Joint Committee on Finance, Public Expenditure and Reform debate -
Wednesday, 21 Jan 2015

Annual Growth Survey 2015, Alert Mechanism Report 2015 and An Investment Plan for Europe: Discussion

Chairman

The purpose of this part of the meeting is to discuss the Annual Growth Survey 2015, the Alert Mechanism Report 2015 and An Investment Plan for Europe. I welcome from the Department of Finance Mr. John McCarthy, chief economist, and Mr. John Hogan, assistant secretary, banking division. The format is that they will make some opening remarks which will be followed by a question and answer session. I remind members, delegates and those in the Visitors Gallery that all mobile phones must be switched off as they interfere with the broadcasting of proceedings.

By virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to the joint committee. However, if they are directed by it to cease giving evidence on a particular matter and continue to so do, they are entitled thereafter only to qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person or an entity by name or in such a way as to make him, her or it identifiable. Members are reminded of the long-standing ruling of the Chair to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official either by name or in such a way as to make him or her identifiable.

I ask the delegates to restrict their presentations to a maximum of ten to 15 minutes, if possible, so as to answer the maximum number of questions from members.

Mr. John McCarthy

Certainly; there will be a division of labour. I will make a short statement on the annual growth survey and the alert mechanism report, while Mr. Hogan will speak about the investment plan for Europe. Our opening statements will be very short.

I thank the joint committee for the invitation to discuss the annual growth survey and the alert mechanism report for 2015. I am the assistant secretary in charge of the economic division of the Department. The European semester is the annual cycle of policy co-ordination in the European Union, the aim of which is to improve policy making in member states, taking into account the greater interconnectedness among them. The starting point of the semester is, as always, publication by the Commission of the annual growth survey each November. The role of the survey is to highlight the general economic priorities for the European Union for the coming year. It is debated by both the Council and the Parliament and subsequently endorsed by the March European Council. Once endorsed, the priorities are supposed to be taken into account by member states in their national reform plans and stability programme updates which are submitted to the Commission and the Council in April. The Council subsequently adopts country-specific recommendations for each member state in June. This year's survey was published last November, thus beginning the fifth cycle of policy co-ordination in the semester, and it is the second time Ireland has formally participated in the process. As a programme country, it was exempt from the process until 2013.

Three interrelated reform priorities were identified in the 2015 survey, namely, a renewed commitment to structural reforms, a co-ordinated approach to boosting investment in the European Union and a pursuit of fiscal responsibility. The Commission argued that action was needed in all three areas. It also adopted the so-called alert mechanism report, AMR, an early warning system that is embedded in the macroeconomic imbalances procedure. The origins of the procedure lie in the fact that economic imbalances, not just fiscal imbalances, were at the heart of the euro area crisis. Therefore, the role of the procedure is to identify and address imbalances that hinder the smooth functioning of monetary union. The AMR is an initial screening device based on a scoreboard of 11 economic indicators, each with indicative thresholds. The indicators cover both internal and external imbalances. Based on an overall assessment, rather than a purely mechanical reading of the scoreboard, the Commission may decide an in-depth review is warranted in order to assess whether a policy response is needed in a member state. The in-depth review forms the analytical base for dialogue between member states and the Commission on the appropriate policies to correct the imbalances.

For this year, based on the scoreboard, the Commission has decided that in-depth reviews are warranted in 16 member states, including Ireland. In the Irish case, the imbalances are legacy ones. They are stock variables, rather than flow variables. I have included the list of 11 variables as an appendix to my presentation to the committee. When I refer to stock variables, I refer to imbalances that accumulated during the bubble years and which are in the process of unwinding, although the unwinding will take time. The new Commission has proposed a streamlining of the semester, which means the publication of a single analytical in March this year, incorporating the results of the in-depth review. The rationale for this is to allow member states to engage in a more meaningful way with the Commission before publication of the CSRs in June.

Mr. John Hogan

I thank the Chairman for the invitation to address the joint committee on the investment plan for Europe which aims to address the low level of investment in Europe in recent years, thereby promoting economic growth and increased employment. Although European Commission estimates put the drop in investment at about 15% compared to 2007 figures, within this there are variations across member states. In response, the Commission has brought forward its proposals for action in the form of the investment plan for Europe. Launched on 26 November last and endorsed by European leaders in December, the plan proposes a number of measures to unlock public and private investment in the European economy of some €315 billion in the next three years.

The plan has three key strands, namely, actions to mobilise finance for investments, ensuring finance reaches the real economy in Europe, and measures to improve the investment environment in Europe. In order to mobilise finance for investment, as the key action, the European Commission and the European Investment Bank, EIB, have proposed the establishment of a new European fund for strategic investments, EFSI. Seed capital for the fund will be provided by the Commission in the form of an EU guarantee of some €16 billion, together with an investment of €5 billion from the EIB. While other possible public and private contributions may add to this total, the Commission and the EIB estimate that the initial funding of €21 billion can be leveraged to facilitate a total investment of some €315 billion, with €240 billion earmarked for long-term investments and €75 billion channelled to SME and mid-cap companies.

A legislative proposal in the form of a regulation to give effect to the EFSI has been published and this week member states began discussions on the instrument in Brussels. The Latvian Presidency has set out an intensive programme of meetings aimed at working through the proposed regulation in order to reach common agreement across member states in time for the March ECOFIN. Building in discussions with the Parliament, the timeline for adoption of the regulation is envisaged for the summer, which means that, with the establishment of the fund, the formalisation of the governance arrangements, etc., the first activity by the fund is not likely to happen until the autumn. It is expected that advance work will be undertaken to warehouse projects which can be assessed as being supportable vis-à-vis the EFSI’s criteria. These could be funded quickly under the EFSI once it is active.

Under the second strand to ensure finance can reach the real economy, a special task force was established last October to develop an EU project pipeline of viable investments of European significance. The task force was jointly chaired by the EIB and the European Commission and included a representative from each member state. The task force had a key objective of compiling, by the end of the year, a list of economically valuable strategic investments across the public and private sectors. The aim was to try to identify and highlight projects across Europe that are not being advanced owing to economic, regulatory, financial or other reasons. The task force also sought to identify barriers and bottlenecks to project investment and propose solutions. The complete list contains approximately 2,000 projects from the 28 member states, with a total investment value of €1.3 trillion.

As part of this process, Ireland submitted a list of 70 projects, valued at approximately €23 billion. The Irish project list represented a compilation of potential investment projects as put forward by the Departments with policy responsibility for the relevant sectors but without any overall assessment or prioritisation of the projects from a national perspective. Inclusion in the list submitted to the EU-EIB task force does not confer any particular status or guarantee of funding for the projects in question, either at a national or European level. It represents a compilation of potential investment projects in the relevant sectors, any of which could potentially be commenced between 2015 and 2017, subject to being evaluated and approved by the relevant sanctioning authority, typically the relevant Government Department, in compliance with the public spending code and subject to funding being available. There is no prioritisation of projects within the list. The Irish projects were not assessed or endorsed by the Departments of Public Expenditure and Reform and Finance prior to their submission to the EU-EIB task force as the urgency attaching to the European request did not allow time for Ireland or other member states to do this.

Similar statements attached to almost all of the lists submitted by the 28 member states and any proposal to proceed on Irish projects would be subject to the normal capital expenditure and cost-benefit assessments and having regard to Government priorities for investment. The overall list does, however, serve the useful purpose of highlighting for potential investors a pipeline of projects across Europe which, with some risk support from the EFSI, could proceed. The EFSI is intended to provide support through the provision of debt funding, not grants for such projects. This has implications for the debt and fiscal position of member states in the context of public investment projects.

As the committee is aware, the Commission published guidance on the existing flexibility under the Stability and Growth Pact rules, following through on a commitment given at the June 2014 European Council and given concerns voiced by member states in the lead-up to the December European Council. The Commission's release accompanying its guidance stated member state contributions to the EFSI would not be counted when assessing the fiscal adjustment. This will be the case for all member states, whether in the preventive or corrective arm of the pact. The Commission’s release also stated for countries benefiting from the so-called "investment clause", co-financing with the EFSI of projects or investment platforms would also benefit from favourable treatment under the pact. The Commission also stated that, irrespective of the EUROSTAT accounting treatment, it would take a favourable position towards such voluntary capital contributions to the EFSI for the purposes of the assessment of the debt and deficit criteria under the Stability and Growth Pact.

We are still considering the exact value of this guidance to Ireland in the context of the positive developments in the Irish economy in 2014 and the expectations for 2015. Finally, in promoting the final strand of work on the plan in the area of improving the investment environment, the Commission is committed to improving the predictability and quality of regulation in Europe and to removing sector-specific and financial barriers to investment.

Ireland is approaching work around the European investment plan in as open and constructive a fashion as possible through full participation in the negotiation of the European fund for strategic investments regulation and any continuation of the work under the project task force. This is necessary to ensure that we take appropriate opportunities which make economic and budgetary sense if they arise as part of the final political agreement on the EFSI proposal.

I thank the committee members for their attention. We are happy to take follow-up questions and provide further clarity if required.

Chairman

We will open with our first round of questions. We will have ten-minute slots in the beginning to ensure that everyone gets an opportunity to speak. I realise you are under time pressure, Deputy Doherty. Do you wish to go first?

Deputy Pearse Doherty

I appreciate that, because I have another commitment.

The Department officials referred to the annual growth survey. Can the officials explain why GDP growth is ahead outside the eurozone countries? Why is there greater growth outside the eurozone by comparison with the eurozone? We have the figures. Is this the trend we have been seeing in recent times?

Mr. John McCarthy

Does Deputy Doherty mean why there has been a difference between the euro area and the rest of the EU?

Deputy Pearse Doherty

Yes - between the euro area and the rest of the EU.

Mr. John McCarthy

The main reason is that we have seen a strong rebound in growth in the United Kingdom. Obviously, that has a large weight in the overall EU figures. The UK is generally perceived to be further down the line in terms of balance sheet repair. The UK was ahead of the curve in respect of monetary policy being more supportive of growth and so forth. It is a more flexible economy. The UK does not have some of the issues that arise in the euro area as a whole in terms of the fragmentation of financial markets or the debt overhang to which I referred. I will put some figures on it. For this year, the IMF is forecasting euro area growth of 1.1% and EU growth of 1.5%. The main difference between the two is due to the rapid growth in the UK.

Deputy Pearse Doherty

One of the Commission's proposals is what is termed an integrated approach. It is a more aggressive approach to tax evasion. Is the Department's position still that there is nothing to see here in respect of the Commission's investigation into the activities of a multinational company here? Has the Department formalised an approach on whether it will co-operate with the European Parliament investigation into deals in this member state and others?

Mr. John McCarthy

Yes. The Department is co-operating with the European Commission in terms of the investigations that are ongoing.

Deputy Pearse Doherty

Does the Department expect an outcome of "nothing to see here"?

Mr. John McCarthy

We do not think so.

Deputy Pearse Doherty

Will the Department of Finance co-operate with the European Parliament investigation?

Mr. John McCarthy

Of course, yes.

Deputy Pearse Doherty

The Commission refers to growth-friendly fiscal consolidation. We hear the term time and again. During the budget, the Minister for Finance and other senior Ministers referred to how reducing the tax rate at the highest level would create so many jobs over so many years. Is it the case that an investment or social transfer of equal value would create the same amount of jobs? Has any analysis been done in that area?

Mr. John McCarthy

I emphasise that the annual growth survey is very much a Commission document and these are the Commission's recommendations. Deputy Doherty is correct. The document refers to growth-friendly fiscal consolidation. This applies on the revenue side as well as on the expenditure side. On the revenue side, essentially the Commission is referring to a budget-neutral shift away from taxation of labour towards more environmentally friendly areas, including indirect taxes and so forth. On the expenditure side, the Commission is referring to maintaining investment in physical capital as well as human capital. The research in this area suggests that we can do this in a budget-neutral way and that it would have a favourable impact on potential growth in the economy through, for example, participation rates on the labour supply side. Moreover, the thinking goes, if we are investing then we are boosting our capital stock. This is essentially where the Commission is coming from in respect of this recommendation.

Deputy Pearse Doherty

That translates into what I have referenced in respect of the statement on budget day to the effect that reduction of the top rate of tax would create X jobs over X years. If an investment or social transfer of equal value were to take place, would it have the same impact in terms of job creation?

Mr. John McCarthy

It depends on the type of investment undertaken. We published some analysis approximately 18 months ago showing the impact of different types of reform, including changes in labour tax. The analysis included the impact they might have on the economy, the impact on the supply side and the impact on job creation. The specific answer to Deputy Doherty's question is that it depends on the type of investment. For example, if we opted to import more trains and so on it would have no impact in terms of job creation because they are sourced from abroad. However, if we do more investment in building and construction then we will get typically more bang for our buck.

Deputy Pearse Doherty

Given the time constraints, we will not deal too much with that.

Reference was made to the alert mechanism. One of the EU budgetary rules is the expenditure benchmark, something the Irish Fiscal Advisory Council has raised several times, as have I. This limits new spending, including tax cuts, to the rate of growth. Can the Department officials set out the legal basis of this rule? How does it differ from rules such as the 3% deficit rule and the 60% debt rule? In drafting next year's budget with the Department of Public Expenditure and Reform, will the Department of Finance consider the rule binding? What are the penalties if the Government were to breach it? I am keen for the officials to comment, given the fact that in a reply to a Parliamentary Question the Minister provided figures suggesting that sticking to the benchmark would mean that any adjustment in budget 2016 would be limited to €400 million. Is that figure still accurate?

Mr. John McCarthy

The legal basis for the expenditure benchmark is Article 126 of the treaty. That is the primary legislation. The secondary legislation is Regulation No. 1466. This is the preventive arm of the Stability and Growth Pact, which was reformed in 2011. Essentially, the anchor of the preventive arm is the so-called balanced budget or medium-term budgetary objective. In the past, this was assessed on the basis of changes in the structural balance and how fast countries were approaching their medium-term budgetary objective. The reforms to the Stability and Growth Pact in 2011 introduced the concept of the expenditure benchmark. The legal basis for that is Article 126.

The overall objective of the benchmark is to set spending in line with the potential growth rate of the economy. It is averaged over a ten-year period. If a country is not at its medium-term budgetary objective, there is a so-called convergence margin. The country must have expenditure below the benchmark and must be converging sufficiently rapidly to the medium-term budgetary objective.

In respect of what it actually means in monetary terms, I am simply not in a position to answer today, I am afraid.

Deputy Pearse Doherty

Is it binding in nature? Is it one of these rules that are somewhat fluffy around the edges? What if we breach it? I realise things can change in terms of revenues and growth rates and so on. I expect the Department's information was correct late last year when it produced a figure of €400 million. What if the Government were to surpass that in terms of expenditure or tax cuts? The Government has already announced that it will cut taxes. This will suck up some of the €400 million. What would actually happen if we break this rule? What kicks in?

Mr. John McCarthy

The answer to the first part of the Deputy's question is that the rule is very much binding, as are the overall rules of the preventive arm. We must be approaching the medium-term budgetary objective based on either a change in structural balance or an assessment of the benchmark. Finally, an overall assessment is undertaken, and we must be approaching the medium-term budgetary objective at a sufficient pace. That is binding.

The reforms of the pact in 2011 introduced what is called the sanctions regulation, which provides for sanctions in the preventive arm of the pact. They never existed previously. They were only ever in the corrective arm of the pact. In terms of what that means, the rules are very much binding.

With regard to the draft budgetary plans of euro area member states that were assessed last November and December, the Commission kicked to touch on a number of countries, including Italy. Italy has to revert to it in March because it is breaching the requirements of the preventive arm. Italy has to sort it out and come back to the Commission. Otherwise, potentially there are sanctions coming down the line.

I stress that financial sanctions can only apply in an ex-post manner. In other words, a country cannot be sanctioned on the basis of projections. It is only on the basis of outturn data. However, there is a regulation that has introduced financial sanctions and those sanctions are quasi-automatic, in other words, one is guilty unless one is proven innocent. The Commission will adopt a decision to impose sanctions and that cannot be overturned unless a reverse qualified majority of member states overturn it.

Deputy Pearse Doherty

Regarding the investment plan, when we are dealing with the excessive deficit procedure we cannot breach those targets but we can now because the European Commission has just decided to change the rules on investment. Is that correct? If we couple this with investment from Commission President Jean-Claude Juncker's plan on the use of state resources, it will not be accounted for.

Mr. John McCarthy

I take issue with the fact that they have changed the rules. The Commission is very strong in saying that the changes that were adopted in the communication last week are within the rules. They do not want to go down the line of rule changes. It was highlighting the-----

Deputy Pearse Doherty

If we consider the 3% deficit rule, is it correct that at this point in time EUROSTAT is the adjudicator in regard to that?

Mr. John McCarthy

Yes.

Deputy Pearse Doherty

However, the Commission is now saying we should not worry about what EUROSTAT says and that if we use some of this money that takes us above the 3% deficit rule it will not account for it. EUROSTAT is no longer the final adjudicator in this regard.

Mr. John McCarthy

EUROSTAT purely measures the deficit position. The legal and procedural implications are in the remit of the Commission and the Council. I stress that the investment clause we are talking about here only applies in the preventive arm of the pact. If a country's deficit is greater than 3%, it cannot apply the investment clause. Even within the preventive arm of the pact a country must have negative GDP growth or a negative output gap in excess of 1.5% of GDP. It needs to build in a safety margin with respect to the 3%, therefore, it is not a free for all on the investment side.

Deputy Pearse Doherty

Given the restrictions on it, if this money ever comes on line, and we know it has to be leveraged 15 times, will Ireland be in a position to use this money and not have it calculated by EUROSTAT as expenditure?

Mr. John McCarthy

We will not move into the preventive arm until next year, assuming we correct this year which, in the absence of any shock, I believe we will do. A good deal of clarification is needed from the Commission as to how this is applied but it is something we need to consider in further detail. The communication was only adopted last week so there is still a lot of water to go under the bridge.

Deputy Pearse Doherty

I ask Mr. McCarthy for his best guess. In his contribution Mr. McCarthy raised the alarm that there are rules, that it is not simply a case that this money is coming on board and we can-----

Mr. John McCarthy

Yes.

Deputy Pearse Doherty

Mr. McCarthy might give us his best guess at this point in time, bearing in mind that things can change. It is his job to look to see where we will be in the future, and the Department has got very good at doing that. I ask for Mr. McCarthy's best guess. Are we narrowly inside or outside in that regard? Do we have further to go or does he believe we will be okay?

Mr. John McCarthy

My suspicion at this stage is that we probably will not qualify for the investment clause. The reason for that is the conditions the Commission will apply in terms of the investment clause. I refer to negative growth next year, and we are not forecasting negative growth, a good deal of slack in the economy and an output gap of 1.5% of GDP. It is estimated currently that our output will close this year. My preliminary assessment, and the Deputy will appreciate that it is subject to change, is that we will not qualify for the investment in the very short term.

Chairman

We will have to suspend the meeting because a vote has been called in the Dáil.

Sitting suspended at 4.45 p.m. and resumed at 5 p.m.

Chairman

I have one or two questions for the witnesses. As we heard, Ireland submitted 70 projects for inclusion in the investment plan. Will Mr. Hogan provide a breakdown of the projects? Has a list of projects been published?

Mr. John Hogan

It is publicly available.

Chairman

Will Mr. Hogan have a copy sent to the joint committee?

Mr. John Hogan

Yes.

Chairman

The annual growth survey refers to the streamlining of the semester process. In what respects will the process be different in 2015? Why has the European Commission decided to change it? Has it done so in response to weaknesses that were identified in the process in recent years? What is the thinking behind the changes?

Mr. John McCarthy

This is the fifth cycle and the process is evolving over time. Each Presidency has tried to improve the operation of the semester. In terms of this year, the overall streamlining involves the publication of a single analytical document. Until now, two documents have been published, namely, the in-depth review and what is known as the staff working document, which was published every June. The intention is that these documents will be rolled into one document that will be published in mid-March. This will allow member states and the Commission to better prepare the country-specific recommendations. These are the types of concrete changes being made; I would not describe them as "game changers". The new Commission has proposed a little streamlining and the Latvian Presidency is running with its proposal. The purpose is to allow member states and the Commission to engage in a more meaningful manner and come up with more appropriate country-specific recommendations, which form the policy plank, if one likes, for the following 18 months.

Chairman

In the 2015 annual growth survey, the Commission refers to how member states and national parliaments can increase their ownership of the process. This is important because the growth survey and other information on developments in the European semester refer to the European institutions and national governments. However, the joint committee could also be more involved in the process. Is that not the case? I am concerned that the committee could become a little detached from the process. Should it seek more resources and do more on this issue?

Mr. John McCarthy

Absolutely. The two concrete pieces of work that are done by the Irish system in the European semester are the publication of national reform plans, which are overseen by our colleagues in the Department of the Taoiseach, and the publication by the Department of Finance of the stability programme update in mid or late April. Last year was the first year that Ireland was formally involved in the process. The Minister appeared before the committee to present in draft form the main results of the stability programme update. At that time, he indicated he was open to taking on board comments from committee members. Subject to the Minister's approval, we would certainly be willing to do that again. The Chairman is correct - this point is stressed by the Commission in the survey - that there is greater scope for national parliaments to engage in this process.

Chairman

I believe this will become a key issue. I wrote to the former President of the European Central Bank, Mario Draghi, following his refusal to attend the banking inquiry, which is taking place in the adjacent committee room. I indicated to Mr. Draghi that his decision would be a lost opportunity for the ECB to present its case to Irish people via the Irish Parliament. There is always the risk that people will not have a sense of ownership of the budgetary process if it is primarily dealt with in the European institutions and they do not see a public pathway for Parliament to deal with the budget.

Mr. McCarthy indicated that the Minister, as part of the Executive, may seek the considered opinions of the joint committee. The committee does not receive much in the way of resources to fully address issues of this nature. Given how important the European semester will become in the years ahead and as this process is new to the joint committee, perhaps a mechanism should be established to involve the committee in the process at the deepest possible level in order that it will be viewed as a participant in the semester procedure. This is the only way the process will gain public acceptance in the long term.

This process might be beneficial and seen as an area of co-operation between us rather than the EU imposing its opinions on us.

Mr. John McCarthy

I agree with everything the Chairman said. I understand that the Commission has always made itself available to come to national parliaments to explain what the semester is about, including the rationale for the various recommendations and so forth. That option is available but I need to get the specifics around it. I take on board everything the Chairman said.

Chairman

Mr. McCarthy might inquire on the committee's behalf if the Commission would like to make a presentation to it at some point.

Mr. John McCarthy

Yes, I will do that.

Deputy Paul Murphy

My questions are focussed on the European investment plan. In regard to the global figures, obviously, there is a great deal of criticism of the fact that there is no new money in that the €8 billion, multiplied by two, for existing projects and €5 billion from the EIB, is being leveraged up until the figure of €315 billion is reached. Is this a serious weakness in terms of the investment plan? The focus on investment is welcome. This was absent from the mainstream analysis of the crisis up until a couple of years ago. However, does this plan really address the problem if no new money is being invested in it?

Mr. John Hogan

The Deputy is correct in regard to the level to which the figures have fallen, as indicated in my opening statement. The Commission estimates that the drop in investment will be approximately 15% as compared with 2007. The incoming Commission was very focused on how to get investment moving again in Europe and at looking at new and innovative ways of doing this. What we see here is an attempt to do it on a number of different levels, including through the putting in place, through the ESFI, of a fund, which as the Deputy rightly says, can be leveraged up. I will ask Mr. Petris to comment later on the mechanics of that.

The Commission also wanted to find a mechanism by which private finance could be encouraged to invest in the future of Europe. It is seeking to facilitate this through making available this project pipeline to enable investors to get a real picture of large-scale projects at a European level, which by virtue of the fact that there may not be sufficient finance available through traditional means, may be open for new and innovative forms of financing. These are projects in which the European authorities were prepared to invest, take a first-loss piece in or guarantee during the initial phase of the investment and in respect of which they are now seeking to unlock private sector investment. The building blocks to allow this are being put in place. Mr. Petris will speak a little now about the transformation of the €8 billion from the EU budget and the €5 billion from the EIB.

Mr. Nico Petris

What Europe is trying to do is use the resources it has in a more efficient manner. It is seeking to do this by leveraging its resources to de-risk projects which, in turn, will attract private sector co-investment. In terms of the mechanics around the cash contributions, the EIB and the Commission are seeking to put in a total of €21 billion, €16 billion of which will come in via guarantees from the Commission and €5 billion will be provided by the EIB using own resources. Some of the media headlines have taken the €21 billion and the end project pipeline of €315 billion and come up with a 15 times leverage, which is considered bonkers. I will try to explain the dynamics of this which, to me, makes more sense. The EIB takes the €21 billion and leverages that internally in order to bring the €21 billion to €60 billion. This is something that banks do all of the time. They issue bonds and they raise their capital and then have more money to invest. The EIB-Commission bucket of investment is in the context of a three-times leverage, €63 billion. What the EIB-Commission are seeking to do is leverage this a further five times with private sector co-investment so as to reach an end total project volume of €315 billion. A five-times leverage is not that unbelievable.

Deputy Paul Murphy

Mr. Wolfgang Munchau said it reminded him of a synthetic collateralised debt obligation. We have just been through a financial crisis which arose because of fictitious capital and this is our answer. In the context of a social revolution across Europe and a Government committed to public investment, would it not be preferable to have an actual €300 billion investment as opposed to a notional €300 billion based on €13 billion?

Mr. Nico Petris

I agree with the Deputy. He is correct that it would always be preferable to have the cash available waiting to be deployed. What the EIB and Commission are seeking to do in this case is use their limited resources in a more efficient way and to try to de-risk projects and attract in private sector co-investment. As I understand it, and based on my experience having attended EIB board meetings, there is no shortage of private sector co-investors seeking to invest at a senior level. Institutional investors and funds are interested in investing now.

Deputy Paul Murphy

In terms of the use of the word "de-risk", I agree that does get to it because, in effect, what happens is that the private investors are treated as the senior tranche and the public is the lesser. As such any losses incurred will in the first instance hit the public and, second, the private investment. Risk still exists. A project will either have risks or no risks on its own merits so that risk is being transferred from private to public.

Mr. Nico Petris

The answer in a nutshell is yes. To the extent that we use a certain amount of resources and we provide a first-loss protection and make an equity investment then yes there would be an associated risk with that.

Deputy Paul Murphy

There is a socialisation of risk and privatisation of resources. In terms of dead-weight, how do the Commission and EIB know that these people would not have invested and risked their own money in any case? In other words, the investors, because of the public offering in the form of the Commission and the EIB, now propose to take the risk on and allow the public to take the risk in what they would have invested in any case.

Mr. John Hogan

We need to look at the government structures which are being suggested around this. We are at early stages in terms of the negotiation around the European fund for strategic investment. I can tell the Deputy, based on the regulation that has been published, that a steering committee, consisting of the European Commission, the EIB and other participants, for example, from member states, is to be put in place. There will also be an investment committee which will include market experts and a managing director and will assess the projects from an investment perspective. The investment guidelines have yet to be determined and drafted. As we understand it from the early stages of the negotiation on the regulation, they will be drafted by the steering committee when in place. At that stage, it will be possible to make a more sensible assessment of what is being done in terms of the approach by the investment committee.

It is fair to say that the EIB has been involved in this particular venture over a long number of years. The European Investment Fund has previously looked at taking first-loss pieces and has been able to unlock valuable private sector investment in projects in Europe for a number of years. As Mr. Petris said there is to a certain extent a fairly safe track record at Europe level in some of the approaches that are being suggested in this regard. It is an attempt by the Commission, taking account of the dearth of investment in Europe over the past number of years, to find some mechanism to unlock it against what we still see as a background of economic uncertainty.

Deputy Paul Murphy

I have not seen the list of 70 projects. I presume many of the projects listed are infrastructural projects. Mr. Juncker referred in his speech to a school in Thessalonika in Greece and other grand projects in the public services area that could now be properly funded as a result of this. I presume the projects about which we are now speaking are projects that previously would have been paid for by the State or through public-private partnerships. How do the private investors get a return?

To take the example of a school building project, the money presumably comes directly from the taxpayer. How does this work when a project is not generating revenue? Where is the return for private investors?

Mr. John Hogan

Before I answer that question, it might be useful to inform the committee about the breadth and extent of the projects that have been included in the list without going through the individual projects. In sectoral terms, in the energy sector, the total investment in the projects put forward by Ireland was approximately €2.55 billion; it was estimated that €2.25 billion of this could possibly be invested between 2015 and 2017. In the knowledge and digital economy the total investment suggested was €730 million, with €500 million possibly being invested between 2015 and 2017. In the broad area of resources and the environment the total investment suggested was approximately €1.86 billion, with €460 million possibly being invested between 2015 and 2017. The figure for the transport sector was €11.32 billion, with €1.71 billion possibly being invested in the next two years. The figure for social infrastructure was €5 billion, with the last category being SME lending, in respect of which a total investment of €800 million was suggested, with a further investment of €800 million being possible between 2015 and 2017.

In terms of a return on its investment for the private sector, it depends on the nature and construct of the proposal being put in place. It really depends on the outcome of individual operation agreements but is not without precedent. We have a number of PPP projects in Ireland involving private sector investors. Such projects have been under way here for a number of years and I do not see any major difference in the approach taken.

Senator Thomas Byrne

I apologise for being late; I had to attend two other meetings.

Deputy Paul Murphy mentioned a list of projects. Is that list available?

Mr. John Hogan

Yes, it is available. It details not just the projects in Ireland but also the projects across Europe. We are happy to supply the committee with the details-----

Senator Thomas Byrne

Is it available on a website or can the delegates send us a copy?

Mr. John Hogan

Yes; it is available on the European Commission's website, but we can forward copies to the committee.

Senator Thomas Byrne

My points may have been addressed; if so, the delegates need not respond again because I can read the answers in the transcript of the meeting. I ask the Chairman to guide me in that regard.

The issue of house prices in Ireland was flagged, but when I read the report, I could not see it highlighted hugely by the Commission. A concern about house prices is highlighted in the Department's briefing note. I consider it to be a big issue and would like to know what the Commission is saying about it.

On the question of structural reforms, there are four examples given on page 11 of the annual growth survey of structural reforms that have been implemented in Spain, Portugal, Poland and Italy. While I accept that Ireland's economy has been reformed and that a lot of reforms have taken place, there is still a lot more to be done. I contend that since the end of the troika programme we have been extremely slow to reform and open up the legal profession and to deal with top-level consultants in the medical profession. We have also been slow in dealing with the issue of pharmacological products, although there have been some changes made in that area. Italy, for example, has implemented measures aimed at increasing competition and transparency in the gas and electricity markets. We have not done a whole lot in that regard and are certainly not being singled out by the Commission as a good example.

Another issue raised in the annual growth survey is responsible, growth-friendly fiscal consolidation. On page 15 of the report the Commission highlights the fall in investment expenditure. Capital expenditure has dropped dramatically here. I argue that it has dropped much more under the Government than was envisaged under the troika agreement and the national recovery plan of the previous Government. This was done to avoid more politically unpalatable decisions on current expenditure, but it means that we are now less growth-friendly in terms of fiscal consolidation in that we have cut expenditure that would have helped us to grow. Do the delegates have any view on the matter?

Mr. John McCarthy

I will try to address those points. The Senator made a very valid point about house prices. I stress that the scoreboard is backward looking and only based on data from 2013. I strongly suspect that when the Commission engages in this exercise next year, the indicator for Ireland will be flashing red because, in all likelihood, we will be above the threshold.

Senator Thomas Byrne

We know that now, but what action is being taken at Government level? What action is being taken before the European Commission starts to give out to us and before the red light starts to flash?

Mr. John McCarthy

On house prices, the Government's strategy is to increase supply. That is being done in various ways within the Construction 2020 framework which includes 75 time-bound actions to help to address various issues, including planning, access to finance, regulations and so forth. There are a number of initiatives under way. Unfortunately, increasing supply is not something that happens over night. There is a long lead-in time, which is just the nature of the beast.

On structural reforms, I will not be specific, but I tend to agree with the Senator that there is scope for further structural reforms in the economy. There is a need for more competition and to reduce regulatory barriers and so forth. The Senator has also correctly made the point that we already have a flexible economy. If one looks at the OECD's research in this area, one will find that Ireland tends to be at the more flexible end, both in product markets and factor markets, but that is not to say there is not more to be done. I tend to agree with the Senator in that regard.

On growth-friendly consolidation, if I recall correctly, we were the subject of a country specific recommendation, CSR, last year and could easily be the subject of one again this year, that the composition of the fiscal adjustment or our fiscal stance be more growth-friendly. I am 90% sure that was the case last year and it is not inconceivable that we could receive the same recommendation this year.

Senator Sean D. Barrett

I welcome our visitors. I have misgivings about what the Commission is up to. The fiscal council has shown that, in terms of gains being made in a small, open economy, there is no multiplier. On Senator Thomas Byrne's point, we had to cut capital spending because of the debt burden, partly due to the bank guarantee. Prior to that happening, however, we did not run too many Government deficits, but there were many capital projects which did not yield a return. We need an appraisal from people like our guests to be published in advance to determine if projects would be worthwhile. We must determine if they would be the fruit of lobbying by those looking for soft financial conditions or a sop to the construction industry, as happened frequently in the past. Spending on such projects reduces the efficiency of the overall economy.

I was a member of a cross-Border committee which was told that the first cost estimate for the construction of the Narrow Water bridge was €12 million. Someone then heard that the European Union was involved in providing finance and the estimate jumped to €40 million. The money is now being spent instead on the Enterprise service, but they are probably both dud projects in terms of yielding a return.

Interest rates are at a record low level in Europe, but the private sector is not investing. Is this just the provision of a subsidy for the banking and construction sectors by a different route? Will it really stimulate output?

Is it the problem in the United States of Wall Street versus Main Street? As for a strong public sector with good project appraisal, I have written some appraisals for the Institute of Public Administration and so on, but in respect of the mixtures, I always fear that the taxpayer gets stuck with the dud ones and stuck with the debt. I am particularly concerned about the off-balance sheet financing of Irish Water. While it has not yet been sanctioned by EUROSTAT, there is an element of illusion about it. In the past, I thought that Transport 21 was the worst one in that it was just grandiose projects whereby engineers feel better, the construction industry thinks they are great but nothing happens in terms of the growth of the economy. While one can assume these are great projects and so on, after all that has happened to us since 2008 one needs really strong evidence that they are.

I do not know what will happen in Greece on Sunday but how much of the economy in a place like Greece would be stimulated by having a flexible exchange rate to get into the market economy or if it had the ability to set its own interest rates? It is the economics of being locked into something that obviously is not working and, unfortunately, we came at the very end. Is there any way in which we can substitute for the rigidity the eurozone imposes on us while thanking the Lord that the United Kingdom and United States are buying lots of stuff from us? As a country that has just come out of a rescue plan, it is very difficult for Ireland in particular to reform Europe but, as it stands, the system is highly deficient. Projects are determined by who lobbies or by who has the biggest public relations department. Perhaps the studies have all been done and are being kept in secret somewhere in Brussels or Frankfurt but when some of them are announced, people just think there will be a massive cost overrun, there usually is and it does not really have any great impact. When one robs Peter to pay Paul, although Paul, his accountant, his tax lawyer and his banker usually think it is a great idea, what about the rest of us?

While I do not know what will emerge tomorrow when Mr. Draghi is to decide, it should be something other than being construction-based. As housing has been mentioned, I note that Mr. Brendan Burgess appeared before the joint committee recently and sat in the seat currently occupied by Mr. John McCarthy. He reckoned that approximately €67,000 of the average house price is accounted for by taxes, levies, planning and so on. Would reducing the price of houses by €67,000 not be the best way? That would get the markets going. However, if one pours in more demand, one starts out with the problem with prices and I support Professor Honohan on the 20% deposit. I am not sure that Brussels and Frankfurt inspire the brightest ideas for what is wrong with the Irish economy at present. That could be a reaction to Monday's conference at which we were patted on the back, told we were very good and so on. Not many people in the audience felt very good; the last session sort of collapsed. There must be something better coming from Brussels in respect of economic policy. I know what the Minister, Deputy Noonan, seeks tomorrow and I wish him well in that regard. These projects are almost a Joe Stalin kind of economics, except that the private sector gets a substantial bailout from them. I do not know how the projects are chosen, how they are evaluated or where one can read what they are worth and so on, but I must express disquiet about the process. I will leave it at that and thank the four witnesses.

Mr. John McCarthy

If it is all right with the Senator, I will make one or two comments. I tend to agree with the first point he made about how it was necessary to cut capital. I agree because, in 2010, the OECD undertook a survey of the Irish economy, as it does every two years. It stated there were a number of projects in the pipeline that only just crossed the cost-benefit analysis line. However, that cost-benefit analysis had been done on the basis of growth rates of 4% or 4.5% coming down the line and once there was a reassessment of the position to the effect that the potential growth rate of the economy was lower than had been assumed, many of these projects were not viable. As the OECD recommended that some capital projects should be cut, there is research to support one argument the Senator is making. I should stress that what the growth survey does is very much European Union-wide and within that, when fiscal responsibility is being talked about, it is not simply aimed at consolidation. There are implicit recommendations to some countries that have fiscal space. I think the Senator knows which country I am talking about. It has large infrastructural needs and, as the Senator quite rightly noted, can pretty much borrow at record lows. As a result, the rate of return on the investment would be very high relative to its cost. That would stimulate its economy, would boost its potential growth rate and would have a spillover effect to the rest of the European Union by helping to reduce imbalances. It is not just about fiscal adjustment on the way down and so forth. These are a couple of preliminary comments in response to the Senator's observations.

John Hogan

On the projects - so the Senator can understand the process we undertook in this regard - in the autumn of last year we were asked at short notice to compile a list of projects or potential projects that could feed into an overall list at European level. The approach was that the Secretaries General of the Departments of Finance and Public Expenditure and Reform wrote to the relevant Departments asking for their suggestions in this regard. The project list was chosen from that but, to be frank, the Senator will note our understanding is the exercise was also conducted by the other 27 member states across the Union in a similar way. From the lists and the production of the publication from the European Commission on the 2,000 projects on the overall list, it is clear that no particular status or guaranteed funding arises from the presence of a particular project on the list. Ultimately, from both the European and national perspectives, a cost-benefit analysis must be done to ascertain whether the approach and the particular project merit any funding. Ultimately, if there is private sector involvement, the participants must themselves be sure that the expectation of returns is there. I do not think anyone wishes to be building highways to nowhere or white elephants. That is not what this particular process is about. We have a list that has been put together at short notice across all the member states. It may well be that this list will evolve over time. Certainly, from what we see, it will be rationalised and is something that will be perceived as the end of the beginning of the process, to describe it that way, and ultimately, it will be revisited with a review as to what is a potentially viable and sustainable project being funded from the available resources.

Deputy Richard Boyd Barrett

I contest strongly the assertion made by Mr. McCarthy in response to Senator Barrett - who was making similar assertions - that cutting capital when the crisis hit was anything but stupidity and folly. There was absolutely no rationale for it because it cost us more to do that. I will provide two examples, the first of which is housing. Cutting the budget for social housing in 2008 has cost us more. Obviously, it has cost us in terms of homelessness and an increased housing crisis, but it has also cost the Exchequer more because the State has been obliged to fork out a hell of a lot more to the private sector to cover the housing crisis. We must pay more to private landlords because we did not provide council housing. Is this not a classic example of how, when the market turns down or crashes, we need things that are not linked to the ups and downs of the economy because they always are needed, such as housing?

It is not to do with the ups and downs of the market but how many people need roofs over their heads. Whether the market goes down or whatever it does, we need roofs over people's heads. One way or the other, it must be done. The question is whether to do it cheaply or expensively. What is the best value for money in doing something that simply must be done? Is that not one example that runs completely contrary to the assertion that we had to do it? We are paying a huge price for a massive mistake in that area.

Can anyone explain to me how the leveraged investment model does not end up costing ordinary people, the taxpayer, more for whatever project? The difference between this and doing it with 100% public investment for vital infrastructure and services, such as housing, is that there must be a profit for the private investor so it costs us more. It is not even disputable. It must cost us more because someone else is in the picture who wants a cut. In order to get in the money, we must provide guarantees that we will take the first hit if there are losses. If things go belly up, we promise, in order to get in private investors, that we will take the first hit. Second, we must promise enough profit and return for the private investor to come in in the first place. Our answer to the fact that we have a dysfunctional economy where the market decides it is not profitable to invest is to get down on our knees and say please invest and we guarantee, if anything goes wrong, that the taxpayer will cover the losses and the return is guaranteed. How can that possibly be a better way to invest than us doing it ourselves, where we do not have to give a cut to someone else? We invest in something because we need houses, roads and water infrastructure. These are vital and, regardless of the ups and downs of the markets, we must have them.

One can possibly make a different argument for areas of the economy that are not vital and we can debate where that line begins and ends but in certain areas we just must have certain things. Bringing in the private sector, where it must have a profit, cannot be as good value for money as us doing it ourselves.

How confident can we be that we can get this investment? We have big announcements about how we will get an investment with our €8 billion seed capital, which will increase to €21 billion and magically turn to €300 billion. How do we know that it will be coming in? Is it possible it will not appear? Is the list of projects publicly available? Does social housing feature in the list of projects?

Mr. John McCarthy

When I referred to cutting capital, I most certainly was not referring to a blunt instrument of cutting capital across the board. There are priorities and we need to maintain issues on the social housing front. I was simply pointing out some projects were based on a rate of return that was no longer viable once the economy hit. With some projects, the costs exceeded the benefits and they were the projects that had to be cut. I was not talking about an across the board cut in capital investment. We had to prioritise once the recession hit and the research shows that a number of projects were no longer viable on the basis of 2% or 3% trend growth rate as opposed to the 4% or 4.5% trend growth rate assumed when the projects were being compiled.

I will hand over to my colleagues to speak on the investment plan.

Mr. John Hogan

The list is publicly available and we have committed to supplying the committee with the Irish list. On the Commission website, the list for all member states is available so the committee members can have full details of the 2,000 projects. Included on the list are two social housing references, one of which concerns the social housing measures linked to the budget announcement, and an energy efficiency measure to reduce the carbon footprint.

Deputy Richard Boyd Barrett

Is there a figure for social housing?

Mr. John Hogan

The broad order of number is similar to what was in the budget and I think the total package in the budget was €2.2 billion. It appeared in the list as part of the overall global number. On the question of whether it is better or worse to have private sector involvement, it is a philosophical issue depending on one's view of the world.

Deputy Richard Boyd Barrett

I am not asking a philosophical question. Is it not a self-evident statement of fact that if the private sector is to be lured in, it must get a profit. If we do the investment, we do not have to give someone a profit.

Mr. John Hogan

I am not sure I agree that it is as straightforward as that. There are a number of issues about how the private sector might fund the initiative and how it might organise the project. Perhaps the private sector is more operationally efficient in terms of the administration of a schools programme. It is difficult to make statements about whether it is more problematic or more difficult to have the private sector involved where there would be an upfront and immediate capital investment from the public sector. These are some of the issues at play in terms of how the Commission envisages unlocking the available private sector capital to meet investment projects across Europe that, by themselves are unable to avail of funding to have them completed.

Deputy Paul Murphy

I am interested in an insight from the Department of Finance on how the European semester works in practice. We know there are set pieces whereby member states produce certain things and these are discussed by the Commission and at Council level. It happens in parallel across member states. In practice and culturally, has there been a shift after the introduction of the European semester in terms of interaction on a regular basis outside the formal set pieces with the Commission? Does the Commission have more of a hand in the drafting of budgets than was previously the case? Is there more informal contact or contact on a regular basis between civil servants?

Mr. John McCarthy

Yes. This is our second cycle of surveillance and we had more interaction with the Commission from 2010 on as part of the programme but everyone is now in the same boat. There are three bilateral meetings with the Commission leading up to the adoption of the country-specific recommendations, CSRs, the first of which took place in December. If memory serves me correctly, there is another at the end of this month and a bilateral meeting after publication of the single analytical document.

This single analytical document is published in mid-March. That is all about where the Commission and the member states see the priorities and what can be done. There is far more engagement with the Commission.

There is also a noticeable change at committee level, by which I mean the various European committees such as the Economic Policy Committee, EPC, the Economic and Financial Committee, EFC, and so forth. There is far more multilateral surveillance than would have been the case in the past. In the past, a state would have drawn up a policy and the Commission and that member state would have discussed it across the table, with the representatives of the other member states on their BlackBerries. Now, because there is a greater recognition that policies adopted in one member state have implications for Ireland and policies adopted in Ireland have implications for other member states, there is much more peer review, peer pressure and multilateral surveillance. It is not just between the Commission and the member states, but the member states trying to act in unison.

There has been a change. I would not call it a sea change, but as I mentioned earlier the process is evolving over time with incremental changes each year. For example, all euro area member states must have the same budgetary timelines, so they all submit budgets by mid-October. They are peer reviewed by officials, which then leads up to a ministerial assessment of every country's budget. There is far more interaction between the member states and also between the member states and the Commission.

I am sorry if I have spoken for too long.

Deputy Paul Murphy

No, it is precisely what I am interested in. I have another question on the collapse of investment. The witness gave a figure of 15% at EU level and it is a multiple of that in the Irish level. It is probably still 50% or 60% down on what it was.

Mr. John McCarthy

It is 60% in real terms.

Deputy Paul Murphy

Obviously an amount of the 2007 level of investment was in construction, not all of which would be viable. Mr. McCarthy says that is the main reason for the scale of the collapse, but why are we still bumping along the bottom? Obviously, there was an uptick in investment but according to the latest quarter for which we have reports, it went down again slightly and certainly did not rise. Why is Ireland lagging behind? As a percentage of GDP, we are at the bottom or very close to it in terms of investment. What is Mr. McCarthy's analysis of that?

Mr. John McCarthy

Off the top of my head I do not know where we are in terms of the league table, as it were, but the Deputy is correct that there was a huge collapse in investment. The investment to GDP ratio fell to a level where the acquisition of new capital assets was only just sufficient to cover the depreciation of capital stock, which is more or less unheard of. It fell to 10% or 11% of GDP, which is absolutely unheard of. It is also fair to state that it came after a period of over-investment, producing 90,000 to 92,000 houses. As the Deputy says, it was simply unviable and unsustainable. That must be borne in mind as well.

However, we have bottomed out on the investment side. Over the past 18 months we have seen very strong double digit growth, although I will enter caveat on that in a moment. For example, the data we have for last year shows that in the first three quarters overall investment is up by just under 11% relative to the previous period. However, the caveat I must stress is that this is the law of small numbers. In absolute terms it is not a big increase in investment. It is simply because the base is so low. The improvement in investment that is undoubtedly under way is broad based. It can be seen in the building and construction sector as well as in housing. Again, the law of small numbers applies here. We produced 11,000 units last year. In absolute terms, that is too low, but it is still 30% above the previous year. Other forms of building and construction are very strong. The other component of investment we examine is the so-called machinery and equipment investment, that is, investment in software and so forth. That has been running at 30% for the past 18 months.

I will not say we are back to where we should be. As an advanced economy we would typically allocate between one fifth and one quarter of national income to capital formation or investment. Our numbers are based on investment growth last year of approximately 14%, and 12% this year. That will only bring the investment to GDP ratio back to 17% or 18%. We are still a long way from what one might refer to as equilibrium or the norm.

Deputy Paul Murphy

Is research and development now included in investment?

Mr. John McCarthy

Yes.

Deputy Paul Murphy

However, it does not necessarily affect the percentage figures because Mr. McCarthy is counting backwards and including research and development.

Mr. John McCarthy

No, it was retrospectively included in the figures. The Deputy might recall that there was much discussion last July, when the Central Statistics Office, CSO, introduced methodological changes. It focused on black economy type activity. That was quite small. The big methodological change was the capitalisation of research and development spending. Overall, it increased the level of investment by approximately €10 billion, and approximately €8 billion or €9 billion was due to research and development. However, it was included retrospectively. I believe it fell slightly last year, but it is very volatile on a year to year basis.

Deputy Paul Murphy

It means the percentage of GDP is therefore distorted. We were talking previously about a 10% or 11% figure.

Mr. John McCarthy

The Deputy is right.

Deputy Paul Murphy

If we had had the new mechanism of accounting, it would not have dropped to that level.

Mr. John McCarthy

Yes.

Mr. Shane Enright

Under the new statistical treatment procedure we do not look as bad in relative terms in the league table as we did. The previous ratio was that it fell to 11% and now we are up to approximately 15%. It does not look as bad in comparative terms.

Mr. John McCarthy

It also means the equilibrium is higher, so the distance is still the same.

Chairman

Has the Commission looked at how the collapse in oil price will affect forecasts for 2015?

Mr. John McCarthy

No. However, it will publish its winter forecasts at the beginning of next month and I strongly suspect it will include an analysis of what the lower oil price means. The IMF published its interim world economic outlook last Tuesday and it stated that the overall impact of falling oil prices would be to add between 0.4% and 0.7% to overall world output. From an Irish perspective, our rule of thumb is that each €10 per barrel reduction in oil prices increases the growth rate by between 0.1% and 0.2%. It used to be higher, but the dependence on oil is much lower now because we have become a software driven economy rather than heavy manufacturing. That is the rule of thumb we would typically use. The fall we have seen since last summer will have a positive impact, as will the depreciation of the exchange rate. However, as Deputy Doherty mentioned, there have been downward revisions to the euro area and so forth, so they are operating in opposite directions.

Chairman

We will conclude. On behalf of the committee I thank Mr. McCarthy, Mr. Hogan, Mr. Enright and Mr. Petris for attending the meeting. It is always a valuable experience for the committee and I appreciate the frank exchange of views you always have with us.

As there is no other business, we will adjourn.

The joint committee adjourned at 6 p.m. until 2 p.m. on Tuesday, 27 January 2015.