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In a report released 28 January 2009, the European Commission has recommended that Ireland pursues its structural economic reforms. In particular, the Commission thinks that Ireland needs to restore fiscal sustainability and boost productivity.

The Commission notes that the Irish economy is vulnerable due to the aftermath of the housing boom and because of the financial crisis. Public spending should be carefully prioritised and productivity strengthened, it says. Together with expanding Human Capital (education and training) and investing in Physical Capital (improving infrastructure) this should help the Irish economy to adjust and gradually return to growth. There is also a need to reform pensions and move towards a low-carbon economy.

Commission President José Manuel Barroso said: "The €200 billion targeted fiscal stimulus proposed by the Commission and agreed in December is the crucial short-term energy boost our economies need to fight the crisis while also investing in the future. But we need a comprehensive medium-term fitness plan. Member States must agree and implement the much-needed structural reforms set out in today's recommendations, to pave the way for a gradual but lasting return to creating growth and jobs, within a greener and fairer economy."

The recommendations are part of a regular review of Member States' national programmes to create growth and jobs. In the review, each country's progress is monitored by economic experts and specific recommendations are issued. The recommendations are not legally binding but are nevertheless a political instrument to ensure that Member States implement their policy commitments.

The report for Ireland is below – recommendations are at point 7:

1. Due to the deterioration in the housing market, amplified by the financial crisis, GDP is estimated to have contracted by 2% in 2008 (compared to growth of 6% in 2007). In addition, Ireland is particularly exposed to the lower growth prospects in its main trading partners and real GDP is expected to contract further in 2009. Inflation, which peaked at close to 4% in mid-2008, is now easing. The public finances have deteriorated because of a significantly reduced tax intake linked to the property market correction and the wider recession. The budget deficit was 6% of GDP in 2008, reversing recent modest surpluses, and this deficit risks widening considerably further subsequently. External balances have weakened in recent years due to losses in cost competitiveness and a current account deficit (of around 6% of GDP) is projected for 2008 and somewhat smaller for 2009.

2. Current labour market estimates suggest employment declined in 2008, and will further decline in 2009. The unemployment rate increased to 6% in 2008 and is expected to increase further in 2009. The number of people claiming unemployment benefits rose by over 50% in 2008. Workers from the construction sector, particularly young males, are most affected by rising unemployment.

3. In response to the financial crisis and as part of a co-ordinated EU approach, Ireland has adopted financial sector support measures to stabilise the banking sector, which should also help improve access to finance and thus support the wider economy, and underpin macro-economic stability. In addition, in response to the economic downturn, Ireland recently adopted measures, including support for the housing sector and income support for the most vulnerable.

4. The Commission will assess measures taken by Ireland to respond to the economic downturn in line with the principles set out in the European Economic Recovery Plan as adopted by the European Council. As regards public finances, the Commission will assess the compatibility of the updated Stability Programme with the Stability and Growth Pact. Moreover, the measures recommended in paragraph 7 should be implemented swiftly, in particular to encourage the transition towards a low carbon economy and enhance long-term growth potential.

5. Ireland has continued the implementation of its National Reform Programme. Measures have been taken to increase the availability of childcare places and to improve skills. Additional efforts are needed to reform pensions. Developments in the housing market have had a more adverse effect on public finances and GDP growth than expected.

6. The main challenges Ireland currently faces arise from the aftermath of the housing boom and the financial crisis. However, the Irish economy has also become more vulnerable as its competitive position has been gradually eroded. There is now an urgent need to rebalance growth and to rebuild competitiveness. In the medium term further pension reform is needed to ensure sustainability. As the budgetary situation has also deteriorated significantly, restoring fiscal sustainability should be a priority. Together with a careful prioritisation of public expenditures and the promotion of reforms that strengthen higher-productivity growth through expanding and improving physical and human capital, this will increase the capacity of the Irish economy to adjust and gradually return to medium-term sustainable growth. In this context, strengthened competition in the retail sector is needed. The implementation of the energy and climate change package, agreed by the European Council, will require close attention.

7. In light of the Commission's assessment of progress made, the Council recommends Ireland to pursue the implementation of structural reforms. In particular, it is recommended that Ireland:

*gradually restores fiscal sustainability.

*fosters a swift adjustment to sustainable medium-term growth by productivity-enhancing measures.