Business Irish

Tuesday 24 October 2017

Michael Noonan takes swipe at Europe over fiscal rules

Minister for Finance, Michael Noonan
Minister for Finance, Michael Noonan
Colm Kelpie

Colm Kelpie

Finance Minister Michael Noonan has taken a swipe at Europe's statistical agency Eurostat and the European Commission, arguing they need to "straighten out" how they apply strict budgetary rules on spending for member states.

The minister said any flexibility that could be applied surrounding the tough EU fiscal rules for member states needs to be made clear from early on to allow countries make investment plans.

He claimed larger countries like France and Italy had been given flexibility after they had broken the spending rules, adding the former "gives two fingers to the rules anyway".

"It's flexibility to avoid fines and sanctions. In other words you have to break the rules first, and then you get flexibility so that you're not sanctioned for breaking the rules," Mr Noonan said. "If you're in a model where you have to break the rules first, you can't plan an investment programme.

"So if any flexibility is built into the rules, it has to be ex-ante.

"There's no point in giving it at the end, unless you're a country like France which gives two-fingers to the rules anyway, and then goes away and makes their investment decisions."

The minister told the National Economic Dialogue at Dublin Castle yesterday that he agrees more money should be spent on investment.

But he said the Government was hamstrung by the fiscal rules which limits the spending ability of a member state.

"We're [Ireland] moving into a situation as we balance the budget where the restraints on us in the future will not be the availability of money to spend, it will be not being allowed to spend it under the fiscal rules. So flexibility is very important," the minister said.

Mr Noonan said there were also discrepancies between how the rules are calculated at the European level, and at member state level, because the rules are not based on nominal deficits or surpluses, but on structural deficits. These, he said, are "extraordinarily complex to calculate".

"There's quite a divergence between what's going on," he said.

"And it's not just an issue of flexibility. If the technical calculations about the structural deficit are not accurate, then you'll find that you're making macroeconomic policy based on the wrong point of the business cycle, and what you thought was counter cyclical is actually pro cyclical."

And he claimed Eurostat was doing "bizarre things".

He argued the statistical agency was taking decisions which were the opposite of what it had previously advised. He also said it was changing rules.

"This happened to us in Irish Water. They informed me and guaranteed it would be off balance sheet if we did what we did, and it was put on balance sheet," Mr Noonan said.

"It happened in the UK about a month ago where their total social housing programme on PPPs was put back on the balance sheet."

And he said the Government faced a similar situation when Europe classified as government spending the conversion of AIB's preference shares to ordinary shares during the latter's capital reorganisation. "Our ability to spend the money which we will have in the next three or four years is going to be dependent on legally whether we're allowed to spend it under European rules or not,"Mr Noonan said.

"But they'd better straighten our their rule making and make them before the decisions are taken rather than pulling the plug when you're halfway through a programme."

Irish Independent

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