Stability pact puts spotlight on McCreevy

CREATING jobs, modernising Europe’s economies, presiding over enlargement, improving US relations and progressing Europe’s draft Constitution are all headline issues for Ireland during its six-month presidency.

But the issue likely to place the spotlight on Ireland, and specifically on Finance Minister Charlie McCreevy, is the Growth and Stability Pact and particularly the possible reprimanding of France and Germany for breaching its rules.

Mr McCreevy has got over his ticking-off by the European Commission three years ago for producing an expansionary Budget and has for some months being formulating Ireland's attitude to the pact. The complaints about the pact designed to stabilise the

eurozone economies were muted until commission president Romano Prodi declared it the Stupidity Pact and pointed out it might not be appropriate for all economic climates.

The commission, led by Economic and Monetary Affairs Commissioner Pedro Solbes, together with a number of countries including Ireland, made efforts to loosen up stricture of the pact rules.

But the finance ministers could not agree and so last March the effort at reform was abandoned. However, when faced with the prospect of taking action against the EU's two largest economies France and Germany for excessive deficits, the issue

resurfaced.

While the ministers ostensibly put the problem on the long finger, they, in fact, redefined the rules rather than rewrote them. They agreed to give both countries time to show that their reforms would work towards bringing their budget deficits below the 3% ceiling. The commission claims their political agreement is outside the rules and the treaty and has threatened to ask the European Court of Justice for a ruling.

Mr McCreevy said this was using the flexibility that was inherent in the pact a flexibility that was

new-found but which he has now said is worth exploring. As the issue resurfaces over the coming months, the finance minister will be charged with using all his negotiating and diplomatic skills to produce a solution that will not split the ministers and at the same time not introduce panic into the banking and exchange sectors about the euro.

Mr McCreevy would like to see more flexibility introduced into the pact in another areas also that of borrowing for specific types of expenditure. He argues that Ireland with such a low borrowing to GDP figure should not have borrowing for infrastructure qualify as part of a budget deficit; and that payments drawn down over a number of years should not be listed in its entirely in year one.

Commissioner Solbes hinted this may be possible under the commission's review of the pact. Eurostat, that sets the rules for devising the statistics, is reviewing this and due to report early in 2004.

The Financial Perspectives the 100 billion a year budget for the EU for 20072013 is being drawn up at present and the debate will officially begin in January and will be much debated during the Irish presidency.

One of the least sexy aims of the Irish presidency though big with employer organisations is to achieve some of the goals set out in the Lisbon Agenda. This is a series of measures designed to cut red tape, reduce the cost of labour, cut the cost of doing business cross-border inside the EU, improve the number and quality of jobs and increase the overall competitiveness of the world's largest single consumer market.

Enterprise Minister Mary Harney will chair the Competitiveness Council, which was set up last year and charged with driving the Lisbon agenda. So far the Council has been a grave disappointment, a point driven home again and again by the pan European employers organisation, UNICE.

For Ms Harney, the figures tell the story. "In only two of the 10 years of the Single Market has the EU exceeded the US in growth. If we continue going the same way the US will be 50% richer than Europe inside the next few years."

The Tánaiste is determined to change this and has devised a small list of targets she believes are achievable. She will also adopt a new approach to the Council's meetings which she will pioneer in her meeting in Dromoland Castle in March.

The problem with 25 members is that ministers tend to read out set pieces during meetings so there is no real discussion and the boredom factor increases considerably. She will introduce a lecture theatre setting with major business figures from both the EU and the US to address some issues and facilitators to encourage real discussion among the ministers.

Any progress she can make in this area is likely to earn the Irish major kudos.