Dr. Tom McDonnell:

I believe that in the future what we will find is that the expenditure benchmark will end up being the workhorse.

When we get into a discussion about structural balances and potential GDP, one quickly gets into an esoteric world of things that we cannot measure. That is problematic. It is extremely problematic for policy makers attempting to follow these fairly arcane debates. I would argue that the structural deficit is certainly not worse than the actual deficit. The actual deficit in 2016 is probably not likely to be worse than 0.8% of GDP. As it happens, the fiscal space of less than €1 billion will sufficiently improve our structural balance, I would argue, to get us to the 0.5% level that we need to be at, and, therefore, simply maintaining that and applying the expenditure benchmark in future years will be sufficient.

That does not mean I am correct. It is possible that the economy is overheating. It is possible that potential growth rates will not manifest. It is true that the potential growth rates being talked about by me, the Department of Finance and others are based upon assumptions for productivity in excess of 1% per year. It is true that productivity growth in the west has been less than 1% for over a decade, although there may be measurements associated with that, and it is possible that the reference rates are much lower, the structural dynamics of the economy are much worse than we think and, therefore, we need to be particularly prudent. That argument can be made, but in our view it is sufficient to apply the convergence margin, which is the structural deficit rule, for 2017 as a precautionary measure. We can then look at it again, not to pre-empt 2018, but to look at whether we are overheating, look at what the deficit is likely to be, attempt to come up with some methodology for determining the degree of overheating and the structural deficit, and to determine independently of the Commission where we are in terms of the fiscal position and, therefore, what fiscal space is available. We are arguing about the difference between approximately €1.2 billion and €2.6 billion here so it is quite significant.

I should point out that this is only relevant to that particular one year - there is no argument about future years, 2019, etc., - and this is a debate. This is not me coming in here and saying that people are wrong, rather I am saying that we need to have a debate about this and not simply accept that such is the appropriate fiscal space for 2018.

In terms of the structural balance rule, it is the structural rule and its application that is determining this debate but, for 2019 and onwards, it will be the expenditure benchmark that will really determine fiscal space in the future.