Irish seek increased budget flexibility

A major battle has kicked off in the EU over just how austere budgets should be in the future with Ireland in a minority in the European People’s Party looking for much greater flexibility.

Italy and France — both with Socialist prime ministers — are pushing for a wide range of government spending on growth enhancing measures not to be counted towards a country’s deficit under the Growth and Stability Pact.

German officials point out that under the Six Pack — part of the EU semester rules on budgets — there is leeway for this, including for money spent on pensions reform and job creation.

Irish sources said that they would be interested in offsetting against the deficit government grants paid to householders to upgrade their insulation which would help both for energy targets and employment.

A document drawn up by European Council president Herman Van Rompuy, designed to be a policy guide for the next European Commission and its president for the next five years, emphasises the need to invest in infrastructure and energy efficiency — and the need to continue to pursue structural reforms.

EU leaders are expected to agree that “the possibilities offered by the EU’s existing fiscal framework to balance fiscal discipline with the need to support growth should be used”, and that “fiscal consolidation must continue in a growth-friendly and differentiated manner”.

The leaders, during their meeting tomorrow, are expected to ask the European Commission to prepare a report on the application of the rules by mid-December.

A source close to Mr Van Rompuy said that the tone of his policy document and the summit draft conclusions reflected the wishes of many EU leaders, not least the French Socialist president Francoise Hollande.

He added that nobody was urging that the Growth and Stability Pact be changed. “It depends on how you interpret the rules, different people believe in different nuances. We are confident that by keeping the pact intact we will find something that will let us move forward,” he said.

The Italians, whose prime minister Matteus Renzi is leading the Socialist push with the French president, say that just how leniently this is interpreted will depend on the people with the key jobs of Economics Commissioner and president of the eurozone finance ministers.

The austerity hawk, former Finnish prime minister Jyrki Katainen, has stepped into the Commission job vacated by Olli Rehn who has departed early for the European Parliament. Mr Katainen is hotly tipped to keep the job when the new Commission takes office in October, but the Socialists are opposed to him.