Central Bank Governor Professor Patrick Honohan has said that EU rules on budget deficits were not able to signal the crisis in Ireland's public finances.
Speaking to the Institute of Certified Public Accountants, he said Ireland had met all the targets set by the EU's Stability and Growth Pact before the dramatic collapse in tax revenue in 2008.
He said that, as an indicator of the sustainability into the future of the public finances, the EU rules were not adequate. 'A country could run a surplus for years and yet the structure of its tax receipts and spending rules could leave it vulnerable to a sudden crippling turnaround in the deficit and a rapid accumulation of debt,' Professor Honohan said.
He said European policymakers should consider a 'risk-adjusted' deficit figure, which would take account of the potential volatility of each country's deficit. Professor Honohan said a country which depended on volatile sources of tax revenue could be forced to aim for a stricter target each year.
The Central Bank Governor said such an approach should be factored into budgetary planning at national level, though it may take time to reach agreement on the idea at EU level.
He also told accountants that a 'sharp' budgetary adjustment would have been needed in Ireland even if Anglo Irish Bank and Irish Nationwide had not lost so much money.
