Economic strategy in line with EU - Harney

The Government is fulfilling its obligations under the EU stability and growth pact, the Tanaiste has claimed.

Responding to the contention of the European Commission that the State should be censured for its expansionary Budget, Ms Harney said Irish economic strategy was in line with the Commission's guidelines for 2000.

The policy was fully integrated with the economic and monetary union and single market projects, she added. The Budget surplus to 2003 would be 4 per cent of gross domestic product.

In an article in today's Financial Times, the Tanaiste said the Republic had "gained enormously" from its membership of the EU.

The disagreement with the Commission centred on whether the Government's policy would promote stability. Inflation in the Republic was driven largely by external factors, she said.

Ms Harney wrote: "Irish inflation reached 5.6 per cent on average last year, although it has since fallen to 4.6 per cent, according to the EU standard measure.

"The best estimate available is that each £500 million expansion would add about 0.13 percentage points to Irish inflation after three years. "Thus, the £1.2 billion tax cuts package in the last Budget might increase inflation by just 0.31 percentage points after three years. The effect on euro-zone inflation would be virtually nil, of course."

Ms Harney added: "The Government has to balance the risk of consumer price inflation against the need to allow moderate wage growth under the partnership agreement and to continue a programme of tax reform to ensure future competitiveness."

The Commission could usefully study the Republic's economic model before other small, open economies join the EU and, ultimately, the euro zone. Different interpretations of that model were at the heart of that disagreement, she wrote.

This could be resolved sensibly by reconsidering the broader context of economic and political relations between small economies and EU institutions.

It was invalid to use the differences between the Commission and Dublin to point to "alleged flaws" in a one-size-fits-all monetary policy. "The process of comment and analysis on national fiscal policies, if it is to be effective, requires constructive dialogue. Difficulties can arise when the Commission's view becomes a matter of national political controversy."

She added: "It is a fine judgment as to how to engage in a critical dialogue with-member states when the politically-mandated national budget policy is at issue. For Ireland the problem is particularly acute, since we are one of only a few member-states that intend to hold a referendum to ratify the Nice Treaty."

The Republic was committed to maintaining the stability of the euro. "Europe's shared goals for the present and enlarged Union are too important to let a temporary, narrowly-based disagreement deflect us from this purpose."

The Bill giving legislative effect to the Social Welfare measures in the Budget will be presented to the Dail today.

The Minister for Social, Community and Family Affairs, Mr Ahern, said improvements in the Social Welfare Bill would cost £586.62 million this year.