merrion street

• The Minister for Finance Michael Noonan T.D. has welcomed the decision by the EU to formally accept that Ireland is no longer running an excessive deficit.
• Ireland is part of the European wide economy and single market. It is important that each member of that market sticks to agreed limits of deficits and surpluses of spending, otherwise the earnings and welfare of people within Europe and within individual Member States can suffer. If a deficit in a country goes beyond the 3% limit the Member State is obliged to take actions to bring their finances back into line with the limits. This is known as the Excessive Deficit Procedure.
• Ireland’s exit from the Excessive Deficit Procedure represents a further significant step in the process of returning to normality following recent years of hard work. Ireland’s fiscal policy is now on a prudent and sustainable path. Both the Commission and our partner EU Member States have confirmed this. The financial markets take a positive view of the adoption and maintenance of policies which have brought this about. By exiting the Excessive Deficit Procedure, Ireland avoids the prospect of fines being imposed by the EU, has provided certainty and increased confidence in our economy. 
• In order to prevent countries getting into a position where they have expenditure overruns that are too big to handle, Ireland and its partners have agreed to rules which are designed to keep our public finances aligned. This is known as the Preventive Arm of the Stability and Growth Pact. The rules are aimed at ensuring that key public services for citizens are funded in a sustainable way and seek to achieve a budget which is balanced in structural terms. Once this structural balance is achieved in 2018 Ireland will have some more leeway in the use of available resources.

Speaking ahead of the meeting of European Finance Ministers in Luxembourg the Minister for Finance, Michael Noonan T.D. welcomed the decision and said:
“Ireland’s deficit by the end of 2016 is forecast to be less than one percent of GDP so we are moving to a point where we will have a balanced budget both in nominal terms and in structural terms.
Exiting the Excessive Deficit Procedure is a very important benchmark for Ireland as it demonstrates that Ireland has sound public finances thanks to the policies the Government has pursued. It also means that we won’t be applying some of the resources we have to reducing the deficit rather that we will have more resources for expenditure programmes and for capital investment.”
ENDS
17 June 2016
Further information from:
David Byrne - Press Officer - pressoffice@finance.gov.ie - 086 026 7978
Notes for Editors
The 3% of GDP limits are laid down in Protocol 12 of the Treaty on the functioning of the European Union.
A deficit occurs in a country in a year when more money is being spent on providing essential services to the public than the Government is able to collect to pay for those services and to service the national debt.
What is the Excessive Deficit Procedure (EDP)
The Excessive Deficit Procedure is the mechanism to ensure that the provisions of the EU Treaties on excessive deficits and debt are implemented. Member States which run excessive budget deficits of more than 3% of GDP, or which fail to reduce their excessive debts (above 60% of GDP) at a sufficient pace are subject to the Excessive Deficit Procedure (EDP).
The provisions for this are set out in COUNCIL REGULATION (EC) No 1467/97 of 7 July 1997, as subsequently updated.
Under the EDP, Member States commit to targets to bring their excessive deficits or debts back to safe levels. They also face the possibility of warnings and ultimately sanctions, such as fines that can reach 0.2% of their GDP, if they persistently fail to take adequate action to address their deficits or debts. Regional subsidies from the EU’s ‘cohesion fund’ may also be withheld.
Recommendations to national governments can be made by the EU whenever they are warranted by the circumstances.
The corrective arm of the Stability and Growth Pact (SGP) ensures that Member States adopt appropriate policy responses to correct excessive deficits by implementing the Excessive Deficit Procedure (EDP).
Advantage of being out of the EDP
Ireland’s exit from the EDP represents a further significant step in the process of normalisation following the crisis.
We are now observing our obligations under the Treaties – we are no longer subject to exceptional oversight of our fiscal policies. (note: We are still subject to Post Programme Surveillance – owing to the amount of EU programme loans outstanding.).
Exiting the EDP means that Ireland’s fiscal policy is now on a prudent and sustainable path. This is confirmed by the Commission recommendation to end Ireland’s EDP, and by the Council’s approval of that recommendation.
The financial markets view the adoption and maintenance of policies which resulted in exit from the EDP positively.
By exiting the EDP on time, we have shown that we can put our affairs in order.
Exiting the EDP means we avoid the prospect of fines being imposed by the EU.
Exiting the EDP ensures we are not in a continuous period of escalation of procedures – which generates uncertainty and damages confidence and lead to financial sanctions.
We are now subject to the Preventive Arm of the Stability and Growth Pact (SGP). This means that we must now target the Medium Term Budgetary Objective (MTO) which is to achieve a budget which is balanced in structural terms. Once the MTO is achieved – we will have somewhat more leeway to assign available resources than would apply under the corrective arm, as long as this does not compromise the achievement of the MTO.
With the MTO, Budgetary policy is set in appropriately counter cyclical terms. This is another step in correcting the mistakes of the past and avoiding them in the future.