Can do better, says EU annual report on Irish economy

Europe Correspondent

The EU also wants to see more competition introduced into the drinks trade, professional services and insurance and into State-owned services such as electricity.

The report on the Broad Economic Policy Guidelines said Government tax increases added 1% to inflation. Ireland’s inflation rate of 4.8% is the highest in the EU.

The annual report says the key challenge for the country is to adapt the tradition of national agreements to today’s economic conditions and especially reconsider the way it is linked it into public finance commitments.

While social partnership has been a major contributor to the country's economic growth since 1987, there was a big drift in the increases agreed under the PPF.

The report blames this for Ireland having the biggest labour cost increases in the EU - running at over 9% in 2001. It says even though this decreased to 7.9% last year, it is still more than double that of the euro-area as a whole.

The EU recommended last year Ireland set wages in line with productivity and skills to ensure competitiveness and price stability, but notes that this has been only partly implemented.

Finance Minister Charlie McCreevy comes in for some criticism for fuelling inflation with his 2002 budget and only partially improving controls over State spending.

Inflation has been the highest in the euro area since the beginning of 2002 and is expected to average 4.8% for the year.

“The package of indirect tax increases in the 2002 budget is officially calculated to have contributed 0.9% points to inflation,” according to the report.

Ireland is one of the best performing in the EU in terms of growth, government debt and taxing low earners but it is lagging behind in research and investment and creating competition, says the report.

Ireland was particularly badly hit by the economic downturn in 2001 and the recovery last year was very uneven and depended mainly on the pharmaceuticals and chemicals sector.

Generally, the European Commission’s spring report says the EU is failing to catch up with the US economically and to create the world’s leading knowledge-based economy by 2010.

EU Commissioner for economic and monetary affairs, Pedro Solbes, said: “Despite progress in some areas the overall picture is rather disappointing.

“The EU urgently needs to instil dynamism into the economy to achieve our goals. Structural reforms can be introduced during a slow-down.”

He said countries have been using the economic slow-down as an excuse to delay implementing change agreed at EU level to further the single common market.

Growth in the euro-area fell to a nine-year low last year with a drop in manufacturing and an increase in unemployment.

Germany and Portugal’s budget deficit are over the EU limit while France and Italy are in the danger zone.