European Commission is now effectively "acting as a finance minister"

As it issues another corporate tax warning to Ireland...

European Commission is now effectively "acting as a finance minister"

Photo: PA Images

The European Commission (EC) is now exercising greater powers over member states' budgets, with EC economics chief Pierre Moscovici stating on Wednesday that "we want to deepen the economic and monetary union and the Commission is in effect acting as a finance minister for the euro area collectively."

The new powers were gained during the financial crisis and have allowed the EC to order a collective 2017 spending plan of roughly €50bn for the 19 single currency countries, which amounts to fiscal stimulus of 0.5% the size of the Eurozone economy.

The spending, which is a clear move away from austerity and is intended to encourage growth, will have to be funded by the countries themselves.

Moscovici continued:

"What we want to do is to provide 19 member states with an overall target, striking a balance between supporting growth – which is the Commission's political priority – and, on the other hand, compliance with the rules, which is our legal obligation."

The Department of Finance has said that, while it was studying the commission's statement, the Government would continue "prudent management of the public finances... particularly in light of emerging challenges arising from specific external developments such as Brexit or emerging domestic pressures."

Meanwhile, the EC has deemed Ireland's Budget 2017 to be "broadly compliant" with EU budget rules but has warned against the Government relying too heavily on corporation tax.

It notes that tax cuts and spending increases are being funded by these "volatile" receipts, which could leave the budget vulnerable to over-runs. It has advised that Ireland use windfall gains to pay down the national debt.

As the Government comes under increased pressure to agree to public sector pay demands, it is unlikely there will be leeway for it to meet these through greater borrowing.