EU budget move eases pressure for deeper Irish cuts

The EU Commission is set to relax its rules on EU budgets, a move that will alleviate pressure on the Irish Government to implement deep budget cuts in 2016 and beyond.

In new budgetary guidelines published yesterday, the commission said it may allow “possible temporary deviations” from certain budget targets equivalent to 0.5 per cent of GDP or less for a maximum of four years.

Stricter EU financial governance rules that were introduced in the wake of the financial crisis have increased the commission’s scrutiny over the budgets of each EU country.

Now each member state must submit its national budgetary plans to Brussels by October 15th each year.

The guidelines unveiled yesterday, which come into effect immediately, are likely to give countries like France and Italy more leeway on reaching budget targets set out in the EU's Stability and Growth Pact.

Budget deficit

France, which has consistently missed its budget deficit targets, and Italy, which is struggling under excessive debt levels, both face further scrutiny in March, after the commission postponed its final judgment on both countries’ 2015 budgets.

The guidelines unveiled yesterday also indicate that countries will be given more flexibility in terms of EU targets depending on their particular economic situation.

Countries under the “preventative arm” of the Stability and Growth Pact will be required to make “a larger fiscal effort during better times and a smaller fiscal effort during difficult economic times,” the commission said.

Investment plan

The communique also clarifies that if a member state contributes to Jean-Claude Juncker’s €315 billion investment plan, this contribution will not be counted when defining “fiscal adjustment”.

In this scenario, even if the EU’s 3 per cent deficit target is not respected, the commission will not take action “provided the deviation is small and is expected to be temporary”.

EU officials stressed that the rules announces yesterday were not a departure from official policy.

“The commission is not proposing any changes to the existing rules. Therefore, no legislative steps are needed and the commission will apply the new guidance immediately, “ the EU’s executive arm said yesterday.