The slowdown in the US economy and the threat of foot-and-mouth disease pose twin risks to the Irish economy, the Minister for Finance, Mr McCreevy, told the European Parliament yesterday. But he made a virtue of such adversities, declaring that they diminished the danger of the Irish economy overheating.

Mr McCreevy was appearing before the Parliament's economic and monetary affairs committee to discuss the reprimand from the European Commission and his fellow finance ministers for his expansionary budget.

Mr McCreevy again defended the Budget, which he said had preserved social partnership and avoided a wage price spiral. The Budget surplus had been used wisely, he said, and action had been taken to reduce price inflation.

He said he had not, at the time of his Budget, foreseen the changes of the last few months, including the decisions by the Federal Reserve to cut US interest rates. But he said those changes supported his view that rigid application of the Broad Economic Policy Guidelines was not appropriate.

The EU should concentrate, he said, on ensuring that member-states complied with the provisions of the EU's Stability and Growth Pact, particularly the requirement that the debt to GDP ratio should be below 60 per cent. He pointed out that Ireland's ratio is 39 per cent.

The changed economic climate seemed to have had its effect on MEPs, diminishing their appetite for a scrap with Mr McCreevy. Speaking to reporters afterwards, McCreevy said that the foot-and-mouth disease would only have a serious effect on the Irish economy if there was an outbreak of the sort seen in Britain. But he admitted the controls already in place had had a dampening effect on trade and tourism.