Tuesday 13 November 2018

`Overheating' Irish economy could threaten euro: Waigel

JOHN DOWNING in Brussels

GERMAN finance minister, Theo Waigel, yesterday warned that the Irish economy is ``overheating'' and said this could pose a threat to the stability of the new single currency.

GERMAN finance minister, Theo Waigel, yesterday warned that the Irish economy is ``overheating'' and said this could pose a threat to the stability of the new single currency.

He was speaking after a meeting of EU finance ministers which reviewed progress on preparations for the euro launch on international money markets in just 179 days time.

The ministers identified three clear categories of countries: those with high deficits; those with a long-term debt problem; and those including Ireland with soaring economic growth risking inflation.

At the same time Germany, Britain and other so-called paymaster states reiterated their determination that they cannot fund the generous level of farm and regional and social fund grants being proposed by the policy-guiding commission.

The difficulty ahead in negotiating new funding for the years 2000-2006 was again underlined as Finance Minister, Charlie McCreevy, and his counterparts from Spain, Portugal and Greece, emphasised the need for continued redistribution of EU wealth.

The German minister expressed his concerns about the risk of budget deficits and long-term debt to the health of the euro.

But he also referred to the unusually high growth rate in Ireland, Spain and to a lesser extent, Portugal.

``There are clear signs of overheating in countries which are net recipients from the EU budget,'' Mr Waigel told reporters.

LONG-TERM DEBT

Mr McCreevy pointed out that Ireland has long been ``an A-student'' when it comes to budget deficit and cutting long-term debt.

He insisted that there had not been ``much comment `` on the Irish situation as the 11 ministers from governments participating in the euro-zone met for a two-hour special meeting ahead of the regular monthly meeting of the 15 EU finance ministers.

The Minister said inflation figures for the first half of 1998 will not be available for another two weeks. But so far Irish officials are using a projected rate of 2.75pc for all of 1998.

This is below the EU Commission estimates for 1998 inflation published last March. But it is perilously close to the currency membership rules, which specify that each country must stay within 1.5pc of the average inflation rate of the best three performing economies.

The euro-zone ministers also yesterday met with European Central Bank (ECB) governor, Wim Duisenberg.

Mr McCreevy insisted that the new governor did not discuss how the ECB viewed the issue of inflation though some Brussels officials say the Frankfurt-based bank is pushing for a euro-zone rate below 2pc.

EU diplomats said the main concern so far is about Italian and Belgian returns on deficits and long-term debt.

At the same time, Mr McCreevy laid down a strong marker on the future of EU moves on tax harmonisation. ``There is no mention anywhere, be it in summit conclusions, or those of finance ministers about tax harmonisation,`` the Minister insisted.

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