The Government has received tacit backing from the EU Commission for an easing of tight fiscal curbs ahead of its spring economic statement later this month.

The development comes as the Coalition takes further steps to tackle the mortgage arrears crisis.

The Government is finalising plans which would see courts given power to overrule banks when they reject proposals from borrowers with arrears.

Ministers are considering proposals to allow the Circuit Court to impose alternative arrangements to those suggested by banks or other lenders.

Currently, banks can veto deals arranged by advisers to struggling borrowers.

The Government is expected to announce its final mortgage arrears package at the end of the month, following the spring economic statement.

In what would amount to a significant weakening of the banks’ veto, the Circuit Court could decide proposals put forward by advisers to people in mortgage distress offered a viable route to “return to solvency”, according to sources.

Main priority

Coalition figures say the main priority is to keep families in their homes and the aim of the new measures is to encourage people “willing to work their way through their difficulties” to engage in the personal insolvency system.

Should the court decide a bank had unreasonably rejected a proposed settlement put forward by insolvency advisers, it could assess the proposal and impose an arrangement if it felt it was both workable and in the public interest, the sources said.

The new initiative is described as “examinership for homeowners”, taking its lead from the process under which struggling businesses operate as a going concern with the approval of the courts.

One source suggested it would provide “another weapon to borrowers” to encourage them to engage with their lenders.

Bankruptcy term

While the reduction of the bankruptcy term from three years to one is still being considered, it is understood the new court review system is seen as a more effective way of allowing people to stay in their homes.

Well-placed sources said while bankruptcy for businesses could provide a clean break, figures from the Insolvency Service of Ireland showed 70 per cent of homeowners who opted for bankruptcy ended up losing their homes

Separately, Coalition figures expect banks to act on the issue of standard variable rate mortgages in the coming months.

Earlier this week, Taoiseach Enda Kenny told the Dáil the banks had a moral duty to pass on lower European Central Bank interest rates from which they benefited.

Minister for Finance Michael Noonan and Minister for Public Expenditure Brendan Howlin this week received a 20-page draft of the spring economic statement in which they will outline a joint fiscal plan for 2016 and the years beyond it.

At issue now is how they refine the document before publication on April 28th.

Following positive signals from Brussels, the Coalition will be in a position to signal greater scope to raise expenditure and cut tax next year without running the risk of an objection from the commission.

The move presents the Government with increased room for economic manoeuvre in the run-up to the general election.