Europe Economy

ECB's Asmussen says Ireland must keep to austerity

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Ireland should not ease up on austerity in its annual budget next month but stick to a target of 3.1 billion euros ($4.2 billion) worth of spending cuts and tax hikes, European Central Bank (ECB) Executive Board member Joerg Asmussen said on Saturday.

Ireland has beaten several targets under its bailout, leading to calls by government ministers for a more modest fiscal adjustment for next year than agreed with lenders the European Union, International Monetary Fund (IMF) and ECB.

"I would really suggest to stick to the budget plan for the next year and to stick to the figure of 3.1 billion" euros, Asmussen said in an interview with Irish state broadcaster RTE.

"It is crucial the authorities stick to the programme's objectives as they have done to ensure the country remains on a sustainable path," he said.

(Read more: Ireland 'a class apart')

Asmussen's comments echo those by the IMF in July when it called on the government to stick to the target.

Credit ratings agency Moody's on Friday said the country risked a ratings downgrade if its fiscal consolidation faltered.

Members of parliament have suggested cutting the fiscal adjustment to between 2.5 and 2.8 billion euros, but the government says no decision has been made.

Asmussen was upbeat about Ireland's growth prospects, saying recent data supported expectations of a gradual recovery in economic activity in the second half that would help ensure the country exits its bailout on target by the end of the year.

He said the risk of additional recapitalization of Irish banks due to mortgage arrears was not a particular concern.

But he also said he did not expect the government to be successful in its bid to use the euro zone bailout fund, the European Stability Mechanism (ESM), to retroactively recapitalize the country's banks, possibly by buying shares.

Finance Minister Michael Noonan has said the government plans to submit proposals to its European partners before the end of the year on the use of the ESM to ease the burden of Ireland's bank recapitalization.

"As I observe the situation as it stands currently, I would not see a majority for the retroactive use of the ESM for direct bank recapitalization," Asmussen said.

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