The Republic of Ireland's financial deficit is way beyond acceptable EU limits and the Government's forecasts for improvement are "somewhat optimistic", the European Commission warned today.
A Commission report launching formal "Excessive Deficit Procedure" against Ireland under EU debt and deficit rules said a sharp deterioration in Ireland's public finances is continuing and could see an estimated deficit of 6.3% of GDP in 2008 widen to 9.5% this year - more than three times the maximum 3% deficit permissible under the EU's Stability and Growth Pact.
The limits set under the Pact are designed to avoid wide disparities between national economies in the eurozone, and the Commission is making allowances for "exceptional" and "temporary" economic circumstances across Europe.
However, in Ireland's case, today's report says the "exceptional" Irish deficit above the maximum 3%, is not even close to the 3%, and cannot be considered temporary.
The report says the Irish Stability Programme envisages a progressive reduction of the deficit to below 3% in 2010, "assuming a recovery of economic activity after 2010".
It goes on: "The measures adopted by the government can be regarded as welcome and adequate given the high deficit and a sharply-increasing debt position and are in line with the European Recovery Plan.
"But the growth scenario is somewhat optimistic and the consolidation measures presently lack detail. Further risks stem from the measures in place to support the financial sector, in particular bank guarantees and, concerning the debt ratio, the possibility of further capital injections or nationalisations of banks".