The European Commission has called on the government to cut back it's Budgetary plans by £400 million to bring economic policy into line with EU guidelines.
However, The Minister for Finance has said he will press ahead with budgetary spending plans despite warnings from Brussels that too strident a display of defiance could antagonise Ireland's EU partners.
Mr McCreevy's position re mains unchanged as it emerged that the European Commission has watered down the text of a recommendation to be considered by finance ministers later this month. It will seek significant Irish budgetary cutbacks.
The Commission is calling for the Government "to take, as soon as possible, and in any event during the current fiscal year, restrictive budgetary measures". It suggests that the Government consider restraining the growth in expenditure, phasing and giving priority to capital expenditure projects, or offsetting, or postponing tax reductions.
The first draft of the Commission's recommendation had called for £400 million of tax cuts or 0.5 per cent of GDP to be taken back as soon as possible. It also called for cutbacks in current and capital spending.
Irish officials are a little happier with new wording, reached following strenuous representations by Irish diplomats, Mr McCreevy and EU Commissioner, Mr David Byrne. However, they admit that the damage to the State's reputation abroad has been done.
That was compounded yesterday when the president of the European Central Bank gave his official backing to the Commission's move. Mr Wim Duisen berg said that instead of ignoring the reprimand, the Government should introduce less inflationary economic policies.
Mr Duisenberg was speaking in Frankfurt after a meeting of the ECB's governing council heard what one source described as "very sharp criticism" of the Government's policies. The meeting was attended by the Economic Affairs Commissioner, Mr Pedro Solbes, the driving force behind the move to censure Ireland.
EU finance ministers will discuss the proposed censure on February 12th. Many, particularly the Germans, are keen to see it endorsed in full. Their treasury officials are understood to have broadly endorsed the document.
Mr Duisenberg indicated that the primary motivation behind censuring Ireland was to avoid setting a precedent that could encourage bigger countries to flout the agreed policy guidelines. However, last week the Nobel Prize-winning economist and spiritual father of the euro, Prof Robert Mundell, said the Commission had a "hidden agenda" in censuring Ireland.
"It is more to do with establishing a framework for tax harmonisation" than sound economic policies, he said.
The revised Commission recommendation calls for any additional revenues to the Exchequer to those budgeted, especially those resulting from higher-than-expected growth, to be used for improving the surplus or paying off the national debt.
However, it admits the Government has the exclusive authority to decide on specific corrective measures. The proposal also invites the Commission to report regularly this year on "economic and budgetary developments".
Editorial comment: page 15 Duisenberg backs Commission's censure; Full text of proposed censure: Business This Week