Mr. Carlos Martínez Mongay:

I thank the Vice Chairman. It is an honour to have been invited to appear before this committee. I consider this an ideal moment to be here because, as members know, a few weeks ago on 16 November the Commission adopted the autumn package that launches the economic policy co-ordination cycle for 2017. In addition, only a few days previous to that, on 9 November, the Commission released the autumn forecast. It is, therefore, a good occasion to discuss issues related with the main policy messages of the Commission to the EU and the euro area, as aggregate entities, and especially for Ireland. I have learned that the recent reform of the budgetary process in Ireland gives the Parliament a more prominent role in the formation and scrutiny of budgetary proposals. This is an important development which will enhance transparency and ownership of the fiscal framework in Ireland. It also gives more sense to my presence before the committee to discuss a broad range of issues linked to economic policies in the euro area and Ireland, including budgetary policies.

I will start by briefly introducing the autumn package where the Commission presents, every year, the economic and social priorities for the European Union in the year ahead. The package starts the 2017 cycle of economic governance, the European semester, and assesses the euro area member states' draft budgetary plans for 2017. The package builds on the Commission's 2016 autumn forecast that was released on 9 November. The core document, where the Commission's sets those priorities, is the annual growth survey. This year, the Commission calls on member states to redouble their efforts along the virtuous triangle of economic policy; re-launching investment, pursuing structural reforms and ensuring responsible fiscal policies.

Emphasis is placed on the need to stimulate more inclusive growth and to strengthen competitiveness, innovation and productivity.

The annual growth survey signals that Europe is experiencing a fragile but relatively resilient and job-intensive recovery. Its GDP is now higher than before the crisis. Unemployment is decreasing and investment is growing again. However, there is no room for complacency. Some of the tailwinds that have supported the recovery so far are fading. The legacies of the crisis, notably the social impact, through high unemployment as well as high levels of public and private debt, and the share of non-performing loans, are still far reaching.

Similar to last year, the policy guidance in the annual growth survey is accompanied by the recommendations on economic policy of the euro area, which are also part of the autumn package. The fiscal part of the recommendations reflect the main conclusions of a new communication on the euro area's fiscal stance.

I wish to say a few words on the communication. The communication starts by recognising that, albeit resilient, the economic recovery is weak and inflation remains well below the 2% target. In that context, the Commission is calling for a moderately expansionary fiscal stance for the euro area. It is what the document calls a positive fiscal stance. The positive fiscal stance refers to both the supportive, that is, expansionary, direction that fiscal policy should take overall and to the quality - I put the emphasis on that - of the composition of the adjustment in terms of repartition of efforts across countries and of the types of expenditure or tax cuts, or both, behind it. The findings of this communication are reflected in the fiscal aspects of the recommendations on the economic policy of the euro area that also refer to productivity, labour markets, banking union and they also depend on economic and monetary union.

Another document which is part of the package is the alert mechanism report, AMR, which is also an integral tool of the European semester, which aims to prevent or address macroeconomic imbalances. The goal is to promote the smooth functioning of the economies of the member states and to prompt the right policy responses within the so-called macroeconomic imbalances procedure. Based on the analysis in the AMR, the Commission has concluded that in this European semester cycle, 13 countries, including Ireland, will be covered by an in-depth review because imbalances were identified in the analysis presented in the report on the basis of the agreed scoreboard.

In the previous European semester cycle, imbalances were identified for Ireland in the financial sector, private and public sector debt, and high external liabilities. The current alert mechanism report highlights similar issues. Therefore, the Commission considers it would be useful to examine further the persistence of imbalances or their unwinding. The Commission will present the conclusions of the in-depth reviews as part of its annual country reports in early 2017.

The analysis and opinion contained in the autumn package are based on the main findings of the Commission's 2016 autumn forecast. I would summarise the main messages for Ireland as following. Irish GDP growth surged in 2015, mainly driven by the operations of some multinationals, with little impact on the domestic economy, but underlying economic activity also grew strongly by 4% to 5%. Domestic demand is projected to expand at robust rates, although risks have increased, also due to the UK referendum. Employment growth and the continued recovery of wages are forecast to support private consumption over the forecast horizon. The unemployment rate is expected to fall to 7.6 % in 2018, thanks to continued job creation and despite sizeable population growth. The contribution of net exports to GDP growth is forecast to be negative this year but to recover in line with global trade over the forecast horizon. The structural deficit is expected to remain broadly stable in 2016 and to improve gradually by 2018. The debt-to-GDP ratio is projected to decline to 71.9 % in 2018, contingent on robust GDP growth and primary budget surpluses of more than 1.5 % of GDP per year in 2016 and 2017.

If I can have another minute, I wish to say a few words on the Commission's opinion on the draft budgetary plan of Ireland, which is currently under the preventative arm and subject to the transitional debt rule. The Commission has concluded that the budgetary plans for Ireland are broadly compliant with the provisions of the Stability and Growth Pact, SGP.

It should be borne in mind that the Commission recalls that the Government's decision to use a large part of volatile, and therefore still uncertain, corporate tax intakes to allocate additional expenditure in 2016 is not in line with Council recommendations of July, in the context of the European semester, which ask Ireland to use windfall gains from better than expected economic and financial conditions to accelerate the deficit and debt reduction.

After putting on the table this large variety of issues in terms of Ireland and the EU, I will stop here and am ready for a fruitful discussion. I thank the committee for its invitation and for the attention of members.