EU currency rules mean our politicians must be more realistic

Almost 25 years ago, in June 1989, the EU heads of government signed off at a summit in Madrid on what amounted to membership rules for the bloc’s single currency. The euro became a reality on international money markets in 1999 and has been the money in our pockets since 2002.

A modified version of the EU Stability and Growth Pact, which sets out rules principally on debt and deficit, was signed off last month after long negotiations to take account of tougher economic challenges in the post-Covid era and the fallout from the Russian invasion of Ukraine.

For now, at least, Ireland looks on target to be in line with the 3pc deficit ceiling, and moves to lower public debt proportionate to GDP towards a 60pc target.

That happy scenario may not always be the case. We know from warnings by experts and the Government’s own economic police, the Irish Fiscal Advisory Council, that much now depends on fickle company tax income.

This may not endure, reviving unpleasant memories of the 2008 crash after transitory public revenue from building taxes vanished.

Granted, Ireland will be one of the few countries in the western developed world to run a healthy budget surplus in 2024. Credit must also go to the economic ministerial pairing of Michael McGrath and Paschal Donohoe for creating two large funds that will be ringfenced to meet future challenges.

All of this happens as preparations ramp up for what will be a highly politicised general election budget in October. But a lesser-noticed challenge for Ireland in the revised euro membership rules must not be overlooked.

This obliges member states to submit binding fiveyear public spending plans which are to be monitored by Brussels each year. The aim is to keep a tight rein on public purse strings to avoid politically-motivated splurges risking longer-term economic harm.

It will pose another key challenge for whatever government permutation emerges from the next election.

The real sting in the tail is a condition that some public spending increases must be accompanied by higher taxes, something observers believe will radically alter public spending in Ireland.

Keeping public spending increases between the ditches has not always been Irish governments’ strong suit. Finance Department officials are warning that a current level of 15pc growth in public spending is not sustainable and we also know that the perennial problem of runaway health-spending increases continues to be with us.

We must concede that an era of strong population growth, added to by a high influx of migrants seeking refuge from Ukraine and elsewhere, has not made such forward planning easy. The maintenance of current public service levels, without actually investing in improvements, has proved difficult to estimate. These revised EU rules will require politicians to be more realistic in what they promise to win power. Our leaders must be stronger when facing demands of narrow-focused interest groups, encouraging people generally to see the bigger and longer-term economic picture.