Mr. John McCarthy:

Yes. I can elaborate if the Deputy would like.

I think there is a problem on the inflation front, both in Ireland and in the rest of the euro area. As members know, we have the non-standard monetary policies from the beginning of the year, I think it was March when quantitative easing was introduced. That was because there had been a de-anchoring of inflation expectations. There were two or three years in which the rate of inflation was well below the ECB's target and it was beginning to feed into expectations. The euro system will buy €60 billion of both private and public sector bonds in order to try to re-anchor inflationary expectations. What has happened since then? Inflation remains very low. In September in the euro area, headline inflation was still in negative territory. Core inflation was running at 0.9 % to 1% but headline inflation was very low. If one looks at some measures there has not been any significant re-anchoring of inflationary expectations. That is a problem and it creates a problem for us and for others in the sense that falling or very low inflation increases the real interest rate, so it is a de factotightening of monetary policy. It makes the debt burden much more problematic. It places a premium on deleveraging and further balance sheet repair, like a Richard Koo's balance sheet recession, and it also makes the relative price adjustment more difficult. Countries on the periphery of the euro area need strong growing economies, such as Germany, to have high inflation so that they can improve competitiveness by running an inflation rate of 1%. If Germany and other economies are running 0.2% or 0.3% they have to be in negative territory to improve competitiveness, which is problematic from a debt perspective.

I have laboured the point a little but the answer to Deputy Rabbitte's question is that yes, I would sleep a little bit better if inflation was a little bit higher.