EU Commission urges State to reconsider PPF

ECONOMICS: The European Commission has called on the Government to improve control of public spending and to reconsider the …

ECONOMICS: The European Commission has called on the Government to improve control of public spending and to reconsider the future of the Programme for Prosperity and Fairness (PPF). It says fewer public spending commitments should be attached to wage agreements in order to keep down inflation.

The Commission's recommendations were published yesterday in a report on the implementation of last year's Broad Economic Policy Guidelines.

European Union finance ministers last year reprimanded the Government for introducing a budget deemed to be in breach of the guidelinesagreed by all EU member-states.

The Commission had few complaints about the Republic yesterday and the report acknowledged that the international, economic slowdown had ensured that fears of the economy overheating were unfulfilled.

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The report acknowledges that social partnership agreements have contributed substantially to the Republic's economic success in recent years. But it argues that, with the economy approaching full employment, the system should be reconsidered when the present agreement for the private sector expires at the end of the year.

"Sectoral differences in productivity and skills demand will need to be accommodated in the wage-setting process. In addition, the inclusion of considerable, binding public finance commitments in a wage-setting framework may give rise to procyclical effects, limit fiscal flexibility and reduce the feasibility of defining and adhering to spending targets," the report says.

The Commission praises the deregulation of taxis but urges more action to promote competition in other retail sectors and professional services, such as those of lawyers.

"Whilst Ireland has taken measures to increase competition in some markets and published draft legislation for strengthening competition policy during the last year, there remains an insufficient degree of competition in some sectors of the economy, in particular the network industries. State-owned incumbents continue to have large market shares and further policy measures are required if there is to be more competition from new entrants.

"The Competition Authority and the OECD have also identified several service sectors where competition could be stronger, such as retailing and professional services," the report says.

EU finance ministers drew back last week from reprimanding Germany for its high budget deficit but the Commission yesterday repeated its warning that Berlin was in danger of breaching the 3 per cent ceiling imposed by the Stability and Growth Pact.

The report backs a call by Germany's finance minister, Mr Hans Eichel, to establish a national stability pact that would bind Germany's various levels of government into commitments to control public spending.