Professor John McHale:

It is certainly something to which we have to pay careful attention. One of the downsides of being a small country in a monetary union, where the interest rate policy is set for the union as a whole, is that it can be quite inappropriate for particular countries and certainly for smaller countries. The Deputy is absolutely right when he says that during the boom phase, we had a monetary and interest rate policy that was inappropriate for Irish conditions. At the moment, because Europe is still very much in a slump and is facing deflationary pressures, we have policy rates that are at very low levels. Until now, it has been to our benefit. As we discussed earlier, we are still operating below potential. It is good to have that stimulus to the economy, particularly when fiscal policy has had to be quite contractionary for other reasons, such as debt sustainability and trying to regain our credit-worthiness. It is something we are going to need to watch as we move towards a situation where the Irish economy may be getting back up to its potential. If it seems we have a monetary policy that is unsuitable for Irish conditions, we may have to use fiscal policy as the only demand management tool that is available. The Deputy will have heard the ESRI expressing concern that current fiscal policy might be stimulative, given where the economy is. I reiterate that the use of fiscal policy for counter-cyclical demand management is very important when one does not control interest rates.