McCreevy could now borrow €3 billion

CHARLIE McCreevy could borrow up to €3 billion without the threat of fines or sanctions under the defunct EU Growth and Stability Pact.

Following censure from the EU a couple of years ago over the running of the economy, there appears to be nothing to stop the minister for finance borrowing heavily following after yesterday’s vote to effectively make it redundant by allowing France and Germany to run large deficits .

However, economists said that it was unlikely he would go back on his word not to increase borrowing.

Under the SGP rules, eurozone countries should aim to balance their budgets and should not let their deficits run to more than 3% of gross domestic product (GDP).

Given Ireland will probably start 2004 with a deficit of 1% oif GDP, Minister McCreevy could comfortably borrow now, without risking huge fines from Europe, to spend on infrastructure such as roads and hospitals, but economists yesterday said that the Government has promised not to dramatically increase borrowing.

“Ireland coming in 2004 will run a deficit of 1% of GDP, so theoretically we could spend three times more without breaching the pact as it stands,” Ulster Bank economist Niall Dunne said. “But that would mean our books would be unbalanced, which is not the stated objective of Minister McCreevy.

“We have no need [to borrow]. Obviously we have infrastructure issues, but we don’t have a rigid labour market like Germany or a union and pensions crisis like France. That is why they are borrowing.

“We have a growing economy that is able to compete with the US, and compared to Germany and France we’re fine,” said Mr Dunne.

But Labour party finance spokesperson Joan Burton said the Minister McCreevy should use his presidency of the ECOFIN finance ministers council next year to revamp the stability and growth pact.

“I want an assurance from Minister McCreevy that he will use his presidency of ECOFIN . . . to establish a renewed Pact and that Ireland will avail of its provision to accelerate our own investment programme to bring our roads, railways, education and communications systems to a level that match the best in Europe,” she said.

She added that the threats to the pact could lead to higher interest rates and damage the economy.

Mr Dunne says that it is likely that there will be changes to the Stability and Growth Pact, but it will have to exist in some form.