EU to ease constraints on Government spending

EU economics commissioner Pierre Moscovici has agreed to ease tight spending constraints on the Government as it finalises its spring economic statement.

The development marks a breakthrough for Dublin after a long campaign for flexibility in the application of stringent budget rules which were reinforced in an attempt to prevent any repeat of the euro zone debt crisis.

However, the Government had argued that the rules as cast originally made no sense as they would tie expenditure next year to assumptions on economic growth which were made before the recovery intensified.

Although Dublin now expects gross domestic product to expand 4 per cent this year, a strict application of the EU rule would have bound Irish expenditure next year to an assumed growth rate of 0.6 per cent based on conditions in the aftermath of the crash.

In a letter to Fine Gael MEP Brian Hayes last Thursday, Mr Moscovici said the European Commission and committees of officials from member states had looked carefully into concerns raised by Ireland.

“Following this review, a number of changes have been agreed to these methodologies, which are applicable to all member states,” the commissioner said.

“We are confident that we have found an approach that is mutually acceptable to all member states, including Ireland.”

In a letter to Mr Moscovici, Mr Hayes had argued that the original growth formula led to a potential output “that is much lower” than current estimates and that the calculation would limit Ireland’s expenditure facilities.

“Additionally, the chosen definition of public spending excludes the effect of changes in the cost the servicing the national debt. For Ireland, the cost of servicing the national debt has come down in recent years,” Mr Hayes said.

In his response, the commissioner said technical changes adopted in light of the review affect population projections and updates to the “reference rate of potential output growth” underpinning Ireland’s expenditure benchmark.