Michael Noonan seeks more flexibility for Ireland following two-year deficit deal for France

in Brussels

Minister for Finance Michael Noonan has urged the European Commission to grant greater flexibility to Ireland in the application of budget rules to allow more "budgetary space" in October's budget.

Minister Noonan raised the issue directly with German finance minister Wolfgang Schäuble and the European Commission during two days of meetings in Brussels, at which EU finance ministers backed a proposal to grant France two extra years to meet its EU deficit targets.

While Mr Noonan said he had supported the proposal to grant France extra time, he wanted flexibility for all member states. “I supported the commission proposal, including the extension to France, both at the eurogroup and the Ecofin [Economic and Financial Affairs Council], but I used the opportunity to say that we needed the flexibility in the application of the rules as well,” he said, following yesterday’s meeting.

Despite being the fastest-growing economy in Europe, Ireland is constrained in the amount of investment it can make, due to strict EU budgetary rules, which state that countries cannot spend more than their growth rate.

“The way of calculating your growth rate shows us growing at 0.6 per cent when, in fact, the commission themselves say that we are growing at 3.5 per cent,” said Mr Noonan, pointing out that the commission uses a formula which calculates a 10-year average based on Ireland’s growth during the recession.

Discretion

“I am saying [that] if you’re giving discretion to six or seven European countries, including France, we want discretion as well, but our discretion is in the application of the rules.”

The Minister declined to predict which areas of the economy could be pinpointed for extra investment in October’s budget, al though it is understood housing, healthcare and welfare are among the areas where the coalition government is considering further investment, as it eyes another expansionary budget after years of recession.

“The relevance . . . is to give me budgetary space to make decisions for the 2016 budget that I’ll be introducing in October. Whether I use the space or not is not the issue – it’s simply to give me the space so that I’m not inhibited by European rules to spend money that I think is necessary,” Mr Noonan said.

“The way the tax take is going and the way the growth figures are going, we’ll have money, we’ll still be able to bring the deficit down again next year significantly,” he said, adding that the deficit in the next budget will probably “begin with a ‘1’ ”.

He added that he expects Ireland’s growth rates to be about 4.7 per cent when exchequer figures are published on Thursday.

Reality

The Minister said he had asked the European Commission to task its technical officials with engaging directly with officials in the

Department of Finance

in order to find a more “reasonable result that corresponds with reality rather than theory”.

European finance ministers signed off yesterday on a proposal to grant Italy, France and Belgium extra time to reach EU debt and deficit targets.

In a statement released following the meeting, ministers said: “The council found that extending the deadline for correcting the deficit was justified by the fiscal effort made by France since 2013 and by the current weak economic conditions and other factors.”

It stressed that France would be bound by strict monitoring over the next few months. Under the new timetable agreed for France, the eurozone’s second-largest economy will be required to reach a budget deficit of 4 per cent of GDP this year, 3.4 per cent in 2016 and 2.8 per cent in 2017.

The French government had committed to coming forward with a plan for €4 billion in savings by April, with more detailed plans to reform the economy due in May.

"We have now a trajectory fixed by France and a trajectory fixed by the EU which is the same," French finance minister Michel Sapin told reporters. "We have now monetary policy which is very favourable to growth, set by the European Central Bank in a very strong way, [and] the will to put in place structural reforms in France which are also favourable to growth and employment."