An Italian initiative to stimulate EU growth through simultaneous tax and spending cuts in memberstates was welcomed yesterday by the Minister for Finance, Mr McCreevy.

The Italian Minister, Mr Carlo Ciampi, put the proposals to a meeting of the Euro-11 before yesterday's meeting of Finance Ministers. It produced a lively debate although several ministers insisted that tax cuts was an issue for national governments.

Mr Ciampi said "lower taxes are the main prerequisite for higher growth and job creation". Europe "should embark on a process of reducing taxation, in particular with respect to corporate and labour taxes . . . To be credible and avoid distortionary effects within the euro area, such a process should be co-ordinated between the member-states", he added.

Mr McCreevy welcomed his emphasis on also cutting spending, arguing that it was clearly better for the economy and for growth for the individual to have the cash in his pocket and for him to determine spending priorities rather than the state. That was the basis of Irish policy, he said.

Responding later in a debate on the recommendations for Ireland in the Commission's Broad Economic Guidelines for each member-state, however, Mr McCreevy warned against regarding fiscal policy as a cure-all for the Irish economy.

"It should be remembered in Ireland's case that the role of fiscal policy in influencing domestic demand may be quite limited. Given the openness of the economy, changes in domestic demand would be manifest more in a change in the balance of payments position rather than price inflation," he said.

Instead, "by running considerable surpluses, the Government has sought to avoid adding unduly to domestic demand".

The Commission had recommended that "should there be evidence in the Irish economy of wage inflation continuing to gather pace, there should be a readiness to use budgetary policy to restrain the economy".

Mr McCreevy welcomed two other specific recommendations on the need to develop Ireland's venture capital base and to encourage further research and development.

Mr McCreevy said that while Ireland's technological innovation performance was moving towards the average for small countries, he also noted that a recent survey had found about 86 per cent of firms active in research and development surveyed in 1986 were still active 10 years later, compared to only 66 per cent of firms which did not engage in R&D.