European Central Bank (ECB) president Jean-Claude Trichet has called on the Government to take steps to ensure the stability of the Irish housing market, writes Marc Coleman, Economics Editor.
Addressing MEPs on the European Parliament's Economic and Monetary Affairs Committee in Brussels yesterday, Mr Trichet said management of housing markets was the business of EU member states.
"There is a need to issue prudential warnings and messages that, combined with decisions taken at EU level, are incorporated into the economic cycles of EU member states," he said in response to a question from Fianna Fáil MEP Eoin Ryan. "The Irish authorities are aware of their capacity and influence in this respect and we are counting on them."
In response, Minister for Finance Brian Cowen said the Government would have to be careful in implementing any measures aimed at calming the housing market.
"The gradual phasing out of the tax-relief scheme is designed to avoid any sudden shock to the construction sector generally, having regard to the important contribution of this sector to Irish economic growth at present," Mr Cowen said.
He was referring to property-related tax-incentive schemes, some of which include a housing component.
"The Government continues to run a prudent, stability-oriented budgetary policy which gives us room for manoeuvre in the event of an economic downturn," he added.
Mr Trichet's comments come as a new review of the housing market shows house-price inflation rose to 13 per cent last May, compared with about 5 per cent last autumn.
It is now at its highest level since 2000, according to the review published yesterday by Permanent TSB.
The Opposition has rounded on the Government's handling of the housing market.
"Ireland is going closer and closer to the high-risk zone in relation to the economy's dependence on the construction sector," Labour's spokeswoman on finance Joan Burton said. "The Government are aware of that and are terrified.
"Fianna Fáil is so closely allied to political support in the construction sector that I'm not sure the Government can stand back and fine-tune the kind of change that would give the sector a soft rather than a hard landing," she added.
Fine Gael's finance spokesman Richard Bruton said the Government was threatening the economy's stability by ignoring calls for more stable management of the property market.
"The call from respected international bodies to manage pressures in this market more prudently are going unheeded," Mr Bruton said.
"A budget which raises spending at twice the rate of projected tax-growth increases pressure, so does release of SSIA money."