Brussels gives tacit approval for increased State spending

There was no official response from the European Commission yesterday on Ireland's spring economic statement but the message coming from Brussels was clear.

Officials in the austere Berlaymont building, the commission’s headquarters in Brussels, gave a tacit blessing to the Government’s plans to increase spending in next year’s budget.

Official confirmation was given in a letter EU economics commissioner Pierre Moscovici sent to Fine Gael MEP Brian Hayes last week in which he confirmed that the commission had considered concerns raised by Ireland about the calculation of budget rules.

Methodology changes

“Following this review, a number of changes have been agreed to these methodologies, which are applicable to all member states,” Moscovici said.

“We are confident that we have found an approach that is mutually acceptable to all member states, including Ireland.”

The Government campaign to seek more flexibility on budget rules began in earnest in March when Minister for Finance Michael Noonan raised the issue during a euro- group meeting in Brussels. Finance ministers were discussing whether to endorse the commission's decision to allow France, Italy and Belgium extra time to meet their economic targets under the so-called two-pack and six-pack rules, which were introduced as an amendment to the Stability and Growth Pact rules in the wake of the financial crisis.

Noonan was one of a number of ministers who argued that if flexibility was being shown to some countries, it should be extended to others.

Specifically, he argued that a number of formulas used to calculate Ireland’s expenditure targets, including targets for population growth, were unfair.

The details behind the decision to tacitly allow Ireland greater budget flexibility may be technical, but the impact is highly political, and not just for the Government as it sets out its stall ahead of next year’s general election.

Austerity debate

The move by the

commission to sanction greater budget flexibility for Ireland feeds into a broader debate at EU level about the wisdom of austerity, and whether the commission is prepared to consider a new approach to economic management by loosening targets.

More important for the Government, however, will be the decision by Eurostat, the EU's statistical agency, about whether Irish Water can be kept off the State's balance sheet.

Yesterday’s projections assume spending on the utility will be treated as general Government expenditure. Eurostat’s decision, which has now been delayed until the autumn, could mean even greater leeway for the Government if the agency accepts its argument that Irish Water should stay off balance sheet.

As he prepares October’s budget, Noonan will be hoping that there may be one last boost to the exchequer finances for the final budget before the general election.