The European Commission has warned that Ireland’s “hard-earned” reform progress to regain financial market trust will be “destroyed” unless EU leaders act quickly on debt promises made last year.

In a draft report the commission said the need for further bank recapitalisations cannot be ruled out, warned that the personal insolvency Bill was “at risk” and flagged health spending as a continued cause of concern.

The delegation criticised the Croke Park’s voluntary redundancy programme as “expensive” and noted Government plans to tackle unemployment by contracting private job agencies on a “payment-by-results” system. With tender proceedings likely in the spring, operations are unlikely to be signed before October. After positive comments this week from senior Brussels officials in Dublin the draft Commission report, circulated to German MPs yesterday and the German language version seen by The Irish Times, underlines the need for leaders to agree additional debt measures for Ireland.

“The recent reduction in bond risk premia reflects the sustained implementation of the programme and expectations of future improvements in the programme after the positive remarks of leading European politicians in June and July,” the report says. “There is thus a risk that hard-earned progress could be destroyed if progress in this area takes longer than one can sensibly expect.”

Irish banks remain under close scrutiny, with the report warning that the ongoing costs of writing down loans posed a “serious threat to a medium-term, sustainable return of banks to profitability”. In case already poor economic forecasts worsen further, “the risks for potential future capital requirements cannot be fully ruled out”.

Debt deal

Strengthening the Government’s case for a debt deal were economic forecasts suggesting that Ireland was reaching the limits of growth through improved productivity.

Of central concern here is a possible “domino effect” of a weak labour market and demand on growth. Earlier prognoses about a return to growth were “somewhat too optimistic” with a knock-on effect on 2014 forecasts. Economic prognoses in general were increasingly difficult, the report noted.

The commission stepped up concerns about the personal insolvency Bill from previous reports, warning that implementation of the Bill was “at risk” because the €3 million upper threshold for mortgage debt was “unduly high”. With average mortgage deb at €300,000, the report said the system’s efficiency could be “jeopardised if ... overloaded with large complex cases” involving interconnected debts on private, investment and company properties.

The delegation once again raised concerns about the Croke Park agreement.

While essential services should be preserved, the delegation said that “all options should remain on the table” and proposed “the reduction of additional payments and salary tables in certain categories” as a way of bringing Irish wage rates in line with other countries.

“This is particularly true for the health sector,” it noted.

Health spending in Ireland remains a cause of concern for the commission. Savings promises have been “only partially delivered”, resulting in an estimated €370 million budget overrun in 2012.

Ireland has the highest OECD per-head health spend, the report noted, flagging salaries of doctors and consultants as “worthy of special attention”. Higher consultant numbers might drive down salaries, the report added.

“More can be done in the cost of medication,” the authors added, noting that Ireland’s spending in this area almost tripled between 2000 and 2008 and, in 2010, lay a third above the EU average.

Branded products

Doctors should be obliged to prescribe active ingredients rather than branded products, except in cases where there is a well-founded reason.

The report recommends close scrutiny, including electronic monitoring, to ensure compliance with prescription rules.

A shift to so-called “international non-proprietary names” is included in an EU directive to be implemented by this October.

A Bill passing through the Oireachtas allows pharmacists substitute acceptable generic substitutes for more expensive brand-name products.