Professor John FitzGerald:

As I said, the fact that nobody has a monopoly on wisdom is important. The Government should encourage diversity of opinions. Undertaking research across a wide range of areas of the economy is important. Models need to develop continuously. Although we will soon have a model of the financial sector, the next problem to hit Ireland will be something different. How do we know what it will be? We should not be too reliant on the past and should think outside the box, and this is one area in which we have failed. I do not know what will be the next major policy challenge.

In fiscal policy, I am concerned that we lack the infrastructure to sensibly operate the rules we have put in place regarding the management of fiscal policy and structural deficit, and which are embedded in the Constitution. As long ago as the early years of the last decade, the Department of Finance said the current EU methodology for calculating the structural deficit and potential output was an unwise method. Although the methodology was telling the Government it was doing a great job and should continue to stimulate the economy, the Department of Finance still said it was a bad method. Whereas the European Commission is now saying Ireland has a substantial structural deficit and needs more cuts, my assessment, using my methodology published last April, is that we are in structural surplus and do not need further cuts. However, in the medium term, using an appropriate methodology, we may find ourselves in the next five years having to run an increasing surplus because there is a chance we might get rapid growth, moving beyond potential output. There is a need to improve our methodology and we have put forward a methodology for assessing fiscal policy which is better than what is there.

The European Commission officials accept that the methodology does not work. In 2010 and 2012, I was at conferences in Amsterdam and Brussels, and at the Amsterdam conference my colleague spoke about this problem, that the methodology is inappropriate. The European Commission official became furious, not because my colleague had said the methodology was wrong but because she had said it was a Commission methodology. The official's view was that it was an EU methodology and that, although the Commission implemented it, he agreed with us. In monitoring fiscal policy, we must develop more appropriate methodology that will give the right answer. There is a danger that in the short run it may tell us we need €2 billion more in cuts when we do not, and that in the long run it may tell us to stimulate the economy when we should take money out of it. I have suggested a methodology. I do not have a monopoly on wisdom and it is open to the Irish Fiscal Advisory Council, IFAC, the Department of Finance and the ESRI to develop an alternative. We need better guidance for the future in light of the mistakes of the past.