Honohan stresses flexibility of treaty

CENTRAL BANK governor Patrick Honohan has said the flexibility of the fiscal treaty has reassured him that signing up to it will be the “safer alternative” for the State’s economic future.

Prof Honohan in a speech last night gave his backing to the fiscal compact, partly on the basis that assessment of excessive deficits would involve considerable discretion and judgment on the part of the European Commission.

Speaking to the Irish Economic Association, he asked was it a foregone conclusion that the fiscal compact was the way to go for Ireland? He said no simple fiscal rule would have prevented what he described as the “risky over-dependence on bubble-related tax sources” between 1997 and 2008.

The important point of the fiscal compact was that its operational rules involved “considerable discretion and judgment” and would need to take into account the state of the business cycle.

Stressing the importance of that flexibility, he suggested it underlined that ratification of the treaty would be the better course for Ireland to take.