Cowen plays down property crash fears

The Minister for Finance, Brian Cowen, has downplayed fears of a housing market crash ahead of an expected rise in interest rates today by the European Central Bank (ECB).

At a meeting of EU finance ministers yesterday, Mr Cowen said Ireland's vibrant housing market was a factor of record economic growth, positive demographics and a competitive mortgage market.

He also dismissed fears raised by a new report showing that first-time buyer couples spend a third of their income on mortgages as "nothing new".

"Thirty years ago the range was between 25 and 33 per cent," said Mr Cowen. "The percentage of disposable income that has to go to that level of investment [ in residential housing] by most households is not a new phenomenon."

Mr Cowen was speaking ahead of today's meeting of the ECB's governing council that is expected to increase interest rates across the euro zone by a quarter percentage point, although there is still a possibility of rates jumping by half a point.

Every quarter point rise in interests adds about €28 a month to the average mortgage, meaning finances could become tight for buyers who stretched themselves to buy a property.

Asked if he would prefer a 0.25 percentage or 0.5 percentage rise in interest rates by the ECB, Mr Cowen said he wanted to see stability and orderly markets. However, he warned that consumers should be prudent in their investments in the housing market.

EU finance ministers agreed yesterday with a recommendation by the European Commission that Lithuania should not be allowed to join the euro zone.

The decision provoked concern among several of the new member states that joined the EU along with Lithuania in May 2004 that the criteria used to judge their entry was unfair.

The Czech Republic was among several states that spoke up on behalf of Lithuania, which has threatened to press its case at a meeting of EU leaders later this month.

The commission has recommended that Lithuania should not be allowed to join the euro zone in January 2007 because its inflation rate is too high.

In April Lithuania's inflation rate matched the 2.7 per cent euro target. However, the EU has judged that the rate is likely to jump to 3.5 per cent of the full year, above the target figure.

Lithuania argues the criteria used to set the target inflation rate are too strict and has highlighted that several members of the euro zone also do not meet those criteria.

EU ministers agreed to clarify the rules on euro entry before the next report on Lithuania's readiness to join the euro. They also backed the commission's recommendation to allow Slovenia to join the euro zone in 2007.

Finance ministers also said that the commission should continue working on its proposal to create a common EU consolidated corporate tax base. However, there is still significant opposition to the proposal, particularly from the Republic and Britain.

British chancellor Gordon Brown said he was totally opposed to the proposal, and it was simply not true to suggest that it was needed for the EU single market or the euro.

Commissioner Lazlo Kovacs said, among the issues discussed, was whether the consolidated corporate tax base should be introduced on an optional basis and at what point in the process should it be consolidated, at the start or at a later stage.

He said 10 states had said they are strongly in favour of the proposal, eight were open to it and seven were opposed to it.

A separate proposal to reform the way VAT is collected on e-commerce purchases throughout the EU could not be agreed yesterday. The existing system was extended until the end of the year.