Dr. Gabriel Fagan:

In the first question on the debt-GDP ratio, the Deputy makes a very interesting point. If GDP does not give an accurate reflection of production in the economy, debt-GDP may be a misleading indicator. The Irish Fiscal Advisory Council has addressed this issue and come up with alternative denominators. Instead of looking at debt to GDP they look at another indicator which is linked to the revenue-generating capacity of the economy. I am sure the group chaired by the Governor can make further progress in the area of alternative indicators.

In his letter on the medium-term debt target, the Governor is talking about the longer term. He is not talking about the next few years but about what happens to the economy after we achieve a balanced budget and the 60% target. He is not saying there has to be fiscal contraction but that we need to bear in mind the fact that the economy is subject to severe volatility in comparison with other countries. What is right for Germany may not be right for Ireland and that should be borne in mind. To achieve a lower debt ratio than 60% in the circumstances that are likely to prevail would not require major cutbacks or fiscal consolidation. Maintaining a balanced budget for a period of time would allow for a fall in the debt-GDP ratio towards the medium-term target.