Commission plays down dispute over Budget

The European Commission yesterday sought to play down its disagreement with Ireland over December's Budget and said there would be no retaliation if Mr McCreevy failed to follow its advice. A spokesman for the Economic Affairs Commissioner, Mr Pedro Solbes, claimed the dispute between Ireland and Brussels was about tactics rather than principles.

"The Commission does not think there is a fundamental disagreement about the principle. There is a disagreement about the impact of Ireland's budgetary policy on inflation and about the expansionary effect of the Budget. But there is no disagreement about the principle that budgetary policy should support price stability within Economic and Monetary Union," he said.

The Commission does not accept that Irish inflation is on its way down, despite a fall in December, and remains convinced that the Budget will fuel price rises. But there is now no expectation in Brussels that Mr McCreevy will reverse measures announced in his Budget.

Officials hope, however, that the formal reprimand that EU finance ministers are expected to endorse this month will encourage the Government to introduce a less expansionary Budget at the end of this year. Commission sources suggested that Mr McCreevy's tone had moderated in recent days and they welcomed his statement that there could be some modifications to the Budget before it became law.

The Commission has been surprised by the intensity of the public response in Ireland to its reprimand and is at pains to stress that its assessment of the Irish economy included praise as well as criticism.

Commission sources insisted yesterday that there was no question of punishing Ireland, directly or indirectly, if the Government ignored its advice. But EU diplomats point out that Ireland needs the goodwill of the Commission and its EU partners if it wishes to defend its national interests.

The Commission is responsible for enforcing EU law and it enjoys considerable discretion in choosing how aggressively it pursues alleged breaches. Ireland has, for example, an especially poor record on fulfilling EU environmental standards but until now, the Commission has taken a relatively gentle approach.

Should the present row unleash a wave of anti-European rhetoric, Ireland's critics in Brussels will feel vindicated in their view that Dublin has gone cold on the European project.

Irish officials are conscious of the complexity of EU politics, which is like a delicate eco-system in which an event in one policy area can trigger unexpected consequences elsewhere. Ireland will need allies soon if, as the Commission warned this week, the BSE crisis breaks the EU Agriculture budget. In such an event, savings will have to be made in farm spending to pay for the beef crisis and Ireland will have to fight hard to protect its interests.

Looking further ahead, when the time comes for Ireland to change from the position of a net beneficiary within the EU to a net contributor, our EU partners will determine the size of the burden we must bear.

But the most potent risk involved in Mr McCreevy's defiance may be the danger that motivated the Commission to act against Ireland in the first place - the risk that others could follow his example. If a large member-state, such as Germany, France or Italy, were to ignore the impact of their economic policies on the rest of the euro zone, the result could be devastating.