The President of the European Central Bank (ECB) has backed the European Commission's move to censure Ireland over last December's Budget. Mr Wim Duisenberg said that, instead of ignoring the reprimand, the Government should introduce less inflationary economic policies.
Mr Duisenberg was speaking in Frankfurt after a meeting of the ECB's governing council heard what one source described as "very sharp criticism" of the Government's policies. The meeting was attended by the EU Economic Affairs Commissioner, Mr Pedro Solbes - the driving force behind the move to censure Ireland.
EU treasury officials meeting in Brussels this week are understood to have given their support to the Commission's censure of Ireland, which is likely to be made formal by the EU's finance ministers on February 12th.
The Commission argues that, by increasing public spending and cutting taxes, the Minister for Finance, Mr McCreevy, broke a pledge he made to use the Budget to counter inflation.
"Although Ireland is one of the most successful economies in the euro area, the budgetary plans of the Irish Government were clearly out of line with the broad guidelines that were agreed. "I do have full understanding of the judgment that has been reached, albeit in difficult circumstances," Mr Duisenberg said.
The ECB president indicated that the primary motivation behind censuring Ireland was to avoid setting a precedent that could encourage bigger countries to flout the agreed policy guidelines.
When asked what action he would like Mr McCreevy to take now, Mr Duisenberg said he should take measures that were "less pro-cyclical than the ones that were taken".
Ireland's attempt to avoid a formal reprimand - the first such rebuke to be given to any State since the euro was launched - has received little support from treasury officials from other EU member-states. But there are signs that, following pressure from the Irish Commissioner, Mr David Byrne, the wording of the reprimand has been toned down and will not include a call to reverse specific measures in the Budget.
Mr McCreevy has indicated he will ignore the EU censure on the grounds that inflation is already coming down and that the measures he took in December were necessary to maintain social partnership. But diplomats in Brussels warn that too strident a display of defiance could antagonise Ireland's EU partners - with potentially costly consequences.
Within the complex political environment of the EU, small member-states such as Ireland depend on the goodwill of other states to achieve national objectives.
The Minister for Agriculture, Mr Joe Walsh, this week helped to persuade Germany to take part in the mass slaughter of cattle to support the beef market during the BSE crisis. But the Minister has yet to win support for his request to increase export refunds for beef, a measure that would benefit Ireland more than any other country.
EU officials have responded with derision to Mr McCreevy's suggestion that his European critics were motivated by envy.
Most agree with Mr Duisenberg that agreed eurozone economic guidelines must be respected.
