The European Commission could attempt to toughen the EU reprimand of Ireland's economic policy if the Minister for Finance attempts to have the rebuke dropped altogether at next week's meeting of EU finance ministers.
Commission officials insist that they stand by their original proposal for the wording of the rebuke and that its subsequent watering down was negotiated among the EU member-states.
Mr McCreevy and Irish officials are continuing their campaign to have the unprecedented reprimand further softened. The recommendation, as agreed at the last meeting of the Economic and Financial Committee, will be on the agenda at the meeting of finance ministers next Monday. The latest wording no longer includes a demand for the reversal of £400 million (€507.9 million) in tax cuts - or spending cuts of a similar amount - and only calls for maintenance of the Exchequer surplus at last year's levels.
The Minister will have the opportunity to lobby his EU colleagues for a further softening of the rebuke, if not a complete dismissal of it. The ministers are likely to gather for dinner on Sunday night in Brussels in advance of Monday's meeting.
Some EU finance ministers may back a further softening of the rebuke, others - believed to include Germany's Mr Hans Eichel - believe that the wording should be tougher.
The European Economic Affairs Commissioner, Mr Pedro Solbes, yesterday reiterated his criticism of Ireland. "You have to differentiate two developments in Ireland. It is praiseworthy that Ireland's stability programme expects a budget surplus of 4.3 per cent in 2001. At the same time the Commission thinks that Ireland is not doing enough to stop growth overheating. . . . This cannot set a precedent for other euro-zone countries," he said.
The Commission has dismissed a claim by the Tanaiste, Ms Harney, in yesterday's Financial Times that last December's Budget did not breach the EU's broad economic policy guidelines. Officials point out that, if the guidelines had not been broken, there would have been no proposed reprimand. They emphasise that, although the proposal to reprimand Ireland came from the Commission, the censure, if made, will be in the name of our EU partners.
The Minister for Finance insisted yesterday that Ireland's aim was the same as the EU - economic stability. "I sought in the Budget to achieve economic stability and reduce economic pressures by securing wage moderation by preserving our social partnership and countering inflationary expectations and a wage price spiral by proactive indirect tax cuts."
The key argument that the Minister will be putting forward is that the tax reductions are aimed at encouraging labour supply. The Commission has argued that the tax cuts will add to demand in the economy and boost GDP by around half a percentage point with no prospect of increased supply to meet that demand. However, the Irish can argue that increased female participation in particular will add to labour supply. It can also argue that tax cuts as well as the moves to individualisation are the best means of achieving this.
The issue is expected to figure in Frankfurt today when the Commission President, Mr Romano Prodi and the Economic Affairs Commissioner, Mr Pedro Solbes, meet the President of the ECB, Mr Wim Duisenberg.
