Mr. Sebastian Barnes:

Mr. Blanchard was speaking about a slightly different version. Deputy Doherty is right that requiring some structural tightening, irrespective of the cycle, on the face of it can be pro-cyclical. Something to bear in mind is that there are different ways of doing this. If we want to reduce the debt ratio, which is the way the Commission thinks about it, this can only be achieved through lowering spending growth through this measure and through improving the structural balance. There is an equivalence between these types of rules. If we put in different rules they will not be quite the same and this is why it is being done. The difference may not be as fundamental as some people think

The current rules are very pro-cyclical, which is the problem. A one twentieth rule, which was so pro-cyclical it could not be enforced, was introduced. This is why it is being got rid of, and why this is progress. This would be binding on quite a small number of countries, perhaps shorter than the list Deputy Doherty gave. It may not be that different from not having this requirement. The Commission has not published its simulation so ultimately we do not know. This is a problem. We could have some pro-cyclical policies in some countries. It is a possibility under these rules. Of course, the scale for 0.5% a year is less than 1% a year. It would be the same requirement as we have now.

It is probably a question of how big we think these risks are. Some of these countries have very large debt ratios, very slow growth, and ageing populations, and are paying much higher interest rates than we are. It depends on how concerned one is about those things because we know that in the past, sometimes one has to take pro-cyclical decisions if the situation warrants them. One does not want to be in that situation but one can get into that situation. That is the judgment that has been taken and we do not have a view about how that judgment was taken. It is a political decision at European level. These are the trade-offs that are being faced.