EU economic commissioner Olli Rehn has called for political consensus ahead of this year's budget following a meeting this evening with Minister for Finance Brian Lenihan.
It is understood Mr Rehn outlined the EU’s analysis of Ireland’s economic problems during the meeting and emphasised the need for a comprehensive plan to bring Government spending in line with revenue.
Speaking at a joint-press conference with Minister Lenihan following tonight's meeting, Mr Rehn said Ireland won't continue as a "low-tax" country and called for a cross-party consensus on the economy.
“I want to begin by saying this is an important visit for me,” Mr Rehn said. Although he met Brian Lenihan frequently in Brussels he found the “direct exchange of views” with people in Dublin most helpful.
He told reporters at the Department of Finance that he would be in listening mode at tommorow’s meetings with Opposition parties.
Noting that there were “inherent party differences” in Ireland, he said that nevertheless such a consensus “would be a great benefit to Ireland” especially if it “could be developed shortly”.
On the issue of structural reforms, he said: “I would first prefer to listen to Brian Lenihan.” It was important that there be reforms in the labour market: “It is a work in progress.”
Asked if Europe would take “a more vocal role” in the Irish economic situation if targets were not met, he said: “It’s better not to paint the Devil to the wall unless you know you can wash it out from there.”
There were certain economic “rules of thumb” which usually tended to speak in favour of relatively more expenditure cuts than revenue increases. “Ireland has been a low-tax country,” he said, but now it was time to become a “normal tax country”.
"The credit boom and the real estate bubble were unsustainable and the subsequent crash hit both the banking sector and the public finances very hard and hit the Irish people very hard."
Tomorrow, Mr Rehn will hold separate meetings with representatives of Fine Gael, Labour and Sinn Féin at the European Commission office in Dublin.
He will also meet delegations from the Irish Congress of Trade Unions and Ibec, as well as Prof Patrick Honohan, the governor of the Central Bank. In the afternoon he will deliver a lecture at the Institute for European Affairs, before returning to Brussels in the evening.
Mr Rehn has publicly backed the Government’s €6 billion adjustment target for 2011, but has also warned that further difficult decisions remained to be taken.
With political uncertainty growing and investors wary of buying Irish assets given Germany's determination that bondholders will foot a greater share of future bailout bills, Dublin is battling to turn the tide of negative sentiment.
The premium investors demand to hold Irish debt over benchmark German bunds rose again today, extending a month-long climb that has seen Irish borrowing costs reach record highs on a near daily basis.
"I think the market has given up on them," said Alan McQuaid, chief economist with Bloxham Stockbrokers.
While Ireland does not face any immediate liquidity demands - it is fully funded until the middle of next year - there are real concerns that if Taoiseach Brian Cowen fails to get the budget passed in December, the country will be unable to return to the bond markets, as planned, in January.
Brussels is anxious to ensure that an Irish financial crisis will not destabilise the euro.
With a parliamentary by-election later this month likely to cut the government's majority to just two, Mr Cowen needs to keep independent TDs, backbenchers and his coalition partners on-side to push through the toughest austerity budget on record and stave off financial meltdown.
But with the threat of an early general election looming next year and an ugly mood growing among recession-weary taxpayers, politicking around the cutbacks has begun in earnest.
The Greens reiterated today that the state old-age pension could not be cut.
"We want to remain in control of our economic sovereignty, that's for certain, but we do have several weeks left when we can shape a fair budget," Minister of State for Equality Mary White told RTÉ.
"This would send a good positive signal that we care about our pensioners, that we care about old and vulnerable people."
Meanwhile, Seán Healy director of Social justice Ireland said Mr Rehn has “insulted Ireland’s poor and vulnerable people” by refusing to meet them.
Mr Healy said “It is totally unacceptable that the European Commission supports an approach which will see Ireland’s weakest groups take the major part of the ‘hit’ for the reckless actions of greedy bankers, incompetent regulators and an inept government.”
The Cabinet discussed the budget for 3½ hours yesterday before his arrival in Dublin.
The Cabinet discussions yesterday focused on the choices to be made in the budget and in the four-year plan designed to reduce the deficit to 3 per cent of gross domestic product (GDP) by 2014.