EU reprimands Ireland

Ireland's prime minister Bertie Ahern is set to defy the European Union

Ireland has been reprimanded by EU finance ministers for budget plans that experts say could stoke inflation and weaken the euro.

The official censure, issued at a meeting of EU finance and economic ministers (Ecofin) is unprecedented, but carries no penalties.

In a monetary union, everyone has to play by the rules ... Ireland is evidently not doing so

Jean-Claude Juncker, Luxembourg's prime minister

The official recommendation called on Ireland to ditch its plans for tax cuts and spending increases, to "remove the inconsistency with the broad economic guidelines of the economic policies, endangered by the budget plans for 2001".

The French finance minister, Laurent Fabius, said Ecofin was not giving lessons to anyone, but was seeking economic coherence through "strong ... peer pressure".

France, Italy, UK criticised

Ireland was not the only country to come in for criticism, even though it received the harshest reprimand.

European ministers told Italy to keep its budget deficit under control. The public sector spending increases planned by UK Chancellor Gordon Brown were branded as "excessive, while France's government was asked to cut its budget deficit faster.

Tough talking

Before the meeting started, Jean-Claude Juncker, Luxembourg's prime minister and finance minister, accused Ireland of not playing by the rules: "If everybody did like Ireland, the [eurozone's] price stability would be endangered."

The Austrian finance minister Karl-Heinz Grasser described the Irish budget as "not rational to a certain extent".

The man in charge of Ireland's finances, Charlie McCreevy, however, indicated that he would not yield to the pressure.

According to Mr McCreevy's text for his speech delivered to the ministerial meeting, the finance minister said the Irish budget was fully in line with the EU's "broad economic policy guidelines", and reaffirmed his intention not to make any changes.

Demand for spending cuts

The European Commission was the first to raise the alarm over Ireland's budget policy of cutting taxes while boosting its spending, which it says violates the economic guidelines agreed by the European Union eight years ago.

The Commission has asked the Dublin government to trim its budget by IR£400m (510m euros, £325.2m)

The Irish economy has the highest growth rate in the European Union. Channelling additional money into an overheating economy could push up further a rate of inflation that already is the second highest in the EU.

The Irish government argues that its spending plans are part of an overall package of wage restraint agreed with trade unions. It also points to the sharp economic slowdown in the United States and its possible impact on Europe.

In the run-up to the launch of Europe's single currency, the euro, member countries agreed strict guidelines on spending and budget deficits to ensure the stability of the region's economy and its new currency.

Looking at the eurozone, Ireland's economy is too small to create a great amount of instability, but the commission argues that the principle of fiscal responsibility is at stake.

But the dispute is likely to have a political fall-out. In the United Kingdom eurosceptics say Ireland's case is proof of EU meddling in a country's budget policy.

IMF advice rejected

However, Irish politicians are not the only ones arguing for greater spending. The International Monetary Fund has made representations to the EU, arguing to relax rules on tight fiscal policy in order to boost the global economy.

As expected, the eurozone finance ministers rejected the argument. The chairman of the Eurogroup, Belgium's finance minister Didier Reynders, said the group was "realistically optimistic in the eurozone's reasonable capacity to resist a US or a more general slowdown".

For the first time in many years, their region's economy is doing much better than that of the United States.

They argue that the economy should not be boosted by another round of deficit spending.

UK euro-ready

At the same meeting Chancellor Gordon Brown is due to present his annual report on the state of the UK economy, and whether it is in tune with that of other EU countries - one of the conditions for Britain joining the eurozone.

Mr Brown is expected to say that the UK fulfils the basic criteria for monetary union, with the rate of inflation, economic growth and overall budget policies broadly in line with those of other EU countries.

However, he will point to the government's own criteria for joining the eurozone. The government wants to see proof that introducing the single currency will cut unemployment and boost the financial industry in the City of London, among other things.