Last month, Tax-news.com reported that the EU was pressing Ireland to moderate its budgetary plans to cut taxes and increase spending, given the soaring rate of inflation against the EU norm. The European Commission wants Charlie McCreevy to rewrite his budget, clawing back tax cuts and wage increases in the public sector. Now Mr McCreevy has been dealt a further blow by President of the European Central Bank, Wim Duisenberg, who at the end of last week also asked the Irish Finance Minister to rewrite his budget.
The first formal reprimand came two weeks ago from Pedro Solbes, the EU commissioner for economic and monetary affairs. In Frankfurt last week at the meeting of the Governing Council of the European Central Bank, Mr Duisenberg also made his feelings plain to Ireland's Central Bank Governor, Maurice O'Connell.
No doubt the Irish government had hoped that its continental accusers would have softened somewhat after the shock caused by the first rebuke, but they haven't. Still, Mr McCreevy is gamely resisting the fresh requests to revoke his cherished tax cuts. He was reported in the Irish press as saying that major economies, such as France and Germany, were planning to stimulate their economies by following Ireland's tax cutting example: 'If there's going to be a slowdown the recipe is to put in more money,' he said.
The Commission is going to keep a close eye on Ireland, but ultimately it has little power. It is merely providing advice which it hopes Ireland will act upon. However, EU finance ministers are set to meet on February 12 when it is expected that they will accept the Commission's recommendations, and under the Stability Pact can 'request' Ireland to conform.
It is not clear, after that, what happens if Ireland chooses to ignore the request. What is clear, however, is that in the EU there is a price to be paid for non-'communautaire' behaviour: if Ireland doesn't take up the EU recommendations, it is unlikely to find itself at the top of the list when it comes to other matters. Possible compensation for farmers over the BSE crisis is just one which springs to mind.
What, though, if Ireland is right (as its leaders fervently believe they are) and it not only gets away with its intransigence but is actually seen to benefit from it?
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