Dr. Kieran McQuinn:

I will take the two points the Deputy raised about the fiscal rules and the ongoing discussion about what is likely to happen to them. Most people believe that if reverted to the exact rules in place before the pandemic, many countries could be in difficulty over the next couple of years. This idea of aiming for a 60% debt-to-GDP ratio when many countries have been increasing their debt would pose significant issues for countries such as Italy and others which have been increasing their spending. In an Irish context, the strength of our recovery is such that we believe we will have double-digit GDP growth this year and very strong growth again next year. We can talk about how valid the debt-to-GDP ratio is in an Irish context. However, if we take it as the measure, and it is the measure used with the fiscal rules, the economy will probably be in a better position by the end of even this year than it was just before the pandemic. Even though we increased our debt and borrowing, the economy actually grew by such an amount and is likely to grow by such an amount that we are in a better position than we were going into the pandemic. I think that will be a surprise to many people but that is the nature of the strength of the recovery. As I said, we could have a separate discussion on how accurate GDP is in this context but compared with most other countries in Europe, Ireland will be in a relatively good position going forward, from that perspective. Again, the strength and pace of our recovery are the key issue there.

On interest rates, the Deputy raised a very interesting question. Obviously, the interest rate is the key monetary policy tool used to curb inflation. It is what the ECB would typically use if it were trying to actively reduce the rate of inflation. The danger is that if interest rates were raised at this point, many countries are only beginning to recover and come back on track with respect to normal economic activity. European authorities, especially the ECB and the European Commission, probably learned from the mistakes of the financial crisis where the large institutions, whether it was the ECB or the Commission, did not really help the initial phase of recovery countries were experiencing after the financial crisis. There was too much of a focus on curbing expenditure and countries getting their fiscal policies back in shape. Those lessons have been learned. The major authorities are trying to accommodate the recovery as much as possible and that has been reflected in much of the commentary, even from the ECB in recent times. It notes the higher inflation, believes it will work itself out over the next six to nine months and will not start raising interests any time soon because of the dangers that could pose to the recovery across the euro area.

The Deputy raised the issue of overheating. It is a valid point in the sense that we would have been talking about the potential for the Irish economy to overheat just before the pandemic. Obviously, the pandemic has had its impact. As we come out of the pandemic and the economy grows very strongly, that will raise certain issues for us as well. The ESRI has, for instance, called for greater capital investment in areas such as housing. Climate change is another area. That is important and necessary going forward but it means that when increasing expenditure, particularly on capital, in the context of an economy that is growing very strongly, it will require showing discipline on the current expenditure side to ensure the economy does not overheat. That will become a key fiscal and broader macro challenge for the authorities over the next period.