Mr. John McCarthy:

Certainly; there will be a division of labour. I will make a short statement on the annual growth survey and the alert mechanism report, while Mr. Hogan will speak about the investment plan for Europe. Our opening statements will be very short.

I thank the joint committee for the invitation to discuss the annual growth survey and the alert mechanism report for 2015. I am the assistant secretary in charge of the economic division of the Department. The European semester is the annual cycle of policy co-ordination in the European Union, the aim of which is to improve policy making in member states, taking into account the greater interconnectedness among them. The starting point of the semester is, as always, publication by the Commission of the annual growth survey each November. The role of the survey is to highlight the general economic priorities for the European Union for the coming year. It is debated by both the Council and the Parliament and subsequently endorsed by the March European Council. Once endorsed, the priorities are supposed to be taken into account by member states in their national reform plans and stability programme updates which are submitted to the Commission and the Council in April. The Council subsequently adopts country-specific recommendations for each member state in June. This year's survey was published last November, thus beginning the fifth cycle of policy co-ordination in the semester, and it is the second time Ireland has formally participated in the process. As a programme country, it was exempt from the process until 2013.

Three interrelated reform priorities were identified in the 2015 survey, namely, a renewed commitment to structural reforms, a co-ordinated approach to boosting investment in the European Union and a pursuit of fiscal responsibility. The Commission argued that action was needed in all three areas. It also adopted the so-called alert mechanism report, AMR, an early warning system that is embedded in the macroeconomic imbalances procedure. The origins of the procedure lie in the fact that economic imbalances, not just fiscal imbalances, were at the heart of the euro area crisis. Therefore, the role of the procedure is to identify and address imbalances that hinder the smooth functioning of monetary union. The AMR is an initial screening device based on a scoreboard of 11 economic indicators, each with indicative thresholds. The indicators cover both internal and external imbalances. Based on an overall assessment, rather than a purely mechanical reading of the scoreboard, the Commission may decide an in-depth review is warranted in order to assess whether a policy response is needed in a member state. The in-depth review forms the analytical base for dialogue between member states and the Commission on the appropriate policies to correct the imbalances.

For this year, based on the scoreboard, the Commission has decided that in-depth reviews are warranted in 16 member states, including Ireland. In the Irish case, the imbalances are legacy ones. They are stock variables, rather than flow variables. I have included the list of 11 variables as an appendix to my presentation to the committee. When I refer to stock variables, I refer to imbalances that accumulated during the bubble years and which are in the process of unwinding, although the unwinding will take time. The new Commission has proposed a streamlining of the semester, which means the publication of a single analytical in March this year, incorporating the results of the in-depth review. The rationale for this is to allow member states to engage in a more meaningful way with the Commission before publication of the CSRs in June.