Professor John McHale:

Debt sustainability is a difficult thing to measure and there are different measures for it. One basic requirement is that the debt stops rising as a share of the economy. It looks as though the debt-to-GDP ratio will peak at 123% of GDP this year, a bit higher than originally thought, partly because the Government is building up quite large cash balances, which could rise to as much as €30 billion. On that criterion, it looks as if sustainability will be achieved.

The more basic measure of sustainability is funding the debt when it must be rolled over and, if it is being added to through deficits, whether those can be funded. The eurozone crisis has revealed the fragility of a country's debt sustainability within the eurozone. Probably it will remain fragile at debt levels as a share of GDP that are quite a bit lower than 120%. If we did not have access to official lending, either actual or potential, through a precautionary programme or a full programme, Ireland's debt would probably not be refundable at anywhere close to the debt-to-GDP ratios we currently have. That is why retaining our creditworthiness with those official funders is so important to ensuring we can sustain that debt and not be forced into a default and a much more severe programme of austerity.

This is why, going back to the theme the Deputy raised about the uncertainty around these forecasts, given that uncertainty, we have argued for this margin of safety to make sure we can at least stop the debt-to-GDP ratio from rising. Already, even with the additional planned adjustments of €5.1 billion up to 2015, we estimate there is a one in four chance the debt-to-GDP ratio will not have stopped rising by 2015 if there are negative shocks to growth. It is still very much on the edge but to the extent that we can put that margin of safety in place, we can reduce the probability that the debt-to-GDP ratio will not have stabilised. That goes back to why we are making the argument for having that margin of safety in place to ensure we can maximise the chances of debt sustainability and minimise the chances of the disruptive effects of default and further austerity.