Mr. Aidan Carrigan:

We are here to assist the committee on the six month report of the Departments of Finance and Public Expenditure and Reform, which covers a broad range of areas. In view of this range, I am joined by a relatively large team of colleagues in anticipation of the questions that may arise. I am assistant secretary in the financial services division in the Department of Finance. I am joined by Mr. Tony Gallagher from the EU and international unit, who represents Ireland on the economic policy committee; Mr. Feargal Ó Brolcháin of the external programme compliance unit; Ms Niamh Campbell, of the EU budget and MFF section; Mr. Des O’Leary and Mr. Gerry Kenny from the tax side of the Department; and Rory O’Rua from the Department of Public Expenditure and Reform, who will specifically deal with EU Structural Fund issues.

We have submitted a full report to the committee and I would like to take a few moments to outline some of the key issues arising across a number of headings. In my own area of financial services, the report indicates that a number of files are at various stages of progression. The priorities on the financial services files for the first half of the Irish Presidency were based on the priorities set out in the December Council Conclusions, namely the completion of a single supervisory mechanism, the capital requirements directive and the agreement of a Council position on banking resolution. We also undertook to progress work on the markets in financial instruments directive as this is a G20 commitment. Our strategy has been to pursue a strict prioritisation agenda and focus our limited resources on the most significant dossiers. We have enjoyed some success with this strategy in that we have made significant progress in the first half of our Presidency, with agreement on two of the key banking union files, namely, the single supervisory mechanism and the capital requirements directive. Intensive efforts continue to accelerate Council discussions on banking resolution and the markets in financial instruments directive, and we are making progress on these files. As the committee will be aware from last night's ECOFIN briefing on bank resolution, this is a key issue for our agenda next Tuesday. On the consumer side, the mortgage credit directive has been concluded.

Now that we are into the second half of our Presidency, we will continue to work towards the Council general approach on the markets in financial instruments directive and banking resolution, as well as on the related deposit guarantee scheme. We will also seek to finalise agreement with Parliament on the market abuse regulation. We will work towards Council agreement on central securities depositories and re-open discussions on undertakings in collective investment services and the packaged retail investment products, with a view to achieving a Council general approach and work towards agreement at trialogues with Parliament on the transparency directive. We will also open discussions on the fourth anti-money laundering directive which was published in February. We expect new proposals from the Commission on benchmarks, securities law, money market funds and the implementation of the Liikanen report. We will consider how best to progress these proposals once they are published.

On banking union, the Irish Presidency negotiated an agreement on the single supervisory mechanism and the European Banking Authority with the European Parliament. The next stage of banking union is bank resolution. Proposals were published late in the Danish Presidency and intensive technical discussions took place under the Cypriot Presidency. The resolution proposal provides a common framework of rules and powers to help EU countries intervene to manage banks in difficulty. The framework provides comprehensive and effective arrangements to deal with failing banks at national level, as well as complete arrangements to tackle cross-border banks. There are three distinct phases to the framework, namely, preparatory and preventative measures, early intervention and resolution tools. Some work remains to be done by our Presidency on this file before reaching agreement on politically sensitive issues such as bail-in, financing and the home host issue. In light of the tight deadline mandated to us by the European Council, we are treating this file as a high priority and have invested significant resources in attempting to conclude it. The objective at the May ECOFIN for the resolution proposal is to give Ministers the opportunity to discuss and agree on the design of the bail-in tool and financing arrangements. It is important to maintain momentum on this proposal because it is one of the central planks of banking union and vital for stability in the banking sector.

I will now turn to the macroeconomic governance segment of the report. Earlier this year, the Irish Presidency secured agreement, on behalf of euro area member countries, with the European Parliament and the European Commission, on two proposed regulations, known as the two-pack. The two-pack will be a significant and welcome enhancement of the euro area’s economic governance regime. These regulations, which are expected to be formally adopted in May or June 2013, concern the monitoring and assessment of draft budgetary plans, ensuring the correction of excessive deficits and strengthening economic and budgetary surveillance, and set out explicit rules for enhanced surveillance of countries experiencing or threatened with financial difficulties. Ireland comes under the latter regulation because our existing EU-IMF programme is considered to be a macroeconomic adjustment programme. However, we have no particular concern about the regulation because it effectively formalises the process we are already going through and we are on course to exit our programme at the end of this year.

The regulation on draft budgetary plans does, however, have implications for Ireland’s existing budgetary timeline. The main requirements of interest are that the draft budget for central government and the main parameters of the draft budgets for all the other sub-sectors of the general government must be published by 15 October each year; the draft budget must be based on independent macroeconomic forecasts which are defined as forecasts produced or endorsed by an independent body; and, the budget for the central government must be adopted or fixed upon and published by 31 December each year. In light of these requirements, the Government has decided to bring budget day forward from the first week in December to on or before 15 October from now on. This means that budget 2014 will be presented on Tuesday, 15 October this year. It has also been decided at Government level to designate the Irish Fiscal Advisory Council as the relevant independent body to produce or endorse macroeconomic forecasts on which the draft budget must be based. Finally, following a Government decision, the finance Bill should be enacted by 31 December each year. This timeline will be considerably shorter than the present requirement whereby it must be enacted within 120 days of the budget, as that is the maximum limit of a financial resolution. Under the new arrangements, the finance Bill will have to be passed 65 to 70 days after the budget. The report to end-December also contained detailed information on progress achieved in relation to the European semester as well as an outline of expected developments under Ireland’s Presidency.

An important objective of our Presidency programme is to ensure effective implementation of the 2013 European semester process. The European semester process began during the Cypriot Presidency with the publication of the annual growth survey in November 2012. However, the bulk of the work falls to Ireland to take forward the semester process and oversee its completion at the European Council in June. A key first step towards securing effective management of the semester process was the production of a roadmap for the 2013 process last December which, among other things, was aimed at avoiding some of the procedural problems that had emerged in the two previous semesters. This was followed by a guidance note for the chairs of the committees involved in implementing the semester process.

Another key objective of our Presidency programme is to ensure all relevant Council formations continue to work in a co-ordinated and consistent manner towards a thorough preparation for the European Council meetings during Ireland’s Presidency. Heads of State and Government at the spring European Council provided horizontal policy guidance for member states and this concluded the first phase of the 2013 European semester. Work is under way to ensure the input of all Council formations on the European semester is fully reflected in the May and June European Council meetings.

The publication by the Commission on 10 April of its in-depth reviews of the existence of macroeconomic imbalances in 13 member states marked the beginning of the second, country specific, phase of the 2013 semester. These reviews will be considered by Ministers at the ECOFIN meeting on 14 May, before the Commission comes forward with detailed proposals for recommendations at the end of this month.

The culmination of the 2013 European semester will be the adoption of country specific recommendations at the June European Council. The Irish Presidency continues to be centrally involved in managing the process leading to this objective. In this regard, the Presidency organised a round table meeting on 7 May in the Permanent Representation in Brussels involving senior Commission officials and the chairs of the relevant committees. The major objectives of the meeting were to clarify the responsibilities of all of the formations involved so as to avoid duplication, ensure procedures were well understood and ensure every formation’s input would be appropriately recognised. This is a complicated process, but the contribution of the Irish Presidency to date has been effective and the indications are that it will continue to be so.

The six month report also provides information on developments in the various countries in external assistance programmes, specifically the programme of assistance for Ireland. Since the end of June 2012 we have successfully concluded the seventh, eighth and ninth reviews of the programme of financial support with the European Commission, the ECB and the IMF. The tenth review process began recently with the review mission running from 23 April to 2 May. During this and previous reviews we have emphasised that our focus is on our exit strategy from the programme, our re-entry into the financial markets and improving our debt sustainability.

Our programme compliance is recognised as being particularly strong and as at the end of the first quarter of 2013, we have completed over 200 actions, while close to 85% of the available external funding had been drawn as at the end of March. The report also sets out developments related to the European Stability Mechanism, ESM, which was established during 2012. It formally entered into force on 27 September 2012 when member states representing 90% of the paid-in capital had notified ratification in accordance with Article 48.1 of the treaty. The European Stability Mechanism Act 2012 which enabled Ireland’s ratification of the treaty was passed in early July 2012 and Ireland’s ratification was notified on 1 August 2012. The ESM has a total capital subscription of €700 billion, made up of €80 billion of paid-in capital and €620 billion of callable capital. Ireland’s share of the paid-in capital is some €1.27 billion. This is to be paid in five equal tranches of €254.7 million. The first two of these tranches were paid in October 2012 and the third in April this year. The two remaining tranches are scheduled to be paid in October this year and April next year.

As noted in the report, the European Council reached agreement on a new multi-annual financial framework, MFF, on 8 February this year. This framework establishes the budgetary priorities for the European Union in the period 2014 to 2020. This final agreement provides for a commitments envelope of €960 billion, which represents 1% of EU gross national income, GNI. This implies a 3.5%, €35 billion, real terms reduction from the current MFF. The final outcome represents a good outcome for Ireland. Based on current assessments of future Irish and EU economic prospects, Ireland is likely to remain a net recipient from the EU budget in the period 2014 to 2020. This is a continuation of the position we have enjoyed since our accession in 1973. As part of the final deal, Ireland secured additional funding for rural development, the Border, midlands and west, BMW, region and the continuation of the PEACE programme.

The European Council mandated the Irish Presidency to rapidly take forward the negotiations with the European Parliament and obtain its assent to the MFF, as is required under the treaty. The negotiations with the European Parliament are being led by the Tánaiste as chairperson of the General Affairs Council. Members of the committee will be aware from the Minister’s presentation yesterday that the European Parliament has made a political link between its agreement on the MFF and securing agreement on a draft amending EU budget for 2013, the so-called DAB2. This is effectively a supplementary budget tabled by the Commission on 27 March for €11.2 billion to meet outstanding claims in 2013. On Monday this week, 6 May, the Taoiseach and the Tánaiste met Presidents José Manuel Barroso and Martin Schulz. It was agreed that discussions on the MFF and the draft amending budget would proceed in parallel and that "nothing is agreed until everything is agreed". The Irish Presidency will continue to work to secure agreement on the MFF before the end of June.

As the Minister informed the committee yesterday, he will seek to obtain political agreement at ECOFIN next week on the matter of the draft amending budget. One of the main annual agenda items for the EU budget is the negotiation of the following year’s annual EU budget. The Cypriot Presidency chaired the negotiations on budget 2013 and, following a difficult conciliation with the Parliament, reached an agreement on an annual budget worth €132.8 billion in payments. Another significant development during the second semester of 2012 was the agreement on the revised general financial regulation for the EU budget. The financial regulation is the basic legislation underpinning implementation of the EU budget across the entire European Union.

Ireland’s EU budget Presidency programme has mostly been about ensuring the continued smooth functioning of the annual budgetary process. In concrete terms, Ireland chaired Council discussions on the appropriateness of spending in 2011, otherwise known as discharge. The Irish Presidency also prepared Council’s guidelines for the Commission on the draft budget for 2014. Both items were endorsed at ECOFIN on 12 February. At political level, the Minister of State, Deputy Brian Hayes, had a number of important engagements related to the EU budget with the Parliament and the Commission. At working group level, the Irish Presidency has been progressing negotiations on two important dossiers to prevent fraud against the EU budget, HERCULE III and PERICLES 2020.

On the taxation side, there have been a number of active policy areas, on which we have made advances during the first few months of our Presidency of the Council. On the financial transaction tax, FTT, following authorisation for 11 member states to proceed with adopting an FTT by way of enhanced co-operation, the Irish Presidency has to date chaired two working party meetings on tax questions focused on the FTT. The next meeting is scheduled for 22 May, with a further working party meeting provisionally planned to take place in June. The participating countries are meeting between themselves to try to advance the proposal and the Presidency is trying to ensure progress made by the participating countries is advised to and discussed by all member states at Council working party meetings. We anticipate that the first read through of the draft directive will be completed by the end of the Irish Presidency. We also anticipate that a portion of time will be devoted to addressing issues concerning the impact of an FTT on national debt management and trading in the secondary bond market. The United Kingdom has raised a formal legal challenge to the decision authorising enhanced co-operation in this area.

We have not yet seen the precise grounds for this challenge. Other member states have indicated they are considering whether to join the UK in its challenge. Certain member states have voiced support for it.

I note that the joint committee was updated by the Minister yesterday on a range of matters that will go before the Finance Ministers Council next week. We are here today to assist the committee by giving further factual information regarding the EU process and various timelines associated with the various areas. We will endeavour to help the committee in every possible way. It will appreciate that the span of topics is very wide. I thank members for the attention they have paid to this presentation. We will be happy to respond to any questions or observations members may have.