Hey, EU, Lay Off the Irish

The Irish economy is the most successful in Europe. Foreign investment is pouring in; growth topped 8% in 2000; the budget surplus will hit 4% of gross domestic product this year. Yet the European Commission has criticized Finance Minister Charles McCreevy for cutting taxes by an estimated 0.5% of gross domestic product. It's easy to see why many folks in the Emerald Isle are angry and perplexed--doubly so because Germany, France, and other euro-zone countries are making even bigger tax cuts this year.

Ireland's European Union partners believe they are right to take Dublin to task. At 3.9%, Irish inflation is way above the euro-zone average. And McCreevy's tax cuts could raise spending and push it higher. But Ireland's economy accounts for less than 2% of euro-zone GDP. So higher inflation there will have little impact on the Continent's economy as a whole or, indeed, on European Central Bank monetary policy. The EU goal here is to argue that if Ireland is allowed to get away with cutting taxes, how can the EU hope to rein in major countries such as Italy for their own bad fiscal behavior?

It is unfortunate that the first example of the EU's new peer review system is a criticism of one of its most successful, and smallest, members. It is true that if the single currency experiment is to succeed, euro-zone members will have to coordinate their economic policies. But poorly performing economies should be brought into line way before the finger-waggers get to the daring Irish.

    Before it's here, it's on the Bloomberg Terminal.