The European Commission today extended the period for Ireland's fiscal adjustment by one year to 2014 when the 3% of GDP (gross domestic product) budget deficit limit in accordance with the Euro Growth and Stability Pact, must be met.

Big 4 accounting firm Ernst & Young, said in a report today, that the Irish fiscal deficit will remain above 5% of GDP until at least 2014.

The European Union’s (EU27) public debt could rise to 100% of GDP by 2014 - - a full year’s economic output - - unless governments take firm action to restore fiscal discipline, EU finance ministers were warned last Monday.

The IMF warned last week that the debt ratio of the advanced G-20 nations could rise to 118% - - 40 percentage points above the pre-crisis level by 2014

As interest rates rise from very low levels, high public debt will take an increasing slice of tax revenues.

The Commission said that the Irish government should comply with the measures planned in the budget for 2010 in line with last April's emergency budget plans and ensure an average annual structural budgetary adjustment of 2% of GDP over the period 2010-2014 . It says it should accelerate the reduction of the deficit if economic or budgetary conditions turn out better than currently expected and seize every opportunity, beyond the structural adjustment, to accelerate the reduction of the gross debt ratio towards the 60% of GDP reference value.

The UK has been given until the year 2014/15 to get its public finances back on track.

" We all agree on the need to design clear and credible exit strategies to reduce public deficits and debts, which have been dramatically increased by the crisis. The Stability and Growth Pact provides the anchor for such exit strategies through both the excessive deficit procedure and the Stability and Convergence Programmes that will be notified next January. Applying the Pact and devising such strategies is not only compatible with the continuation of the stimulus measures to strengthen the economic recovery in 2010. It is also necessary, in order to avoid an increase in long-term interest rates that would raise the cost of servicing the debt and the financing costs for families and companies, putting a break on the economic recovery itself," said Economic and Monetary Affairs Commissioner Joaquín Almunia. "I believe the deadlines proposed today are appropriate and realistic."

The autumn economic forecasts published last week, show that the average budgetary position in the EU has gone from -0.8% of GDP in 2007, the best position in 30 years, to -2.3% in 2008, the year when the financial crisis turned into a full-blown economic crisis. That figure is expected to treble to -6.9% this year and to increase further to -7.5% in 2010, which will remain largely a stimulus year on account of the recovery being fragile. Public debt is set to increase by more than 20 percentage points of GDP in the same period, and to continue rising even after the deficits start coming down.