Mr. Seamus Coffey:

I thank the Chairman and the committee for the invitation to attend today's meeting. The agenda will be driven by questions and contributions from members. EU economic and monetary policy is given a lot of attention, but it can be relatively easily understood. For those interested in studying the treaties, economic policy is dealt with in just five pages, while monetary policy is dealt with in just three pages.

However, they seem to have a major influence across different areas. From an economist's perspective, there is perhaps something more than just economic and monetary policy. I refer, for example to the workings of the Internal Market, the importance of competition policy, agriculture and fisheries policy, implications in terms of taxation, employment policy and consumer protection. These all feed in to economic behaviour. At the macro level, economic and monetary policy would be where it is at.

In the context of what the EU sets out as what it tries to achieve by means of its economic policy, the top priority is stable prices and this is followed by sound public finances and monetary conditions and then a sustainable balance of payments. Given the current economic environment in which we find ourselves, all of these bar stable prices have been achieved. Perhaps price stability has been achieved at the cost of other priorities. To a certain extent, EU economic policy is somewhat limited. Ireland is in the middle of an EU-IMF rescue programme but what can actually be forced upon it is relatively limited. We have certain targets to meet from a fiscal perspective. However, as is now widely accepted, how we achieve these is largely our responsibility. The policy itself is not being imposed. It is more a case of focusing on achieving the targets. Overall, EU economic policy largely involves monitoring, surveying, compiling reports and holding meetings rather than actually imposing specific policies on member states.

The EU currently comprises quite a broad spectrum of 27 countries and this is soon to increase to 28. The policies must hold in countries with completely different systems and approaches. For example, certain countries might have higher levels of social protection or public provision while states such as Ireland like to claim that theirs are lower-tax and lower-spend economies or that they are moving in this direction. EU policies must fit and must not involve the imposition of large numbers of restrictions on member states. They can, therefore, be quite broad.

For the first decade of the euro, much of the focus from a European perspective was on fiscal policy. As we know, the currency tended to be quite weak. There were rules in place by which countries were supposed to abide but these were largely ignored. This was generally caused by the larger member states tending to ignore the rules at the beginning of the previous decade. The smaller countries then took the view that if these larger states were not going to be pursued for ignoring the rules, they would not be too concerned about them either. At the same time, the Stability and Growth Pact, which emerged from an Irish Presidency in the 1990s, largely fell apart. Much of the past three to four years has involved, in a sense, fixing the Stability and Growth Pact. There have been various additions to EU treaties and new rules have been introduced. I refer here to the introduction of the six-pack in 2011 and the recent agreement on the two-pack. We can discuss some of the issues which emerged there. It is only really in the past 12 to 18 months that we seemed to get a sense of speed in the context of trying to fix the monetary side of things. The fiscal side has attracted a great deal of attention but it is clear that EMU rules have always been broken.

I disagree with Mr. McDonnell to some extent in that I believe many of the failures related to design flaws that were intentional. The EU faces an issue of encouraging closer integration while also trying to protect sovereignty. There is no doubt that the weaknesses of the euro were identified at the time. Various authors and commentators stated that certain things should have been included in the structures relating to the currency but these were left out. Much of the power was left with individual member states. The regulation and supervision of banks, for example, remained at national level. Moving to a fully integrated monetary union in one jump might have been too much and it has taken ten to 12 years for the problems to emerge. Now, however, there appears to be a willingness to address these and to put in place the type of integration a fully functioning monetary union actually requires. This will take time. Estimates to the effect that a European-wide system of bank regulation could be established within 12 to 18 months are way too optimistic. At least the problem has been identified but it will take a while to get there. Ireland will be considering the implications of the fiscal rules and the impact these will have when we emerge from the current programme, under which our targets are explicitly set. When we move out of the programme, we are going to have to decide how we will abide by these rules during the next five to ten years. We must examine whether these rules can fix EMU and whether they will lead to the development of a euro currency that will not be beset by its current difficulties.

If there are any issues which members wish to raise, I hope we will be able to shed some light on them.