The European Commission was justified in expressing concern about the impact of the Budget on an overheating economy, according to the Financial Times.

A hard-hitting leader article in yesterday's newspaper described the Government as "defending the indefensible" for sticking with its policy of cutting taxes to persuade unions to abide by the national agreement. "In a liberal democracy, it is simply unsustainable to try to hold down the share of wages in total output as the wealth of the economy grows," it said.

Artificially low wages in Ireland's high-productivity economy were fuelling an investment boom, which could cause trouble when wages did inevitably adjust upwards, it added.

Fiscal policy should turn contractionary to offset the demand effects of higher wages, it said, adding that, in the absence of monetary or exchange rate adjustments, this was the only policy that made economic sense.

Meanwhile, the euroscepticDaily Telegraph used the Commission's rebuke of Ireland to attack those advocating British accession to the euro.

It said the Commission's treatment of Ireland contradicted claims by the British Government that joining the euro zone would not entail any loss of budgetary control.

"Ireland is the first casualty of the one-size-fits-all monetary policy of the euro zone," it said, adding that the Government was compelled to halve interest rates when the Central Bank here handed control to the European Central Bank.