Dr. Mark Cassidy:

I thank the Deputy. This is very important. The European Commission issued an initial review of the framework in February. Progress on that has understandably stalled since the pandemic has taken up attention, but it pointed to certain weaknesses in the fiscal framework from a backward-looking perspective. Fiscal policies were often pro-cyclical and the composition of public finances was not as growth enhancing or encouraging of investment, including sustainable investment, as it might be. The complexity of the fiscal framework, particularly in relation to matters such as structural balances which are very difficult to calculate and are largely outside Government control, is another issue. The Government can decide how much it will spend but not necessarily how much it will take in. These are all potential areas, flagged by the European Commission, where there will be some changes to the framework in future.

I cannot be too definitive because these are inherently political matters, but the simplicity versus the complexity of the framework should be considered. Simpler rules on expenditure would be one option, rather than a focus on balances. There is a certain degree of one size fits all when it comes to assessment of debt which focuses on a single figure - the debt ratio. A broader understanding of an individual country's debt situation, the sustainability of its finances, and a distinction between good debt and bad debt is necessary. Good debt is accrued for capital and environmental investment versus bad debt which is not productive. Looking at what is underlying the debt and the sentiment of financial markets to further increases in debt are other issues.

There are a number of issues and an appetite for change in certain areas. However, there are political issues and some countries will be more resistant to changes than others, so I do not know what the reality will be. Certainly, the recent Commission report provides a basis for looking at these issues in the coming years once the current problems are out of the way.