Professor John McHale:

It is 0.5 of a multiplier. If one was to implement a €2 billion adjustment, that essentially knocks off approximately €1 billion from nominal GDP. It is significant. Going back to what I stated at the outset, this trade-off between the damage that fiscal adjustments do the economy and ensuring that we retain the borrowing capacity of the State and the sustainable debt situation is the thing we are always grappling with.

As I have stated to this committee in the past, all the members of the council approach macroeconomic issues from a Keynesian-type perspective. There are certainly differences among us in the kinds of model that we bring, but that really means that we recognise that fiscal adjustment slows the economy. If we were not facing any constraints in borrowing capacity, good macroeconomic management would tell one to try to phase the adjustment out to better times. We recognise that one does not want to be making the adjustment when the economy is on its knees. The unfortunate aspect is that we faced major constraints in borrowing capacity, and even though there have been improvements, there still remain substantial fragilities. We are grappling constantly with that particular trade-off.