Mr. Sebastian Barnes:

This is an important matter.

It is hard to know what the likelihood is of that happening. There is also much uncertainty regarding these estimates and that is conditional on a hard Brexit. We thought, however, that it would be useful to think through the consequences in different cases. I think the question from the Deputy is trying to do that as well. We have taken two sets of estimates. One came from an exercise led by the Economic and Social Research Institute, ESRI, and the other came from the Central Bank of Ireland. Those exercises give us slightly different versions of a hard Brexit. The version from the Central Bank is a much worse estimate. These exercises illustrate well some of the uncertainties and different scenarios that might happen, even if there is a hard Brexit.

I will take the scenario from the ESRI first. It is not quite as bad as that from the Central Bank but we still see a fairly reasonable deficit opening up in the next couple of years. By 2020, that would be at -2.3%. Turning to the version from the Central Bank, it is much worse. It presents a scenario where the deficit opens up much faster and reaches much larger numbers. I should state that relative to the analysis of the ESRI, for example, the fiscal impacts we present are much larger. That mostly reflects a methodological difference. We take a different view of how much the slowdown in the economy would feed through into the public finances. It is an area where there may be legitimate disagreements but we think ours is a more realistic estimate based on our reading of the evidence.

The important aspect following that point is what the policy response could be. It must be taken into account that a tightening of policy would also have a second round effect and would weaken demand. The exercise we have done looks at what would be required to stabilise the debt ratio over a period of time. The shocks considered are big enough to mean that, in some cases, not only would the slowdown in the GDP to debt ratio stop but it would actually go up again. Trying to bring about stabilisation over a few years would have a major impact. The simulations we referred to suggest €4 billion would be needed if the fiscal adjustment was done very quickly. If that was done over two years, then that total would accumulate to about €5 billion. These are, therefore, big adjustments. They are smaller than what Ireland experienced in the wake of the financial crisis. Nevertheless, these adjustments are very large and very different from the kind of scenario we would have in the baseline scenario. That is why I think it is useful to raise this issue. It also, however, underpins our policy advice to be cautious. The better the starting position, the less that will have to be done if things go wrong.