Lenihan's budget options

Madam, - Alan Ahearne is a distinguished academic who now advises Minister for Finance Brian Lenihan

Madam, - Alan Ahearne is a distinguished academic who now advises Minister for Finance Brian Lenihan. Much of what he writes in his his article of September 6th is insightful. However, some factual inaccuracies require correction, not least because the Minister may otherwise choose to act on them.

Dr Ahearne stated unambiguously that no country experiencing a contraction in GDP could be held to be in breach of the EU's Stability and Growth Pact following revisions to that pact in 2005. The revisions to the pact, as set out in Council Regulation 1056/2005, make no such blanket exclusion.

Dr Ahearne goes on to play down the possibility of Ireland being found to be in breach of the pact's strictures because the Government can cite mitigating factors, such as the economic cycle. This analysis is deficient.

In determining whether a breach of the pact has taken place, the European Commission and Council are obliged to take into account "all factors", including "the overall quality of public finances". The latter factor is likely to be of particular importance in Ireland's case.

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The Commission's own evaluation of Ireland's public finances management, contained in "The Public Finances in EMU" (2007), placed Ireland last among the 18 EU countries it assessed in its overall rankings. On its specific measure of prudence in budget planning, Ireland not only ranked last, but uniquely failed even to register a score.

Given these findings, and other economic and political factors, it would be unwise for the Minister to assume that Ireland will avoid censure for breaching the budget deficit threshold of 3 per cent of GDP. - Yours, etc,

DAN O'BRIEN,

Senior Editor,

Economist Intelligence Unit,

Geneva,

Switzerland.