Professor John McHale:

If the Government reduces the planned adjustments, the probability of meeting the 3% target gets reduced. The Senator mentioned €500 million or €600 million worth of easing relative to that €5.1 billion target. The central forecast would probably be for a deficit still below 3% of GDP by 2015, but given the huge uncertainty over growth, things do not work out according to those central growth forecasts. There is still considerable downside risk relating to uncertainties about the balance-sheet recession that is affecting the domestic economy, but also huge uncertainty over the European economy. So there are still major uncertainties. To keep things on track and reinforce the progress that has been made already, we believe it is appropriate to keep this margin of safety in place.

There is good news. In our previous report we had indicated that additional adjustments beyond the €5.1 billion would have been required to achieve this margin of safety. There is very welcome news with last year's Exchequer returns coming in somewhat better than had been anticipated in budget 2013, the fact that nominal GDP turned out to be slightly higher than anticipated in the budget, and also the significant effects of the promissory note deal. These are welcome developments that allow the margin of safety, which we believe to be the wise course, to be in place without having to go beyond the planned €5.1 billion adjustment.