EU ministers back criticism of Irish budgetary strategy

EU Finance Ministers have supported criticism by the European Commission of the Irish budgetary strategy and expressed concern about overheating in the economy.

At a meeting yesterday attended by the Minister for Finance, Mr McCreevy, they also urged the Government to tailor budgetary policy "in implementing the Budget for 2000 and in planning beyond" to ensure economic stability.

The ministers examined the Budget in the context of Ireland's obligations as a member of the euro zone. But the State is not required to act on their opinions, which are non-binding.

The views expressed closely reflect those aired by the Commission two weeks ago.

But Mr McCreevy strongly defended the Budget and insisted a pay settlement in the current wage round of the order of 15 per cent would not be inflationary and was within the Government's ability to deliver.

Speaking to journalists on the fringes of the meeting, Mr McCreevy insisted both that the council's opinion reflected the view that Ireland was the "star pupil in the class" and that it explicitly acknowledged the need to preserve a social pact which was part of the rationale of the Budget strategy.

"We take on board what the council has to say," he said, "but we have had a very successful economy."

Defending his willingness to pay up to 15 per cent if that was the final outcome of the pay talks, Mr McCreevy said account had to be taken of the strong growth in productivity in Ireland and of the reality that most inflationary pressures were external - notably the downward drift of the euro against sterling and the rise in oil prices.

Although there was evidence in the booming service sector of wage inflation and the increase in the price of cigarettes would add something to the index, the Government estimated that inflation would be kept to 3 per cent in 1999, declining in the two subsequent years, Mr McCreevy insisted.

And although he cited the view of "some economists" that Ireland needed to lose some of its competitive edge to cool the economy, he made clear it was not a view he necessarily shared. The key section in the opinion on the Irish Stability Programme says that "the council considers the macroeconomic scenario presented in the updated Stability Programme to be realistic. However, the economy is now at an advanced stage of the cycle and there is a need to use available domestic policy instruments to address the risk of inflation.

"In this context the council recalls the recommendations to Ireland provided in the Broad Economic Policy Guidelines and urges the national authorities to be ready to use budgetary policy to ensure economic stability.

"Given the extent of overheating in the economy, the council considers such action to be warranted in implementing the Budget for 2000 and in planning beyond, while acknowledging the supply side objectives of Ireland's medium-term budgetary strategy."

Ministers also backed the stability programmes of Finland and the Netherlands and the convergence programmes of the non-euro Greece and Sweden.