Dr. Gabriel Fagan:

Perhaps I could add a few words to the suggestions made by the Governor in his letter and give the committee some background. First, the 60% is not a target, it is a ceiling. If the country has a lower debt, it is still meeting that ceiling. The main motivation in the Governor’s mind was that judging from the experience of the economy in the past ten to 20 years, this is a very volatile economy and, therefore, there is a need to have in place sufficient buffers so that when an adverse shock hits the economy, we are in a position to respond to that with fiscal policy. In the past when adverse shocks hit the economy, we had to have fiscal contraction, tightening of fiscal policy, which exacerbated the cyclical situation, worsened unemployment and so forth. That is the underlying motivation for the idea of a long-term debt target, to put in a buffer so that when adverse events happen to the economy, we can respond with fiscal policy without violating the rules.

The second point is that this is not a short-term suggestion. We already have our fiscal rules and budgetary plans. This is more a case of asking what we can do over the long term. Once we have reached a budget, which is more or less balanced in structural terms, the 60% target, where do we go? It comes in there. It does not say next year take fiscal measures to hit a debt target. Third, it should be noted that under reasonable assumptions on growth, which are very reasonable, simply maintaining a balanced budget will lead to significant falls in the debt ratio over time, so it will not necessarily require any additional fiscal consolidation.