Mr. Sebastian Barnes:

There were a number of concerns about the way the previous rules were designed at the beginning, which meant they gave the wrong signals on both sides. Some countries should have been disciplined that were not and some countries that were disciplined but maybe should not have been. Also, that made the rules very hard to enforce. The most obvious one was the so-called one-twentieth debt rule, which made no sense. When the EU tried to apply it to Italy the Italians rightly pointed out that if they were applied, it would lead to a massive procyclical contraction and that they could not do it. They were absolutely right about that.

The more subtle one was around the structural balance rules. As a lot of work done by IFAC has shown, a big problem there is that the Commission has used this commonly agreed methodology to work out the potential output and the output gap. However, there are a lot of problems with those methods. They are always difficult because they involve trying to measure things that one cannot see such as the potential output of the economy.