Professor John McHale:

I will try to separate out the points made by Deputy Doherty. He made the point about our shaky start. It is true that between the report that issued in September and our most recent report, the situation changed so that the additional adjustments beyond the Government's plan for which we had made a case were no longer required. We had to see what facts changed and whether we should have foreseen them. The main change was the promissory note deal. I do not think we could have been expected to have been in a position to anticipate the nature of that deal and as members will recall it was highly uncertain as to whether it would take place at all. Our basic thinking and the strategy we have been recommending, which is to have a margin of safety in place, has not changed but as certain facts changed the way the strategy gets translated into actual advice about the fiscal policy stands will change. I know people perceive us to have been wrong but I do not see how we could have anticipated what the savings on the promissory note deal would have been. I think it would be much worse, if in order not to make a mistake we just kept making the same advice even though the facts had changed. I do not accept that we have got off to a shaky start in terms of getting it wrong on that dimension.

The Deputy is right that austerity is having a significant negative impact on many people's lives. Nobody should recommend it lightly, given the pain that it causes. We must recognise that as bad as things are, if they are badly managed they could get substantially worse. In order to be able to phase the adjustment out over time, we need to be able to borrow. For a number of years we had not been able to borrow until quite recently from the financial markets so we were relying on official lenders. To remain creditworthy with the official lenders, we had to meet the conditions. To ensure one meets those conditions in a highly uncertain environment creates an argument for having some buffer in place. The important point is that the reason we are arguing for this margin of safety is to ensure we do not reach a situation in which we lose our ability to borrow when that ability to borrow is so critical to maintaining social spending, social protection, social services and so on. In terms of what matters in people's lives and avoiding imposing pain on them, I think we agree on the end point, which is to find the best way to ensure that as bad as things are at present, we do not take a risk of them getting much worse and we stay on a path to improving the situation. To respond to Deputy O'Donnell's question, we are starting to see positives. We have had two years of positive growth and while I accept the rate is far too low, we see signs of domestic demand stabilising. In terms of what the austerity programme set out to do, which was to get control of the public finances, bring down the deficit, initially stabilise the debt and then put it on a downward path and regain the creditworthiness of the State, in the middle of 2011 the bond yield was 15% whereas it is now down below 4%.