Professor John McHale:

I thank Senator Byrne for his important questions. I may call on my colleagues to answer some of them. He asked whether the planned adjustments of €5.1 billion for 2014 and 2015 should be reduced. I will recap on the council's analysis in calling for this margin of safety. It relates to the huge uncertainty about the fiscal picture, in particular uncertainty about growth but also uncertainty relating to the potential for additional bank losses. While there are many different sources of uncertainty, we have mainly focused on the uncertain growth picture.

Even with these new developments, including the promissory note deal, based on past forecast errors on growth we project there is about a one in three chance that the target of 3% of GDP will be missed in 2015. If we could be certain that the 3% target could be achieved, there would be scope for reducing the €5.1 billion in adjustments. Unfortunately because there is so much uncertainty on growth, to give us the margin of safety to ensure the 3% target will be achieved, we believe it is useful to aim for something closer to 2% of GDP under the central growth forecasts. Then if there are some adverse growth shocks, we could still meet the target.

That raises the question of why it is so important to meet the target. We have seen that Ireland's success in meeting its main fiscal targets has had a very positive effect on Ireland's credit worthiness - ten-year bond yields have now moved down to approximately 3.5%. There has been considerable success on a key objective of the programme, which was to restore Ireland's borrowing capacity. Much of that is due to the success in meeting the targets. Having this additional buffer or margin of safety to ensure we can meet that key 3% target by 2015 keeps us on track in terms of the perception that Ireland's fiscal situation is being brought under control, that the deficit is bring brought down according to plan, and that we are on track to stabilise and start to reduce our debt-GDP ratio.