Written answers

Thursday, 24 November 2016

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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78. To ask the Minister for Finance the implications for Ireland of the recent statement by the European Commission on fiscal expansion; and if he will make a statement on the matter. [36751/16]

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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Given the continued relatively weak recovery in the euro area as a whole, the European Commission is recommending that a modest fiscal expansion be undertaken in the euro area. An expansion of up to 0.5 per cent of GDP is recommended by the Commission.  It is crucial to stress that the Commission recommends that this expansion be differentiated by country and, in particular, with reference to Member States' positions with respect to the fiscal rules.

Specifically, the Commission is recommending that Member States that are over-achieving their budgetary targets should use this excess fiscal space.  The rationale is that this spending in some Member States would support the recovery in the euro area as a whole as other Member States would be able to ramp up exports to those Member States implementing an expansionary policy.

What this means for Ireland in particular is that the Commission is recommending that Member States that have not yet achieved their targets, i.e. a balanced budget, should continue on the adjustment path.  In other words, Ireland should continue to implement the fiscal policy as laid out in the Budget.

My Department broadly agrees with the Commission recommendation to the euro area as a whole. Monetary policy is now considered to be 'over-burdened' and it is time for fiscal policy to support the recovery also but this should of course be on a case-by-case basis.  Those Member States with fiscal space should use it. This would improve the recovery in the euro area as a whole.  Those Member States which have not yet achieved a balanced budget should continue to implement 'tight' policies so that their public finances remain on a sustainable path.  This is what we are doing in Ireland.

I should add that this approach would have the added benefit of improving demand in our external trading partners which of course is good for Ireland.

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