EU welcomes stability pact but warns of inflationary pressures

The Government's four-year macroeconomic "Stability Programme" has been given the thumbs up by the European Commission. It goes now for formal approval to EU Finance Ministers next Monday.

However, the Commission cautions again on the need for vigilance on inflation and the dangers of overheating, warning that "a tighter fiscal policy would help to contain these pressures". The Government's report forms part of its obligations under the multilateral monitoring system of the Stability Pact agreed as part of the launch of the euro. It focuses on what the Commission sees as the main obligations of member states to run a balanced or surplus budget from 2001 and to maintain policies that will not push deficits at any stage of the economic cycle above the 3 per cent agreed limit.

The Commission says the Irish programme gives realistic projections of budget surpluses throughout the period to 2001 - running from 1.7 per cent this year to 1.4 next year and 1.6 per cent in the final year.

It notes a projected decline in Government debt, now just below 60 per cent of GDP, to 43 per cent in 2001 which the Commissioner for Economic Affairs, Mr Yves Thibault de Silguy, said was "particularly welcome". "Only through the steady reduction in the public debt can countries deal with the issue of their ageing population," he said. However, briefing Irish journalists, Mr de Silguy reiterated that he saw overheating dangers in a policy of tax reductions. Pressed on the need to maintain the support of the social partners in the fight against inflation, Mr de Silguy noted that fiscal discipline could also be realised by cutting Government spending. That was a choice for governments, he said, his concern was merely to warn of the need for vigilance.

The Commission also notes approvingly the Government's projections for growth - 6.7 per cent in 1999, 6.4 per cent in 2000, and 5.8 per cent in 2001 - and for inflation running at 2.1 per cent by 2001.

Economic co-ordination was also a central theme of the speech to the European Parliament yesterday of the German Foreign Minister, Mr Joshke Fischer, in setting out the German Presidency programme.

Insisting that the priority was still to meet the March deadline for the completion of the agenda, Mr Fischer, reiterated Germany's preoccupation with also pressing forward with economic integration in areas like tax harmonisation and the fastest possible enlargement of the European Union to include central and eastern Europe.

Why? he asked. "Firstly, because in the age of globalisation no European nation state, not even the larger ones, will be able to act on their own. Europeans can only meet the challenges of globalisation when we are united. Secondly, because exporting stability to neighbouring regions is not just a historic and moral responsibility for Europe but it also lies in our own best interests."