Republic's policies best insists Harney

The Tanaiste, Ms Harney, is continuing to insist that the Republic's economic policies are the best possible for our economic circumstances, despite ongoing criticism from the European Commission.

In a letter to The Irish Times today, Ms Harney repeats her assertion that "the Commission and the other member-states could usefully study together the dynamic of a small open economy within Economic and Monetary Union [EMU]".

However, EU economic affairs commissioner Mr Pedro Solbes insisted yesterday that the Republic is reaping the benefits of EMU without paying the full price of membership. Mr Solbes claimed that the Government was using the advantage of low interest rates to expand the economy but was unwilling to co-ordinate economic policies with other member-states.

Mr Solbes said that, although headline inflation fell in December, the underlying trend remains upward.

However, boosting Mr McCreevy's case, the Republic's inflation is set to fall again today - possibly to below 5 per cent, according to Dr Dan McLaughlin, chief economist at ABN Amro, and to below 4 per cent on the EU measure.

Mr Solbes also cited the tightness of the labour market and an expected fall in non-inflationary growth this year as further evidence of overheating in the State's economy.

Repeating that the Government had ignored EU recommendations it had approved for three years running, Mr Solbes said that the commission felt compelled to act now by recommending a formal reprimand. The recommendations will be discussed by EU finance ministers in Brussels on Monday.

The commissioner made clear that he expected action before the next budget. "I expect to have a final result in 2001 in terms of a budgetary policy that is more coherent and consistent with the agreed policy guidelines. The budget later this year will be for 2002. But the problem is in 2001 and it must be remedied in 2001," he said.

Referring to new proposals to enhance economic policy co-ordination, Mr Solbes said that national governments would not be expected to clear their budgets in advance with EU partners. But he said that key points should be discussed among EU ministers before the budget is presented in parliament. But sources in the Government said it would not give this an "enthusiastic welcome".