McCreevy takes sanguine view of blood-letting

The Minister for Finance, Mr McCreevy, displayed no sign of Schadenfreude yesterday as the Commission was humiliated in its attempt to censure Germany and Portugal over their budget deficits. But he left no doubt that, after last year's reprimand of Ireland - which most analysts agree was mistaken - this year's debacle should give the Commission pause.

"It would be a bad day for a politician or an organisation that it didn't learn something. I've learnt something every day of my life. I think there are many lessons that can be learned between last year and this year. But the primary one is as follows: once a matter goes public, it boxes people into corners," he said.

The Economic Affairs Commissioner, Mr Pedro Solbes, put a brave face on his defeat, even claiming that the exercise had strengthened the credibility of the Stability Pact.

But there is little doubt that yesterday's events have dealt a heavy blow to the Commission's authority and made it difficult to imagine the "early warning" mechanism ever being used again.

Above all, they have confirmed that, although Europe's bigger member-states are quick to lay down the rules of the European club, they can be reluctant to abide by them. As the German chancellor, Mr Gerhard Schroeder, put it: a cow that gives a lot of milk must be stroked.

Mr McCreevy was sanguine about the apparent double standard that saw little Ireland rebuked last year while Germany escaped a reprimand for a more serious offence.

"From the days I played Gaelic football I always found that the fellow who was 17 stone and very fit would run over the fellow who was only 10 stone 7 and very fit. We recognise the importance of Germany to the world economy, let alone the euro-zone economy," he said.

Ireland and Luxembourg were alone among smaller, euro-zone states in backing Germany during Monday night's negotiations. Mr McCreevy explained his opposition to the Commission's recommendation on the basis that "two wrongs never make a right".

But earlier remarks by the minister suggest that he is suspicious of Brussel's attempts to influence the budgetary policy of member-states. And although he professes a commitment to the Stability Pact, he made clear yesterday that he believes its terms can be renegotiated. The substantial budget deficits predicted for Ireland in 2003 and 2004 by some economists may have a bearing on his views

Mr Schroeder will be relieved that the Commission's warning will not haunt his campaign for re-election in September. But most German business leaders and economists view yesterday's decision as a significant blow to the credibility of Europe's fledgling currency.

The assurances received from Berlin are vague in the extreme and there is little likelihood that Germany can fulfil its promise to bring its budget "close to balance" by 2004.

The euro has survived a number of assaults on its credibility, from the fumbling remarks of the European Central Bank President, Mr Wim Duisenberg, to political attacks on the central bank's independence.

The more lasting damage of yesterday's events may be to the sense of balance and fair play within the EU.

After last year's reprimand to Ireland, which was approved unanimously by the 15 finance ministers, yesterday's failure to rebuke Germany has issued an unmistakable message that, in European politics, size is everything.