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Thursday, 25 January, 2001, 11:18 GMT
EC attacks Irish budget
Dublin
Irish plans for tax cuts have attracted EC criticism
The European Commission has publicly reprimanded Ireland over its economic policy.

The Commission has expressed concern over Irish budgetary plans for 2001, which it says are inconsistent with the 2000 Broad Economic Policy Guidelines adopted last June by the European Council.

Ireland's plans for tax cuts and increased government spending conflict with the European Union's current support of budgetary constraint, according to the Commission.

In an unprecedented move, the Commission has exercised its disciplinary powers by asking the Council of Ministers to endorse its assessment.

"The Commission has decided to recommend for the first time the use of a recommendation as provided in Article 99.4 of the Treaty," said Pedro Solbes, EU Commissioner for economic and monetary affairs.

Europe's finance ministers will consider the Commission's criticisms when they gather for the 12 February meeting of Ecofin.

Irish government 'quite relaxed'

The Irish Independent newspaper reports that government officials in Ireland are confident, however, that there won't be any need to change the budget, which was put together by Finance Minister Charlie McCreevy.

Charlie McCreevy
The Commission says Mr McCreevy's budget could overheat Ireland's economy

One source is quoted as saying that "everybody is quite relaxed" about the Commission's comments.

Despite its criticisms, the Commission recognises Ireland's economic achievements.

It notes in a written statement that "the Irish economy has shown a bright performance and continued to grow very rapidly in 2000, with real GDP [gross domestic product] growth of just over 10% expected for 2000".

Fears of overheating

However, the Commission also states that over 2000 inflationary pressures have intensified, and says there is evidence of domestically generated inflation.

It also forecasts a "gentle decline" in real GDP growth and headline inflation during 2000.

"In this context, the expansionary nature of the budget for 2001 constitutes a major risk to this benign outlook.

The Irish economy
Real GDP growth in 2000: 10.7%
Estimated real GDP growth in 2001: 8.8%
Budget surplus in 2000: 4.7% of GDP
Estimated budget surplus in 2001: 4.3% of GDP
Government debt in 2000: 39% of GDP
Government debt in 2001: 33% of GDP
Source: EU

"The budgetary plans for 2001 consist of indirect and direct tax cuts and very large increases in current and capital expenditure."

The Commission concludes that this could lead to an overheating of the Irish economy. "The fiscal loosening is inappropriate in an economy operating well above potential."

Mr McCreevy's defence at Ecofin is expected to be based on the fact that Ireland is top of the league in the EU Stability and Growth Pact, which calls for budget surpluses and reduction in debt.

Some observers have interpreted the Commission's stance on economic policy co-ordination as a warning to new entrants applying for membership of the euro-zone.

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See also:

15 Jan 01 | Country profiles
Country profile: Ireland
03 Jan 01 | Business
Ireland's wage crunch
18 Aug 00 | Business
Ireland's euro dilemma
15 Nov 99 | The Economy
Irish boom draws the Welsh
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