Professor John McHale:

There are a number of risks. In terms of the domestic economy, we know the balance sheets are still very much impaired across the economy. Again, looking at the international experience, we know that can have a considerable drag on spending. We also see that credit is still very much impaired and that could affect domestic demand, in particular investment demand. The prospects in the international economy, unfortunately, are still quite uncertain. The United Kingdom economy seems to be performing strongly. In the US, Chairman Yellen downgraded growth forecasts. There is a lot of uncertainty as to whether the eurozone economy is really pulling out of the recession it is in. There are concerns about falling into a low inflation and possibly deflationary trap. There are still a lot of uncertainties around the international economy.

When it comes to our borrowing costs, what has brought bond yields down has been the combination of success in the fiscal adjustment process and also developments internationally at the European level, in addition to the actions taken by many central banks around the world. There is a possibility that some of those positive developments could reverse and if at the same time we were losing credibility to stick with the adjustment programme, that could lead interest rates to rise back up again. There are a number of risks. I tis to be hoped that none of those negative scenarios will come to pass, but one thing we know from watching the economy – I am sure you know this yourself, Acting Chairman - is that the economy will surprise one. Given the importance of getting out of the excessive deficit procedure which requires that we get the deficit down below 3% of GDP, at this point in time, given what we have achieved already and given the risks that remain, we think that it is appropriate to follow through on those plans for an adjustment of €2 billion, giving us a very reasonable chance that we can put the excessive deficit procedure behind us.