Dr. Mark Cassidy:

I would emphasise that, first, this is not uniform and there have been some income cuts. However, in the same paper where we look at income, we also look at debt sustainability. It shows that debt ratios have increased in many cases but, in fact, they have increased much less than they would have in the absence of supports. I would emphasise that a lot of the issues will only become visible and evident once the supports are removed. Once the supports are removed and the recovery starts, if there are people who do not return to work, and there will be people who do not return to work, for that cohort, that is when we may see the pressures on debt sustainability and mortgage arrears. For that reason, we would expect to see some adverse impact on mortgage arrears arising from this pandemic, even if the figures are not yet visible because of the effect of income supports. I would in no way want to sound complacent about what the lasting effects will be.

In terms of EU budgetary rules, I would not comment on what is appropriate but there is much to be considered. There have been issues raised, first, that the current framework is overly complex; second, that it is not sufficiently supportive of growth and capital investment; and, third, that it is a little bit one-size-fits-all and does not take into account that a country's debt ratio is not the only metric one needs to look at. There is also what that debt represents, whether it is debt that has been accrued because of capital; what does the market think regarding the sustainability of that debt; and, more important than anything else, what is the financing cost of that debt. A 100% debt ratio at 0% interest is a lot better situation than a 100% debt ratio at 3% or 4% interest.

Those are the issues. The process was paused last February when the European Commission first reported on the budgetary rules and, of course, the Stability and Growth Pact escape clause has been triggered and that will be extended for a while. After the recovery starts, I think there is an opportunity to look again at the fiscal framework. There is scope there but it is a political issue as to what changes will actually materialise.

In terms of interest rates and inflation, all I would say is that we do not see them increasing markedly in the near term, and I think there are reasons for that. With regard to interest rates, the ECB is on the record as saying it expects its current asset purchases and its low interest rate environment to be in place for a while. However, I would say that interest rates and inflation are at historically low levels and, at some stage - I would not put a timeframe on it - there is likely to be an upward trend in those.