COUNCIL OPINION of 18 January 1999 on the stability programme of Ireland, 1999-2001 (1999/C 42/03)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community,

Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies (1), and in particular Article 5(1) and (2) thereof,

Having regard to the recommendation of the Commission,

After consulting the Economic and Financial Committee,

HAS DELIVERED THIS OPINION:

On 18 January the Council examined Ireland's Stability Programme, which covers the period 1999-2001. The Council notes with satisfaction that the Irish government financial balance moved into surplus in 1997 and is expected to remain in surplus throughout the programme period while the government debt ratio, which is expected to have fallen below 60 % of GDP by the end of 1998, will continue to decline.

The macroeconomic framework presented in the programme foresees economic growth declining from the very high level recently achieved while inflation also decelerates from its 1998 peak. Nevertheless growth remains at very high levels compared to other Members reflecting the excellent supply side performance of the economy and a continued growth in the labour force. The Council considered the macroeconomic projections in the programme to be attainable. In addition, it is clear that the healthy budget outturn of 1998 means that Ireland already fulfils the Stability and Growth Pact objective of a budget balance close to balance or in surplus. Moreover, the scenario for the public finances envisages Ireland continuing to meet the budgetary requirements of the Stability and Growth Pact over the period 1999 to 2001.

While it is clear that the programme complies with the Stability and Growth Pact, there are nevertheless several issues to be raised in the wider context of macroeconomic stability. In particular, the Council notes that the economic situation is not without risk; the main risk is of an overheating economy with rising wages and prices. In this respect the Council noted that while there has been some tightening of fiscal policy, a greater tightening would have been more prudent. The Council Recommendation of 6 July 1998 on the broad guidelines of the economic policies of the Member States and of the Community (2) for 1998 advocated a tight fiscal policy in Ireland.

Against the background of strong growth in the economy the Council believes it to be appropriate that a budget surplus is maintained, as envisaged, throughout the programme. In keeping with the requirements of the Stability and Growth Pact, this should permit a sufficient safety margin to avoid excessive deficits in the event of a cyclical downturn.

The Council supports the programme's emphasis on increasing public investment both to meet the infrastructural needs of a strongly growing economy and to replace the expected reduction of Community Structural Funds in Ireland. A more detailed capital investment plan would, however, be a useful adjunct to the Stability Programme and could help to avoid supply constraints which could affect the prospects for growth and inflation in Ireland.

(1) OJ L 209, 2.8.1997, p. 1.

(2) OJ L 200, 16.7.1998, p. 34.