Fiscal council to help draw up budgets of the future
These are two of the conditions of Ireland’s €85 billion EU/IMF loan package, formally signed off by the member states’ finance ministers in Brussels yesterday.
Britain succeeded in adding a clause to the conditions ensuring it and other member states have a say in the design and implementation of the stress tests on Irish banks which must be carried out by March.
A number of countries have fiscal councils, including Sweden, Hungary, Slovenia, the Netherlands and Britain. They are designed to be independent bodies of experts that provide analysis of budget plans and forecasts.
It would also monitor that the rules of a Fiscal Responsibility Law are being followed.
This law — which was introduced in Britain last year — will set out ceilings for spending in each area of government responsibility and make it obligatory for the Department of Finance to stick to them.
In Britain’s case it lays down that government debt and deficit must be reduced annually and borrowing as a percentage of GDP must be lower each year than in the previous year.
The EU finance ministers have agreed to draw up standards for fiscal councils and wish to see them established in every country.
According to Professor Lars Calmfors, chairman of the Swedish council “the idea is to strengthen the incentives for fiscal discipline by providing better information on the consequences of various policy decisions and on the sustainability of public finances”.
Finance ministers meeting in Brussels yesterday added two clauses to the legal agreement on providing assistance to Ireland.
One was that the Commission, with the European Central Bank, will verify at regular intervals that the economic policy conditions are fulfilled and report to the Economic and Financial Committee before each instalment is made.
The second, referring to bank stress tests, said that “the Commission, working with the ECB and the IMF, intends to involve member states, as appropriate, in the design and implementation of the Prudential Liquidity Assessment and in the development of the strategy for the future structure, functioning and viability of Irish credit institutions”.
The British chancellor George Osborne said they had a major interest in Irish banks in the North and Britain. He told the meeting that they now know a lot more about Irish banks than they ever expected or hoped to know.
British banks are owed the biggest single amount by Irish banks, at around €109 billion, which is equal to 6.6% of that country’s GDP. Germany, Belgium, France and Spain are all expected to take a similar interest given their sizeable exposure.
The agreement also left it open to any new government to make some changes, giving them until June 7 to specify the measures that will be necessary to cut the budget deficit as set out — 10.6% next year, 8.6% in 2012, 7.5% in 2013 and move on to 2.9% in 2015.
“In exceptional circumstances other measures yielding comparable savings than those mentioned above shall be considered, in close consultation with the Commission,” the agreement said.
Commenting on the package, Economics Commissioner Olli Rehn said it was important to note that the real economy in Ireland was recovering, with export growth and economic dynamism in the private sector representing 77.5% of the economy.
In answer to a question of why senior bank bondholders were not taking losses from their holdings in Irish banks, Mr Rehn said they wanted to give a clear signal that there would be no private sector involvement in EU bailouts before 2013.
