Kathryn Reilly (Sinn Fein) | Oireachtas source

I thank our guests for their presentations. One of the concerns regarding economic and monetary union is that it created specific difficulties for smaller member states. In the context of monetary policy, interest rates were set with the economic performance of large member states in mind. During the early years of the euro when the German economy was sluggish, ECB interest rates were kept low in an attempt to stimulate investment. While this made sense in the case of Germany, it created perverse incentives in the context of smaller economies such as that of Ireland which were performing strongly at the time. The cheap money on offer incentivised reckless borrowing. Now that the debate has moved on to the possibility of a closer fiscal union, there is a concern that similar problems will arise. Fiscal harmonisation or greater centralisation of macroeconomic policy at European level could have the consequences of decisions once more being made in the interests of larger member states with big economies. This, in turn, could have the potential to create more negative consequences for smaller member states and reduce the number of policy tools governments might choose to use in times of crisis. There is no doubt that such states require greater levels of flexibility in times of crisis.

Do our guests foresee the emergence of potential problems - similar to those which arose in the context of monetary union - for smaller member states such as Ireland as a result of greater fiscal and economic union? If so, are they of the view that such problems could be avoided? Will our guests also comment on the negotiations relating to the development of a banking union and the impact which slow progress in this regard may have in the context of any deal relating to the State accessing ESM funds to directly recapitalise the pillar banks? How do they assess the state of play on this front? From an economist's point of view, what would constitute a good deal at the end of the legacy bank debt deal negotiations? Mr. McDonnell stated that "In order to help offset regional recessions and asymmetric shocks, such a framework will require a centralised fiscal fund". Will he elaborate on how such a fiscal fund would work in the context of offsetting such recessions and shocks?