Hat-tip for this discovery goes to Peter Mathews, TD.
Say, Ireland's debt/GDP ratio peaks at 120% GDP (I am rounding up the actual forecasts here). Under 'interpreted' adjustment mechanism, we would be expected to reduce the overall debt by 1/20th of 120% minus 60% or by 3% of GDP in year one. Under the actual Treaty, we are expected to reduce it by 1/20th of 120% or 6% of GDP in year one. Say our GDP is 175 billion in that year. Under interpreted rule, we have to find €5.25 billion to reduce debt levels, under actual Treaty language, we are expected to come up with €10.5 billion. To put this into perspective, the average level of gross investment in the Irish economy is forecast by the IMF to be around 10%pa between 2012 and 2017 or ca €17.5 billion under above assumptions. This means that the Fiscal Compact adjustment path would take out 60 percent of the entire annual investment in the economy. That is hardly a chop-change of a difference.
Updated: Thanks to Prof Karl Whelan for pointing this:
Applying the 1/20th to the full amount is not consistent with the Treaty.