Reform of the Growth and Stability Pact will give the Government increased scope to borrow money for infrastructure and flexibility to pay the potential €2 billion bill for people illegally charged for their care in State nursing homes.
"There'll be less concern trying to find money from other places to pay for healthcare and the nursing home issue," said IIB Bank's chief economist, Austin Hughes.
The Department of Finance said yesterday that the new measures would align the EU's fiscal regime with the actual economic needs of member states, Ireland among them.
"This means that countries with low debt and high potential growth - such as Ireland - can have more flexibility, particularly where this is needed to fund extra investment in infrastructure, for example," the note said.
All euro zone members are currently required to keep their budgets close to balance or in surplus over the medium term.
Assuming EU leaders back the reform measure at a meeting today, Ireland will be able to run a medium term budget deficit of 1 per cent of GDP in order to increase public investment.
Such an increase would release about €1.5 billion into the economy, although a Department of Finance spokesman stressed that any increased borrowing must be "temporary and once-off".
However, economists said the release of more public money into the wider euro zone as a result of the pact reform will almost certainly create upward pressure on interest rates.
Ulster Bank economist Niall Dunne said the European Central Bank was likely to opt for a pre-emptive rise on interest rates once governments availed of the opportunity to increase their indebtedness.
Given the ECB's price stability mandate, Mr Dunne said the bank would not have to wait for economic data to prove that prices were coming under pressure as a result of such increased spending.
Mr Hughes said the inevitable result of looser fiscal policy was tighter monetary policy coming from the ECB.
"It means they will be inclined to go sooner; they will be inclined to go further."
He believed the bank would push interest rates up by half a percentage point above the level they would otherwise reach if the pact was not reformed.
Such a move would have a disproportionate impact in Ireland given the high level of indebtedness in the economy, he said.
"The absence of mechanical constriction means that anything goes.
"The real worry is that what is being put in place doesn't look as if it's going to lead to more sensible decision-making."
