Ibec chief says European Commission must allow more capital investment

Suzanne Lynch in Brussels

Ibec chief Danny McCoy has called on the European Commission to adjust its strict fiscal rules in order to facilitate greater capital investment.

Speaking in Brussels where he was addressing a meeting of business leaders and representatives of the centre-right European People's Party (EPP) including European Commission vice-president Jyrki Katainen, Mr Mc Coy suggested the EU's debt and deficit rules were in danger of constraining much-needed capital spending in Ireland and Europe as a whole.

“The fiscal rules , while they’re very important for day-to-day expenditure and keeping control of current expenditure, have to take account of the investment deficits that have built up across Europe. This is particularly the case in Ireland where we haven’t been investing enough through the crisis.”

Mr McCoy said that while capital investment in Ireland is running at about 2 per cent of GDP, the target should be at least 4 per cent.

Targets

Under the EU’s Stability and Growth Pact, countries are obliged to adhere to strict debt and deficit targets set by the Commission. While Ireland is due to move from the corrective to the preventative arm of the Stability and Growth Pact, thereby freeing up additional “fiscal space”, there is concern in Government circles that due account has not been taken of the State’s rising population in the calculation of the country’s targets in the coming years.

Other countries, including Italy, are also increasingly criticising the Commission's approach to fiscal targets. During a debate on the Future of Europe last week, Italian prime minister Matteo Renzi chided the European Commission for its focus on austerity measures, arguing that it needed to balance demands for fiscal discipline with an emphasis on investment and growth.

Mr McCoy said it was also vital that public-private investments undertaken under the Juncker Investment Plan announced last year are kept off the State's books and will not be open to reinterpretation by the EU's statistical agency Eurostat.

Clarity

“The Juncker policy is to use more private money to incentivise investment, which we welcome, but there should be more clarity that governments won’t be punished for those investments retrospectively.”

Former Minister for Public Expenditure Brendan Howlin warned earlier this month that resources available to the new government may be significantly curtailed as Eurostat may insist that public private partnerships (PPPs) are put back on the exchequer's balance sheet.

The issue threatens to become a major issue for the Government, particularly if it is applied retrospectively. Among the areas that could be affected include social housing, as the government considers using public private partnerships to tackle the housing crisis.

The Ibec head also expressed disappointment that no new commitment to some form of social dialogue was not included in the programme for Government.

“We’re not talking about a return to centralised wage-bargaining but there needs to be some form of structured social dialogue. We are seeing social unrest beginning to develop. There needs to be norm-setting in terms of pay.”