Mr. Sebastian Barnes:

The council's role is to assess compliance with domestic rules rather than to make suggestions regarding the design of the European rules. The council participates in a network of other fiscal councils across Europe with 32 members. It so happens that last week, the network put out a report on the future of the fiscal rules which touches on some of these issues. As regards the conclusion of the report, which would partly reflect my own view, the design of fiscal rules is an extremely complex subject. Countries are in very different situations. There are some with very high debt ratios and some with very low debt ratios, some with reasonably high growth such as Ireland and some with very low growth in recent years such as Italy. It is, therefore, highly complicated. There is a whole system of existing rules and problems, which means there are no particularly easy answers to any of these questions.

We discuss the 3% in the report. There is a current view and debate that the 3% should be replaced with something more sophisticated. There is another view that the 3% is the only part that anyone on the street has ever heard of and while it is a blunt instrument, it might be the only sort of brake in the system, so maybe we should not mess around with it. Those are the two views. Across Europe, the fiscal councils do not particularly take a view on that question.

The final point the Deputy made was very important. There are two aspects of the report worth mentioning here. The first is that we talk a little about the role of independent fiscal institutions such as the council. We think they have more to offer, probably in a European context, in making sure that we can have a system that is rules-based but where there is some discretion to use overrides to avoid serious mistakes and promote the debate at national level. We think the role of fiscal councils could be increased in that respect and the report discusses that more.

The second aspect is that we talk about the need to test the fiscal rules. One of the mistakes made in the past is that people had relatively abstract discussions about what type of rule may or may not be good. However, we need to look at what would actually apply when the rules kick in. For example, the debt rule in certain circumstances could be very constraining in a way that is suboptimal. In other circumstances, it might be absolutely fine. One needs to look at the world as one expects it to be across all the different countries of the European Union or in the euro area. One needs to look at the risks that things will not pan out as expected. One also needs to evaluate whether the rules will work properly or not. For example, some of the problems we saw in the enforcement of the debt rule in recent years would have been avoided had people done simulations and realised that this would be a problem for some countries. That approach, based on testing and on evidence, is a bit of a shift from the way it has been done in the past. That is very much in line with the way the council approaches many problems, which I think would be really helpful. For this reason, one must always think about what something will actually mean. Many rules sound quite nice but when one figures out what they actually mean for countries one realises that, for perhaps not all countries but for a small number of countries, it poses massive problems and that will undermine the whole framework.