The Government may now increase borrowing to fund major investment projects in next week's Budget, encouraged by proposed changes in EU rules. Cliff Taylor and Tim King report
New proposals to be discussed by the EU Commission today would allow states with low debt levels and a good budget record greater scope to borrow to fund productive investment projects.
While the proposals still have to be discussed by EU finance ministers, the clear indication that there is more room for manoeuvre will increase pressure on Mr McCreevy to push up borrowing to fund major road and transport projects in next Wednesday's Budget.
The existing rules, under the EU Stability and Growth Pact, oblige the Minister to maintain a budgetary position which is in balance, or close to it.
The new proposals being tabled by the EU Commissioner for Economic and Monetary Affaris, Mr Pedro Solbes, in Brussels today call for a "more flexible" implementation of this rule. This would allow states with low debt levels and an existing strong budgetary position to borrow to fund projects with "clear economic and budgetary benefits".
The Irish ratio of debt to Gross National Product is under 35 per cent, one of the lowest in the EU. This means the Government can make a case to borrow money to fund new investment under the National Development Programme, particularly in areas such as roads which have a clear and demonstrable economic payback.
The draft document even envisages that in some cases where countries have low debt levels they could have a budget in deficit for a prolonged period.
Separately, the proposals also say that countries in periods of slow growth should be allowed to borrow more, which may also give the Minister more leeway.
Mr McCreevy has given no indication to date of his borrowing plans for Budget day. However, under the new rules he could conceivably borrow 1 per cent to 1.5 per cent of Gross Domestic Product next year, under the EU borrowing measure. Previously it had seemed likely that he would keep borrowing well under 1 per cent.
" This certainly changes the context for the Budget," one Government source commented last night.
Mr McCreevy is now certain to incur some borrowing to pay for additional road projects, but it is not clear just how much. This is likely to be decided in final discussions over the coming days.
The new rules from Brussels balance some flexibility with new tougher measures to actually enforce the rules when there is a breach by a member-state.
It is being seen as an attempt to restore the credibility of the stability and growth pact, the rules that are supposed to exert discipline on public finances in the euro zone. National governments signed up to the pact in 1997, in the run-up to the creation of the euro.