Professor Tim Callan:

I will try to pick up on some of the points that were directed at my field. A question was asked about the difference between the mean and the median and why one would be preferred over the other in terms of income measures. The mean income, what people often think of as the average, can be strongly influenced by the number of high incomes. If average incomes rose swiftly, it could mainly be due to what was happening at the top of the income distribution. The median income, which is best thought of as the half-way mark when ranking people from the lowest to the highest, is not influenced. Incomes at the top could rise and fall regardless. I do not know whether this illustration can go into the evidence, but we will supply a graph later.

The second question is about the coherent principles, which issue is dealt with in a paper by Bertrand Maitre and his co-authors. It follows on the tradition of the measurement of poverty which grew up in the ESRI and has been adopted as a national policy. To be deemed to be in consistent poverty requires that the person be on a low income and experiencing material deprivation, which is very different, even living aside the jobless criteria, from what the EU is saying. It is saying that it will count as at risk of poverty or social exclusion a person who is either on low income or is experiencing material deprivation, even if experiencing material deprivation and having a high income. It is hard to justify this conceptually as a decent measure of poverty.

While on this issue I will respond to the question on the jobless criterion. Being in a jobless household puts a person at higher risk of poverty but so do lots of other things, such as being a lone parent or a large family in terms of size. It is confusing the causes of poverty and actual poverty to put both of those things into the measurement because doing so indicates whether a person is poor or is at high risk of poverty. Elevating that particular risk to a status whereby a person is automatically counted as being in the group about which concern is being expressed is to elevate it above all risks. That does not make sense. That case is made in a much more refined manner by my colleague and others in the paper I mentioned earlier.

On the asymmetry of the macroeconomic imbalance procedure, prior to our being part of the monetary union in the EU there was a variation in exchange rates. It was possible then to have an macroeconomic adjustment which involved an exchange rate. This was given up for the good reasons of facilitating trade and so on. However, there will still be forces that push economies in different directions. When they push an economy down it can go down, as we know to our cost, very hard and very fast and one can be left with few options but to adjust rapidly and strongly. If it goes up, there is not that sort of pressure. This is the reason for Paul de Grauwe's statement that these adjustments need to be symmetrical and that some of the burden must be borne essentially by Germany doing an internal revaluation at the same time as the current programme countries are doing an internal devaluation. This can come in different forms, including through tax cuts, increased public spending and so on. There are lots of ways this can be done but there is no pressure for it happen in terms of his assessment.

To bring things up to speed, we hear now that the Commission is considering adopting the macroeconomic imbalance procedure for Germany. However, nothing has yet happened. Even if it does, there is a question mark around what the outcome will be. I just want to flag this as a serious issue.