THE Minister for Finance, Mr Quinn, made a robust defence of the EU's economic strategy yesterday, rejecting MEPs' calls for an easing of monetary policy.
Speaking as president of the finance ministers' council, Ecofin, on the EU's broad economic policy guidelines to the European Parliament, Mr Quinn emphasised that the guidelines were more than simply a route map to the single currency they were a strategy for sustained growth.
He made the conventional EU case that budgetary consolidation and the maintenance of tight monetary policy were keys to growth and hence job creation because they created downward pressure on interest rates, helping consumer and business confidence and investment.
Such policies also stopped the "crowding out" of investment by ensuring that private savings are not absorbed by current government spending.
But, Mr Quinn argued, it was important to combine budget cuts with attempts to redirect spending into more productive areas such as investment in infrastructure, human capital and active labour market measures.
To improve the employment intensity of growth, such policies must be complemented by measures to tackle structural problems in the labour market, particularly the indirect cost of employing the low paid.
He also urged member states to move to active labour market strategies, such as promoting education and training of the long term unemployed, strengthening placement services, and removing rigidities in the labour market.
He welcomed MEPs' support for the view that sustained noninflationary economic growths's essential to tackle unemployment and accepted their analysis that the record of some states in implementing the guidelines has been slow. He would encourage a speeding up of the process.
But he rejected the call by parliament for a relaxation of monetary policy to ease the pain caused by cutbacks. The council, he said, had always "taken the view that keeping inflation low is a precondition for sustainable growth and employment."
He recognised the need to create the circumstances where monetary conditions could be eased but the prerequisite was compatible budgetary and pay conditions. Any lowering of short term interest rates which was not warranted by appropriate budgetary and pay developments would soon risk being offset by expectations of higher future inflation and a weakening of confidence by financial markets leading ultimately to higher long term interest rates.
"This would damage investment prospects and weaken the recovery, with adverse implications for growth and employment."
Mr Alan Donnelly (PSE) urged the council to make a clear distinction between borrowing for investment and current spending.
Mr Ioannis Theonas (GUE) said the policy of stringency and cutbacks did not work and there was a need to look at new radical alternatives.
Ms Heidi Hautala (Green) urged the council to address seriously the question of taxing polluters rather than labour.
Ms Claudia Ranzio Platt (PSE) welcomed Ireland's commitment not just to Economic and Monetary Union but to a social Europe.
A need to focus on the needs of the regions was stressed by Mr Pat "the Cope" Gallagher (FF/UfE).
Mr Joe McCartin (FG/PPE) said that calls for a relaxation of fiscal disciplines or of monetary policy would lead to a loss of competitiveness. But Mr Pat Cox (Ind) quoted the OECD to argue that a careful reduction of interest rates would not jeopardise the overall economic strategy, and would strengthen recovery.
Ms Bernie Malone (Lab/PSE) said we must not become preoccupied with the monetary element of Economic and Monetary Union at the expense of the economic, specifically the question of unemployment.
