Professor John McHale:

The convergence margin is applied when the medium-term objective has not been met. The convergence margin applies to the expenditure benchmark and reduces the allowable rate of expenditure growth. The structural balance must be reducing by 0.6% of GDP until the medium-term objective is hit. Then that adjustment path condition and the convergence margin no longer apply. It is true that if the Commission did not see Ireland as currently running a positive output gap, we would be closer to that medium-term objective but we would still not be at it. Dr. Conefrey would have a better sense of the numbers. We would still be adjusting, but we would get there somewhat sooner.

As the Deputy has pointed out, the Commission's methodology indicates there is a positive outward gap. Looking at the economy and various measures of overheating and alternative measures of the output gap, the council does not see signs of the economy overheating at present. However, we are probably getting close to a potential zero output gap. In answer to Deputy Donnelly's question, we would still be on the adjustment path even if the adjustments for the output gap were made.