Onverwachte economische krimp in Ierland (en)
EUOBSERVER i / BRUSSELS - New figures released by the Irish statistics office have shown a surprise contraction in the country's growth during the second quarter of this year, a further difficulty for Dublin which is already struggling to cut a large public deficit and revive an ailing banking sector.
Despite a surge in exports, Thursday's (23 September) data from the Central Statistics Office indicated Irish gross domestic product (GDP) fell by 1.2 percent in the three months up to the end of June when compared to the previous quarter.
This contrasts with eurozone figures which show growth as a whole of 1 percent to the end of June, with Ireland and Greece the only members recording a downturn.
Irish finance minister Brian Lenihan denied the country was sliding into a double-dip recession, preferring to point to improvements in gross national product (GNP) - a frequently favoured economic indicator in Ireland that strips out the impact of repatriated profits from the multinational sector and interest on borrowings paid to foreigners.
The new figures showed a decline in GNP of 0.3 percent in the second quarter, compared with a fall of 1.2 percent in the first, leading Mr Lenihan to describe the economy as "stabilising".
But economists suggest the ruling Fianna Fáil-Green coalition government may be forced to review its annual growth forecast, with Irish bonds and stocks coming under renewed pressure after the news on Thursday.
In spite of a successful government sale of €400 million in short-term treasury bills during the morning, other investors opted to sell later in the day, pushing up yields on 10-year Irish bonds by 16 basis points to 6.34 percent, a record 4.16 percent higher than in Germany.
Government hints that holders of subordinated bonds in the nationalised Anglo Irish Bank may not receive their full returns also weighed on markets.
Ireland's woes appear to have returned in recent weeks after a summer lull, with the country's central bank chief recently suggesting the government may struggle to reduce its massive budget deficit this year in line with targets set by the European Commission.
Tougher EU rules
Faced with ongoing problems in several peripheral eurozone countries, Brussels is set to come forward with concrete legislative proposals next Wednesday on how to tighten the bloc's budgetary rules.
EU officials indicate the proposals will call for a system of earlier and more graduated fines for eurozone member states that fail to remain within the bloc's three percent of GDP budget deficit limit and 60 percent of GDP debt limit.
While fines are theoretically possible under the current system, they have never been applied. The changes would mean that a qualified majority of member states would be needed to block a proposed fine from the commission, instead of qualified majority to approve it, as is currently the case.
A greater emphasis is also expected to placed on member state efforts to reduce their debt levels.
As well as tackling the causes of Europe's ongoing fiscal crisis, the proposals will also introduce a system of fines for member states who fail to improve their economic competitiveness levels.