Ireland defies EC reprimand

Bertie Ahern: "Spending measures already announced will have to stay"

Irish ministers have defied calls by the European Commission for action to rein in the country's "overheating" economy.

Ireland's prime-minister, Bertie Ahern, on Friday rejected a plea from the EC to cut IR£400m (£322.5m) from the government's expenditure plans.

And finance minister Charles McCreevy said the prospect of a slowdown in the global economy lent only more weight to budget proposals he had unveiled in December, which will inject some IR£2bn into the Irish economy.

"If there is going to be a slowdown, the recipe is to put more money into the economy," Mr McCreevy said.

"Major economies like Germany, France and Italy are all planning fiscal stimuli like this."

Key meeting

The statements come days before the EC's reprimand is to be discussed at a meeting of EU finance ministers.

But Mr Ahern said: "The government will carefully consider what the commission has to say, but the spending measures already announced will have to stay, to sustain the growth of the economy."

The EC issued its reprimand, the first of its kind under a clause laid down in the 1992 Maastricht Treaty, over fears that the expansionary nature of the latest Irish budget threatens the "benign outlook" for the country's economy.

Tax cuts proposed in the budget are "inappropriate in an economy operating well above potential", the EC said.

Celtic Tiger

Ireland has enjoyed seven years of economic growth, with expansion hitting 10.7% last year, the highest rate within the EU.

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

This performance, while earning the country the title of the Celtic Tiger, has been accompanied by inflation which has topped 6%, more than twice the EU average.

Wim Duisenberg, president of the European Central Bank, is among heavyweight observers who have warned Ireland against overstimulating its economy.

"The budget plans of the Irish government were clearly out of line with the broad guidelines they had agreed to earlier," he said on Thursday.

"So I do have full understanding for the [EC] judgment that has been reached."

Jobless figures

Unemployment data released on Friday only heightened fears that Ireland will find it difficult to control inflation.

The number of people without work fell to its lowest level for 20 years last month, raising concerns that employers will have to boost wages considerably to fill vacancies, increases which will feed through into higher inflation.