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Monday, 12 February, 2001, 20:30 GMT
Ireland's economic row
Dublin
Irish plans for tax cuts have attracted EC criticism
By the BBC's Kevin Connolly

The headlines are familiar enough - it just feels as though they're being written about the wrong country.

The European government facing a reprimand over the way it manages its own economy is not that of sceptical Britain, but loyal, Euro-enthusiastic Ireland.

It is as though a teacher had singled out the brightest and hardest pupil in class for criticism, said one commentator. It is in Irish eyes, not fair.

In the last few years, Ireland has occupied a curious position within the European Union - historically a huge net beneficiary of EU membership it has expanded rapidly to become one of the Union's most vibrant economies.

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

The budget drawn up by Ireland's shrewd, pragmatic Finance Minister Charlie McCreevy was designed to reap the political benefits of that decade of spectacular growth.

It cut taxes and offered a series of carefully targeted increases in spending, including the basic state pension.

It was, in short, the budget of a veteran politician who knows his coalition government will face a general election sometime between now and next summer.

But the European Commission was irked by the way in which Mr McCreevy sought to tackle the problem of overheating - by trimming indirect tax rates to bring down the price index.

Ireland fights back

In an age when single-currency countries like Ireland have given up control of their interest rates, Europe's decision to reprimand the Irish government has gone right to the heart of the debate about how much power rests with the nation state, how much with the European Central Bank .

Mr McCreevy's view is clear: "It is very difficult for me in the light of the comparative performance of the Irish economy, to see that any recommendation is warranted."

After initially appearing to be wrong-footed by the strength of criticism from the European institutions, Ireland's strategy has been to fight back.

Irish officials point to figures suggesting that inflation has already peaked and to the probable effect of a slowdown in the US on Ireland's overall economic performance to show that Europe's fears are exaggerated.

Mr McCreevy has also circulated a document showing that Ireland occupies first place in Europe on six out of eight economic indicators.

So Ireland will accept the reprimand, but not the economic analysis which underlies it.

In part that's because there's a suspicion in Dublin that the Commission's real target is Ireland's policy of keeping corporate taxes far below the EU average to encourage inward investment.

That policy is the cornerstone of Ireland's new-found prosperity but it irks European officials pledged to the harmonisation of tax rates in the Euro-zone.

Irish voters back the budget

And Mr McCreevy will have his eye on yet another set of statistics that will persuade him to stick to his guns.

More than 70% of Irish voters backed his budget and appear to back him in his row with Brussels. He may well conclude that however powerful the Union is, it has no votes in Ireland.

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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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