The Government’s plan to seek savings of less than €2 billion in next year’s budget is likely to receive the tacit support of key EU partners, as a number of key euro zone economies push for an easing of austerity.
Italy and France used a two-day finance ministers' meeting in Luxembourg to argue on the sidelines for greater flexibility in how and when countries meet European Commission targets, as finance ministers and the IMF discussed the euro zone's approach to economic policy.
The European Commission is also expected to examine the possibility of simplifying the rules for calculating deficit and debt targets. The issue, which is expected to be discussed at next week’s summit of EU leaders, will also be under discussion at a ‘mini-summit’ in Paris tomorrow.
French president Francois Hollande is hosting a number of centre-left EU leaders, including Italian prime minister Matteo Renzi, Danish prime minister Helle Thorning-Schmidt and Austrian chancellor Werner Faymann.
After today's ecofin meeting Minister for Finance Michael Noonan said that while there had been a general acceptance that the euro zone economy was gradually improving, ministers had expressed concern about the continuing high levels of unemployment and the need for growth.
“The governments of different member states are expressing a widespread concern about unemployment and the connection between that and growth rates in individual economies,” the Minister said. “The issue of growth and jobs are in everybody’s heads and I think it will be a significant part of the discussion at the heads of states of governments meeting.”
Earlier this week, the Minister confirmed that the government was targeting cuts of less than €2 billion in next year’s budget, despite calls by international partners to implement cuts of this order for next year. The European Commission is expected to echo the IMF’s call for cuts of €2 billion in budget 2015 when it publishes its first post-programme review mission on Ireland on Monday.
But with a growing number of countries calling for a shift in European economic policy during the new tenure of the next European Commission, Ireland is likely to face less pressure to meet specific budgetary targets.
Earlier this week German economy minister Sigmar Gabriel said that the impact of economic reforms should be taken into account when calculating states' deficit targets, though finance minister Wolfgang Schauble said in Luxembourg that the current stability and growth pact rules "have enough flexibility."
IMF managing director Christine Lagarde also delivered the IMF's annual assessment of the euro zone economy at yesterday's euro group, in which it called for the European Central Bank to move to full-scale quantitative easing if euro zone inflation remains low. The IMF noted that output in the euro zone is still at pre-crisis levels, with unemployment "unacceptably high."
Mr Noonan said today he believed the ECB’s announcement earlier this month of new liquidity for SMEs was “a very dramatic move,” which he believes will be followed with further measures such as asset purchasing.
“My perspective on it is what was announced in the last two weeks was a first step, and the next step will be asset purchasing but I’m not sure of the timing of that. That will depend on circumstances. “
Ministers also agreed today to close a loop-hole on how tax is calculated in hybrid loan arrangements, the latest in a series of moves intended to address the issue of corporate tax avoidance at an EU level. Agreement was also reached to allow the European Commission to commence an assessment on patent boxes in the EU. Patent boxes are tax devices that allows companies to pay a lower rate of corporate tax on profits derived from patented activity.
