Professor Alan Barrett:

Regarding flexibility in the fiscal rules, I was in Brussels a year or 18 months ago and asked a Commission official that type of question. The answer I was given was along the lines that, if member states submitted expenditure or other policy proposals and made real cases that the effect of the proposals would be to increase the productive capacity of their economies, there would be room for some flexibility. I do not know whether that has been attempted or anyone has been successful. At one level, that is a good thing. We might grump and complain about the fiscal rules, but having an infrastructure to control the excesses of the past is good. However, if one decides that capital expenditure can be exempt, could one make the case that paying teachers more was a capital investment because better people would enter teaching? One can imagine the crazy arguments that would be made. If reasonable proposals are presented to the Commission and it reflects reasonably on them, though, my understanding is that there is scope for flexibility. From an economics perspective, the notion of borrowing for productive purposes is in no way controversial. It is exactly what one should be doing, especially when interest rates are where they are now.

I am not sure that I am qualified to comment on the broader issues. Does Dr. McQuinn wish to try?