Michael Noonan (Limerick City, Fine Gael) | Oireachtas source

Mention was made of the austerity-only approach of Christine Lagarde. There are two sides to economics, namely, supply and demand. Recent work done by the IMF, the report of which members have seen, gave rise to a great deal of comment. The IMF was referring to a wider range of countries than just Ireland. The simple analysis of the IMF paper is that, if one removes €1 in expenditure cuts or taxation, on average it hits GDP by 50 cent. The multiplier under Keynesian theory is one half. The IMF stated that it might have been wrong and that the multiplier could have been one, in other words, €1 for €1. Examining the small print, though, the IMF stated that the multiplier depended on circumstances and could be anywhere from 0.9 to 1.7. It is quite a large range. One could examine the small print even further. In Ireland, the multiplier seemed to be approximately 0 and there was no effect, since we were such an open economy and a certain flow of inward investment compensated for the removal of demand.

It is a complex issue. My opinion is that trying to stimulate demand in Ireland on its own is not a solution that would give strong results. I would favour a more demand-driven approach in Europe at this point in the cycle. It stands to reason that if all of the peripheral countries are doing budgetary corrections and the AAA rated countries like Germany, which accounts for one third of the European economy, are strong but also hold back and continue to contain expenditure, there is nothing to compensate for the demand that has been removed across Europe.

Our problem is not particularly that demand at home is down. Rather, our emerging problem is that demand in customer countries is decreasing. Our model of success is export-led growth. We need our customer countries to continue purchasing our goods and services.

What Mr. Mario Draghi at the European Central Bank is doing is effectively a demand management initiative. It is not quite printing money, but intervening in the bond market is a method of releasing demand. If that initiative is brought on board, it will be helpful. The quantitative easing model used by the Federal Reserve in the US and by the Bank of England is not legally permissible for the ECB, but Mr. Draghi is quite creative and I hope that the intervention of the new French Government stressing the importance of a jobs and growth strategy will also move in that direction.

I am not that far from the Deputy's analysis but it would not be fruitful to consider the matter from the small constraints of an Irish economy. To be effective, it must be Europe-wide and operate in parallel with fiscal correction in the stronger countries, not in substitution. Sweden is the only country that has already picked up the baton. Its finance Minister introduced an expansionary budget in September. During my conversations with him, he stated that someone needed to take the lead. He hopes that other AAA rated countries will follow.