EU urges further budget oversight for structural issues

Taoiseach Enda Kenny will be asked to agree to another layer of supervision over Ireland’s budget at this week’s EU summit just as the country emerges from the bailout programme.

There may also be an incentive of cheap loans, grants, or guarantees to encourage participation in a German-inspired contract, but Ireland and all but four eurozone countries appear likely to be excluded from it until the Government gets the budget deficit under 3%.

Oversight of Ireland’s accounts will continue as each of the three main creditors — the European Commission; the EU states, represented by the European Stability Mechanism; and the IMF — will make inspections up to four times a year to ensure the Government is making provision to repay them.

The ESM inspections will continue for the next 30 years until the full €17.5bn lent to the country is repaid.

These will be in addition to the new regime of the European Semester, which sets overall EU and national priorities for budgets and government policy, checks they are included in budgets, and monitors how they are performing.

Now Germany is pushing for eurozone countries to voluntarily sign a legally binding contract where governments set out a strategy to reform longer-term structural problems such as high wage costs and a loss of competitiveness.

The leaders are expected to agree to investigate an incentive scheme for countries that agree to take steps, such as setting up cheap loans, grants, or guarantees that could be used, for instance, to improve vocational training or reform the judiciary.

At the moment, only four eurozone countries would qualify for such incentives — Finland, Germany, Estonia, and Luxembourg — as countries with budget deficits over 3% of GDP will be excluded, as well as bailout countries.

The contracts are being pushed by Germany in exchange for agreement on the next elements of banking union — a board to oversee the winding up or restructuring of banks, and the fund to be used to do so.

EU leaders want to agree on the single resolution mechanism and single resolution fund this week to ensure the European Parliament can do so before March. Otherwise, the banking union could be delayed for at least a year because of elections.

The leaders, including Mr Kenny, are expected to agree that a contract system and incentives should be worked on by the EU over the next few months, to be ready for their spring meeting in March.

Other issues, such as employment and social developments, will be considered. This will be important for Ireland, as it has the highest percentage of people at risk of poverty in the EU, at 51%, and which depends on social transfers to reduce this to 15%. However the indicators are not incorporated into binding measures for governments.


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