Treaty allows Ireland to set its own rules for budget restraints

The European Commission has confirmed that Ireland will be allowed to tailor its own rules for the critical budget restraints built into the fiscal compact treaty.

It means Ireland, even if the treaty is passed, will not have to adopt a strict German interpretation on the controversial annual demand for a balanced budget.

Instead, the country will be able to put forward what aspects of spending can be used as part of the debt-control measure linked to the underlying structural deficit. It can also propose what can be written off as a cyclical or once-off factor.

The Government had sought clarity from the Commission on what rules it would be bound to under the structural deficit clause.

In response, the Commission said, despite the intention of fiscal compact to impose the same standards across the eurozone, these common rules were not obligatory.

“The contracting parties are not bound to use the common methodology for the calculation of structural balances,” it said. “Hence, the contracting parties could use the national estimates amended for the assessment of compliance of the requirements of the national budget law.”

The Commission’s letter has not been published.

However, Fine Gael director of elections Simon Coveney quoted from the letter and said it offered flexibility for the economy. He said it would allow the Government, in consultation with the Commission, to define structural deficit statistics that made sense for the economy.

He said there would not be a common requirement across member states, who could “tailor a definition to suit their own economies”.

“This is exactly what Ireland wants,” he said. “It suits us.”

The 0.5% limit on structural deficits has been one of the most tangible and controversial features of the fiscal compact. It was proposed because Germany wanted countries to keep deficits below a certain target once one-off, or out of the ordinary, budget issues were discounted.

Taoiseach Enda Kenny said it would be five years before the terms of engagement on structural deficits, as far as Ireland was concerned, would come into force.

“The question of the structural deficit is one that will be dealt with by the country, working with the Commission, beyond 2017 and the methodology adopted by this country will be applicable and there will be an individual country plan produced,” he said.

Mr Coveney denied this flexibility would have allowed previous governments to gerrymander the deficit rules to ensure budgets — such as those that stoked the Celtic Tiger — passed the debt-based litmus test. He said if structural deficit limits were in place 10 years ago, the unsustainable taxes from the property sector would have raised a “red flag”.

“Building 90,000 houses a year was never going to be sustainable — yet a government was budgeting on that basis and that is the kind of structural problem in the economy that structural deficit calculations would actually highlight,” he said.

Yesterday, independent deputy Finian McGrath announced he would be voting no in the referendum because of the implication of Article 3 of the text, which contains the structural deficit rule. He said it would not aid growth.


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