Mr. Tony Connelly:

The first issue I will deal with is bank recapitalisation, as raised by several members. It is important to remember that the Irish State put some €60 billion into the banking sector at a time when there were no instruments available at EU level to help with that process. The Government's argument ever since has been that because Ireland stepped in to take a hit for the team, as it were, and prevent contagion at European level, we deserve to have some type of retroactive recapitalisation. The mainstay of the Government's reassurance or comfort was the summit of 28 June 2012 where Ireland was explicitly named in the Council conclusions and implicitly offered some type of support for Irish banks via the European Stability Mechanism. That has been the Government's foothold ever since. However, there has been a steady withdrawal from that position at a commentary level by various European politicians, most notably Wolfgang Schäuble, the German Finance Minister. These comments appear to pour cold water on the prospects of Ireland ever getting a deal on bank debt, principally because of the argument that the State is doing fine, has worked its way out of the programme, is in recovery mode and does not, therefore, need any additional help.

Having said that, the Government certainly is sticking to its guns and there is a very slow, deliberate and incremental process under way at European Finance Minister level whereby the modalities of a system for the ESM directly recapitalising banks in Europe in a way that would shift the burden away from the sovereign is being worked out. That process should be completed in the next six weeks or so at official level. Retrospective capitalisation, which is Ireland's aspiration, would then be handled on a case-by-case basis. Nothing can happen, however, until the single resolution mechanism is up and running, that is, a system whereby banks can either be shut down or bailed out. Until that architecture is fully agreed and fully in place and the European Central Bank is acting as the central supervisor, the Irish question will remain somewhat in limbo. From speaking to various delegations in Brussels, it is clear to me that there is considerable sympathy for Ireland's claim and aspiration and that people have listened to the Government's arguments. The problem for Germany is that it does not want to concede anything before the final mechanism is totally locked down and agreed; otherwise, it would create a precedent that other countries might want to follow.

We were asked about neutrality and expenditure on weapons and so on. I must demur when it comes to my own opinions on neutrality - I have to remain neutral myself as a reporter. The argument at EU level at this time is very much governed by the decision of the United States to step back from major conflicts around the world, especially in Africa and increasingly in the Middle East, notwithstanding its recent efforts to broker a peace agreement there. The hard reality for Europe was that when the no fly zone was put in place over Libya, it did not have sufficient airlift and refuelling capacity. We needed the Americans to step in. The more the United States steps out of the equation, the more exposed European capabilities will be. There is an effort at EU level to ensure that the European Defence Agency will at least allow armies to equip themselves in such a way that they are not duplicating resources and wasting money. It is a sensitive topic in Ireland because of our neutrality, but the reality is that if Europe is going to confront the threats it will face in the next ten to 15 years, especially the situation in the Sahel and the rise of Islamic fundamentalism in Africa, there is a view that it must invest more in defence. The reality, of course, is that many countries have been cutting back on defence expenditure during the financial crisis. The big question for Europe is how that issue can be balanced.