Wim Duisenberg, Says Budgetary policy is outside guidelines
The European Commission has estimated that the Government is spending £400m more than it should in the budget. The Commission said that measures worth half a per cent of GDP would be required to offset Charlie McCreevy's inflationary budget. The President of the European Central Bank supported the Commission today in its row with Ireland over budgetary policy.
Wim Duisenberg said that he fully understands the European Commission's recent criticism of Ireland's fiscal policies. Speaking in Frankfurt after a meeting of the ECB's governing council, Wim Duisenberg said that cuts in taxes and increase in spending were out of line with Dublin's previous commitments. The EU Commissioner, Pedro Solbes, also attended the meeting this morning. Mr Solbes is spearheading the EU's recommendation for an unprecedented formal reprimand for Ireland over the Minister for Finance's fourth budget. The Government is negotiating the text of the official reprimand for Ireland to be discussed by EU Finance Ministers later this month.
Mr Duisenberg said that there was no questioning the fact that Ireland is now one of the most successful economies in Europe. However, he insisted the budgetary strategy pursued by the Government was clearly outside the guidelines which were agreed earlier. He added that he understood the decision to recommend a reprimand and that it was taken in very difficult circumstances. When asked for his view of Charlie McCreevy's insistence that he will not change his budget in response to the reprimand, Mr Duisenberg said that he himself is not competent to make pronouncements on the Irish Budget.
He added that he is not going to comment about the budgetary policies of any individual European country. Nevertheless, when asked what he would like the Government to do, he said emphatically that he would like the Government to take measures that are less expansionary than the measures included in the Budget.
On the issue of inflationary pressures across the whole Eurozone, Mr Duisenberg said that the risks to price stability in Europe are now more balanced for the medium term than they have been of late. He referred to the drop in EU-wide inflation from 2.9% in November to 2.6% in December and also to a moderation in the growth of money supply. He also pointed out that inflationary pressures resulting from last year's rise in oil prices and the weakening of the euro are diminishing. Nevertheless, he said, there is still need for caution about inflationary pressures.
Business and household confidence in Europe has remained high and the ECB is concerned about the potential for second round inflationary effects of higher import prices, especially in the area of wage increases. Accordingly, the European Central Bank decided to leave interest rates unchanged today. This is despite the fact that their counterpart in America has cut interest rates by half a per cent twice over the past month. Mr Duisenberg said that monetary conditions are quite adequate for the state of the European economy.
