Need for greater economic convergence

Further co-ordination of tax and spending policies across the EU is in Ireland's interest, according to research professor Mr John FitzGerald of the Economic and Social Research Institute (ESRI).

The European Commission and member-states are negotiating next year's broad economic guidelines following the prolonged row between Dublin and Brussels over last year's guidelines. These will involve some cross-Border co-ordination. Writing in ESRI's latest quarterly economic commentary, Mr FitzGerald warns that lack of co-ordination could harm all member-states, but particularly smaller ones.

He said an incipient boom in Ireland was "halted in its tracks in 1990" by the inappropriately high interest rates due to German reunification and the Germans' refusal to raise taxes to pay for it. If monetary union had begun in 1990, it is likely taxes would have been raised in Germany and the rest of the EU would have escaped the major rise in interest rates that occurred.

He added that co-ordination should not mean extensive restrictions on domestic fiscal freedom and should be confined to action where the overall fiscal stance of the euro zone is considered inappropriate.

One problem is that the Commission does not have a good measure for EU-wide fiscal policy; instead it simply adds up the different States, mostly ignoring the impact one can have on the other. It is also possible, he says, that the Commission's methodology underestimates how expansionary Irish policy is at the moment. But he said current Irish tax and spending policy may be exposing the economy unnecessarily.

The foot-and-mouth crisis sharply affected the tourism and transport sectors in March, NCB Stockbrokers said yesterday. In its latest purchasing managers' services index, the firm said month-on-month activity slowed in these areas - and in travel and leisure businesses.

NCB said a fall in its overall index to 56.1 in March from 60.1 in February reflected a slower pace of growth in new business.