Brussels, 30/09/2010 (Agence Europe) - Meeting informally in Brussels on Thursday 30 September, euro area finance ministers gave their backing to the austerity measures announced the previous day by Portugal, which is experiencing difficulty in refinancing its public debt, and on that same day by Ireland, to come to the aid of its banking sector. Ministers say that there is no question of the European financial stabilisation mechanism being used to help these two member states.
Ireland. “Together with the Commission and the ECB, the Eurogroup welcomes the ambitious additional consolidation measures adopted by the Portuguese government yesterday which cover both 2011 and 2012. With these measures, decisive steps have been taken towards meeting the budgetary targets of 7.3% of GDP for 2010 and 4.6% of GDP for 2001,” said Eurogroup President Jean-Claude Juncker. He pressed the Portuguese authorities to adopt “ambitious” structural reforms which would remove “rigidity in the labour market” and improve productivity. Announcing a third austerity package, Lisbon is planning a 5% reduction in the public sector wage bill, a freeze on pensions and an increase in VAT from 21% to 23% for the start of 2011. “Portugal faces not just this problem of public finances, but also Portugal needs to push ahead with a series of structural reforms that are fundamental to strengthening productivity,” said Portuguese Finance Minister Fernando Reixeira dos Santos.
Ireland. “The Commission welcomes the announcement of the Irish government aiming at reinforcing the capital of the banking sector,” said European Economic and Monetary Affairs Commissioner Olli Rehn. Although “very large”, the costs involved in bailing out the Allied Irish Bank and the Anglo Irish Bank remain, he said, “manageable”. Irish Finance Minister Brian Lenihan announced on Thursday that the national public deficit would expand to 32% of GDP rather than the 11.6% initially forecast. This tripling of the deficit is due to an upward review of the cost of saving the Anglo Irish Bank, now assessed at almost €30 billion. Stressing that this additional expense would be included as a whole in 2010, Rehn said that it remained credible that Ireland could bring its public deficit back below 3% by 2014. To achieve this target, Dublin also announced a new four-year austerity plan for November.
“Ireland's track record in terms of fiscal adjustment has so far been strong and the consolidation measures taken have been effective. That is why we have confidence in the commitment of Ireland to deliver a revised multi-annual adjustment programme that will bring its deficit under the 3% target by 2014 and its public finances on a sustainable path”, said Juncker. Competition Commissioner Joaquín Almunia, for his part, said that, concerning the Anglo-Irish Bank from a competition point of view, it was clear that the foreseen restructuring of the bank addresses competition distortions created by the large amounts of aid at stake. Noting that the Allied Irish Bank will need to receive further capital in the form of state aid, Almunia said he expected such aid to be notified to the Commission for approval.
Replying to questions on the possibility of resorting to the European financial stabilisation mechanism for assisting the two member states in difficulty, the Commission and the Eurogroup take the view that this is “not useful”. “It is not useful to discuss any type of hypothetical scenario”, Rehn took up. Earlier that morning, Juncker had said they thought that the Irish government could resolve its problem without having recourse to the rescue fund. Speaking to the press, he took stock of the operational implementation of this financial facility to which the agencies have attributed maximum rating. He said that Belgium and Slovenia were not yet a part for reasons connected to the organisation of national elections. (M.B./transl.rt/jl)