Joan Burton (Dublin West, Labour)
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Question 151: To ask the Minister for Finance his views on the EU Commission's autumn economic forecasts in so far as they concern Ireland; his views on whether the implication is that the EU Commission does not have confidence in Ireland meeting its fiscal deficit target of below 3% by 2014; his further views on whether the implication of the debt-to-GDP forecasts contained therein imply that the EU Commission expects that the cost of recapitalising the Irish banking system is likely to be some €10 billion higher than previously acknowledged, even before the revised PCAR analysis is carried out; his views on whether this scenario is deeply worrying; and if he will make a statement on the matter. [47990/10]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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The EU Commission's Autumn Forecasts project real GDP growth of 0.9% for 2011 and 1.9% for 2012 after an anticipated marginal decline of 0.2% for 2010. My Department's forecasts are 1.7% for 2011 and 3.2% for 2012 after a marginal increase of 0.3% for 2010. Reuters also publish a monthly survey of private sector economic forecasts (typically 10 economists surveyed). The results are known as the Reuters consensus forecast. The consensus forecast for end-November was published in early December. For next year the consensus is for GDP growth of 1.6% (DoF is 1.7%). The GNP projection for next year is 1.0% (DoF is also 1.0%). The headline in the Reuters circular is "Economists views…closer to that of the Irish government than the more pessimistic EU Commission". Economic forecasts are, by their very nature, highly uncertain - forecasting is not an exact science especially at the current juncture.

The differences between the Department and the EU Commission mainly relate to private consumption - the Department is taking the view that the budgetary consolidation measures will help restore confidence and lead to some decline in the rate of savings by households.

In terms of the debt-to-GDP ratio, the Commission is forecasting a debt-to-GDP ratio of 114% by 2012 whereas my Department anticipates a debt-to-GDP ratio of 102% by 2012. Some of the difference is explained by the Commission's lower economic growth forecasts and hence its higher projected deficits in the medium term. However, some of the differences relate to the assumptions that the Commission has made in relation to banking sector recapitalisation needs.

If developments in the Irish economy were to evolve in line with the Commission's forecasts, it would take Ireland until 2015 to reach a deficit to GDP ratio of 3%. The Ecofin Ministers have granted Ireland an extra year to achieve a deficit of less than 3% of GDP in the event that it is required. The budgetary plans, as set out in Budget 2011 and the National Recovery Plan are based on achieving a deficit of less than 3% of GDP by 2014 and these plans are realistic in the current circumstances.

The joint EU-IMF programme of financial assistance for Ireland provides for up to €35 billion to be made available to support the banking system with €10 billion available for immediate recapitalisation and the remaining €25 billion provided on a contingency basis.

The budgetary forecasts contained in Budget 2011 assume that the €10 billion for immediate recapitalisation comes from the State's own resources, through the National Pensions Reserve Fund (NPRF) and other domestic cash resources, and as such does not add further to General Government Gross debt.