45126-Invest. Qual-No111

Macroeconomic Policyconcern’ has been recognised by successive Irish governments andthe Irish people when they endorsed the Treaty of Rome and theTreaty of Maastricht.Indeed, it is particularly in the interest of small member states thatthe Union has the ability to co-ordinate fiscal policy. This isgraphically illustrated by the way in which the unilateral approachto fiscal policy adopted by Germany after unification forced anincrease in German and then European interest rates, such that “theincipient boom in Ireland was halted in its tracks in 1990” (FitzGerald, 2000b: 56).The European system of economic policy co-ordination contains amixture of relatively hard and relatively soft methods of coordination,depending on the matter under discussion. The avoidanceof excessive budget deficits is achieved through binding rules,set out in the Stability and Growth Pact (SGP), which can culminatein formal sanctions, including fines. By contrast, co-ordination ofnational economic policy through a set of ‘Broad Economic PolicyGuidelines’ is relatively soft. Where a member state deviates fromthe Guidelines, the Council can issue a non-binding recommendationto the member state in question, which is not supported by anysanction.The SGP played an important role in facilitating the transition toEMU and provides part of the framework for co-ordination withinthe eurozone. Aspects of the SGP have been criticised as inappropriate.The Council recommends that Ireland should develop itsown view of the strengths and weaknesses of the SGP and participateconstructively in discussion of it.UncertaintiesThe planning of the public finances needs to take into account thepossibility of a sharp appreciation of the euro and other possibleadverse shocks and sufficient flexibility built into the publicfinances to be able to absorb the consequent impact on the publicfinances. Each 1 per cent shortfall in growth is associated with adeterioration in the public finances of approximately half a per centof GNP (Fitz Gerald, 2000b).219