commission shared with the Council its view 
that, given the expected severe economic downturn resulting from the COVID-19 outbreak, 
the  current  conditions  permit  activation  of  the  clause.  On  23  March  2020,  the  Ministers  of 
Finance of the Member States agreed with the assessment of the Commission. The activation 
of  the  general  escape  clause  allows  for  a  temporary  departure  from  the  adjustment  path 
towards  the  medium-term  budgetary  objective,  provided  that  this  does  not  endanger  fiscal 
sustainability in the medium term. For the corrective arm, the Council may also decide, on a 
recommendation  from  the  Commission,  to  adopt  a  revised  fiscal  trajectory.  The  general 
escape  clause  does  not  suspend  the  procedures  of  the  Stability  and  Growth  Pact.  It  allows 
Member States to depart from the budgetary requirements that would normally apply while 
enabling  the  Commission  and  the  Council  to  undertake  the  necessary  policy  coordination 
measures within the framework of the Pact. 

Data  notified  by  the  Irish  authorities  on  31  March  2020  and  subsequently  validated  by 
Eurostat1 show that the general government balance in Ireland reached 0.4% of GDP in 2019, 
while general government gross debt stood at 58.8% of GDP. According to the 2020 Stability 
Programme, Ireland plans a deficit of 7.4% of GDP in 2020, while debt is planned at 69.1% 
of GDP. 

The planned deficit for 2020 provides prima facie evidence of the existence of an excessive 
deficit as defined by the Stability and Growth Pact. 

Against this background, the Commission has therefore prepared this report, which analyses 
Ireland’s  compliance  with  the  deficit  criterion  of  the  Treaty.  The  debt  criterion  can  be 
considered to be met as the debt ratio in 2019 was below the Treaty reference value of 60% 
of  GDP.  It  takes  into  account  all  relevant  factors  and  gives  due  consideration  to  the  major 
economic shock linked to the COVID-19 pandemic.  

1 

https://ec.europa.eu/eurostat/documents/2995521/10294648/2-22042020-AP-EN.pdf/6c8f0ef4-6221-1094-

fef7-a07764b0369f 

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Table 1. General government deficit and debt (% of GDP)  

2016 

2017 

2018 

2019 

-0.7 

-0.3 

0.1 

0.4 

2020 
COM 

-5.6 

2021 
COM 

-2.9 

73.8 

67.7 

63.5 

58.8 

66.4 

66.7 

Deficit 
criterion 

Debt 
criterion 

General 
government 
balance 
General 
government 
gross debt 

Source: Eurostat, Commission 2020 spring forecast 

2. 

DEFICIT CRITERION 

Based  on  the  2020  Stability  Programme,  Ireland’s  general  government  deficit  in  2020  is 
planned to reach 7.4% of GDP, well above and not close to the Treaty reference value of 3% 
of GDP. 

The planned excess over the Treaty reference value in 2020 is exceptional, as it results from a 
severe economic downturn. Taking into account the impact of the COVID-19 pandemic, the 
Commission 2020 spring forecast projects a contraction of real GDP in 2020 by 7.9%. 

The  planned  excess  over  the  Treaty  reference  value  would  be  temporary  based  on  the 
Commission  2020  spring  forecast.  However,  those  projections  are  surrounded  by  an 
exceptionally high degree of uncertainty. 

In  sum,  the  planned  deficit  for  2020  is  above  and  not  close  to  the  3% of GDP  Treaty 
reference value. The planned excess is considered to be exceptional as defined by the Treaty 
and  the  Stability  and  Growth  Pact,  while  the  nature  of  the  excess  is  currently  considered 
temporary. Hence, the analysis suggests that prima facie the deficit criterion as defined by the 
Treaty and Regulation (EC) No 1467/97 is not fulfilled. 

3. 

RELEVANT FACTORS  

Article 126(3) of the Treaty provides that, if a Member State does not fulfil the requirements 
under one or both of those criteria, the Commission has to prepare a report. That report must 
also  “take  into  account  whether  the  government  deficit  exceeds  government  investment 
expenditure  and  take  into  account  all  other  relevant  factors,  including  the  medium-term 
economic and budgetary position of the Member State”.  

Those factors are further clarified in Article 2(3) of Regulation (EC) No 1467/97, which also 
provides  that  “any  other  factors  which,  in  the  opinion  of  the  Member  State  concerned,  are 
relevant in order to comprehensively assess compliance with the deficit and debt criteria and 
which the Member State has put forward to the Council and to the Commission” need to be 
given due consideration. 

As specified in Article 2(4) of Regulation (EC) No 1467/97, as regards compliance with the 
deficit  criterion  in  2020,  since  the  government  debt-to-GDP  ratio  is  planned  to  exceed  the 
60% reference value in 2020 and the double condition is not met – i.e. that the deficit remains 
close to the reference value and that its excess over the reference value is temporary – those 
relevant  factors  cannot  be  taken  into  account  in  the  steps  leading  to  the  decision  on  the 
existence of an excessive deficit on the basis of the deficit criterion for Ireland.  

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In the current  situation,  a key  additional factor to  take into consideration regarding 2020 is 
the economic impact of the COVID-19 pandemic, which has a very substantial impact on the 
budgetary situation and  results in  a highly  uncertain outlook. The pandemic has also  led to 
the activation of the general escape clause. 

3.1. 

 COVID-19 pandemic 

The  COVID-19  pandemic  has  led  to  a  major  economic  shock  that  is  having  a  significant 
negative  impact  throughout  the  European  Union.  The  consequences  for  GDP  growth  will 
depend  on  the  duration  of  both  the  pandemic  and  of  the  measures  taken  by  national 
authorities and at European and global level to slow its spread, protect production capacities 
and  support  aggregate  demand.  Member  States  have  already  adopted  or  are  adopting 
budgetary  measures  to  increase  the  capacity  of  health  systems  and  provide  relief  to  those 
individuals  and  sectors  that  are  particularly  affected.  Significant  liquidity  support  measures 
and  other  guarantees  have  also  been  adopted.  Subject  to  more  detailed  information,  the 
competent statistical authorities are to examine whether those measures entail an immediate 
impact on the general government balance or not. Together with the fall in economic activity, 
those measures will contribute to substantially higher government deficit and debt positions. 

3.2 

Medium-term economic position  

Ireland’s real  GDP  grew by  5.5% in  2019  and  entered 2020 on  a strong  footing,  with  both 
domestic demand and net exports performing well. The pandemic is expected to affect many 
sectors of the economy. Both private consumption and investment are projected to shrink this 
year.  In  contrast,  net  exports  are  expected  to  be  positive  partly  driven  by  some  export 
resilience  due  to  the  large  share  of  pharmaceuticals  and  medical  products  in  Irish  exports. 
According  to  the  Commission  2020  spring  forecast,  Ireland’s  economy  is  projected  to 
contract  by  around  8%  in  2020.  This  a  mitigating  factor  in  the  assessment  of  Ireland’s 
compliance with the deficit criterion in 2020 

The uncertainty surrounding Ireland’s macroeconomic outlook is particularly elevated, with 
risks relating to the unknown length of the pandemic and the lockdown measures in Ireland 
and  its  main  trading  partners,  as  well  as  the  behavioural  changes  it  will  induce.  The 
uncertainty is compounded by factors specific to Ireland, such as changes in the international 
taxation  environment.  Moreover,  Ireland  is  particularly  affected  by  the  future  relationship 
between  the  European  Union  and  the  United  Kingdom.  Operations  of  multinational 
companies  operating  in  Ireland  remain  difficult  to  predict  and  can  affect  GDP  figures  in 
either direction. 

3.3 

 Medium-term budgetary position 

Based on the outturn data and the Commission 2020 spring forecast,  Ireland was compliant 
with its medium-term budgetary objective in 2019. 

A  general  government  surplus  of  0.4%  of  GDP  was  recorded  in  2019,  on  the  back  of  a 
booming economy, which brought about strong increases in tax revenues and social security 
contributions and a continued fall in the interest burden. 

Ireland  has  adopted  a  range  of  measures  to  provide  support  and  relief  to  households  and 
sectors particularly impacted, amounting to around 2.3% of GDP.  

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According to the Commission 2020 spring forecast, a general government deficit of 5.6% of 
GDP  is  projected  in  2020.  This  is  due  to  the  operations  of  automatic  stabilisers  and 
discretionary fiscal measures taken by the government in response to the pandemic – with an 
impact  on the deficit of  around 2.0% of GDP.  Risks to  the medium-term  fiscal  outlook are 
significant. They relate to uncertainty as regards the ultimate size of the fiscal expansion to 
counter the crisis and possible changes in the international taxation environment. 

3.4.  Medium-term government debt position  

According to the Commission 2020 spring forecast, general government debt is expected to 
rise from 58.8% of GDP in 2019 to 66.4% in 2020. 

The debt sustainability analysis has been updated on the basis of the Commission 2020 spring 
forecast.  Overall, the debt  sustainability assessment indicates that the debt  position remains 
sustainable over the medium-term, which also takes account of important mitigating factors 
linked to the debt profile. In particular, while the government debt position has deteriorated 
as a result of the COVID-19 crisis, the debt-to-GDP ratio in the baseline is expected to be on 
a sustainable (declining) trajectory over the medium term.2 

Graph 1: Government debt-to-GDP ratio, Ireland, % of GDP 

80

75

70

65

60

55

50

45

40

2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Baseline

Adverse scenario

Source: Commission services 

3.5 

Other factors put forward by the Member State  

On 18 May 2020, the Irish authorities transmitted a letter with relevant factors in accordance 
with  Article  2(3)  of  Regulation  (EC)  No  1467/97.  The  analysis  presented  in  the  previous 

2 The baseline is based on the Commission Spring 2020 forecast. Beyond 2021, a gradual adjustment of fiscal 
policy is assumed, consistent with the EU economic and fiscal coordination and surveillance frameworks. Real 
GDP growth is projected according to the so-called EPC/OGWG T+10 methodology. In particular, (real) actual 
GDP  growth  is  driven  by  its  potential  growth  and  affected  by  any  additional  fiscal  adjustment  considered 
(through the fiscal multiplier). Inflation is assumed to converge gradually to 2%. Interest rates assumptions are 
set in line with financial market expectations. Under the adverse scenario, higher interest rates (by 500 bps.) and 
lower GDP growth (by -0.5 pp.), with respect to the baseline, are assumed (throughout the projection horizon) 

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sections  already  broadly  covers  the  key  factors  put  forward  by  the  authorities.  Additional 
factors not yet mentioned above relate to Ireland’s effort to strengthen its public finances in 
the  preceding  years,  by  running  headline  budget  surpluses  and  establishing  the  Rainy  Day 
Fund.  

4. 

CONCLUSIONS 

According to its Stability Programme Ireland’s headline general government deficit in 2020 
is  planned  to  increase  to  7.4%  of  GDP,  above  and  not  close  to  the  3%  of  GDP  Treaty 
reference value. The planned excess over the reference value is considered to be exceptional 
and currently considered to be temporary.  

In line with the Treaty and the Stability and Growth Pact, this report also examined relevant 
factors.  

As specified in Article 2(4) of Regulation (EC) No 1467/97, as regards compliance with the 
deficit  criterion  in  2020,  since  the  government  debt-to-GDP  ratio  is  planned  to  exceed  the 
60% reference value in 2020 and the double condition is not met – i.e. that the deficit remains 
close to the reference value and that its excess over the reference value is temporary – those 
relevant  factors  cannot  be  taken  into  account  in  the  steps  leading  to  the  decision  on  the 
existence of an excessive deficit on the basis of the deficit criterion for Ireland. 

Overall,  the  analysis  suggests  that  the  deficit  criterion  as  defined  in  the  Treaty  and  in 
Regulation (EC) No 1467/1997 is not fulfilled.  

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