Mr. Seamus Coffey:

I thank the committee for the opportunity to speak before it today. In addressing the five presidents' report, numbers crop up a lot, along with the four unions they mention and the varying degrees to which they are being achieved. These are economic, financial, fiscal and political union. We can go through them and see if these are real objectives or just objectives in a report that will not really go anywhere.

We can class economic union as being aspirational. This deals with what countries should do. For example, countries should put more emphasis on competitiveness and watch their macroeconomic indicators, but there is no specification of what countries should engage in doing. There is very little specific policy under economic union and it is more about having economies that are similar rather than forcing through this process.

The one actual union where progress has been made is financial union, particularly through the banking union, the single supervisory mechanism under the ECB and an agreed mechanism for a banking resolution. Under that is capital markets union and we are still not sure whether that will progress. There is emphasis on this at the EU level to allow small and medium enterprises, for example, to fund themselves and have risk sharing across borders.

Fiscal union in the report is largely notional and there will not be a fiscal union. The report explicitly rules out cross-border transfers, so with fiscal union, they are just looking for a degree of integration without actually undertaking any fiscal union. We can classify political union as being temporal. It is a matter of greater timing integration between parliaments in terms of how things are done, such as budgets, and how documents are produced and analysed. It is a case of every country going at something at the same time rather than being more closely politically integrated.

We can compare it with the four presidents' report of a couple of years ago - the President of the European Parliament has been added to get us up to five presidents - and see a number of significant elements that are gone. Fiscal integration is gone. There were fiscal transfers in the previous report from 2012 but that element is no longer there. They speak about fiscal union now in more general rather than the specific terms of the previous report. From an Irish perspective, we also see that debt mutualisation is gone and there will be no EU issuing of debt on an aggregate basis. Those elements from the previous report are gone.

We can consider what has been added since the previous report. From fiscal union we have gone to fiscal stabilisation, and the report does not seem to be sure about what that means. They speak about some class of fund but it is emphasised that there would be no permanent cross-border transfers. So if there are fiscal crises in country, it is not clear that there is any mechanism for dealing with them as of yet. With banking, there are of course moves to have common deposit insurance and if banks get into trouble, it would be at an agreed international level. There would still be some national deposit insurance but they are just looking for funds at an aggregate level if the difficulties exceed what a national fund can provide.

I should emphasise that they are not really looking for fiscal integration but the report proposes a European fiscal advisory board. I imagine that could be something similar to a fiscal advisory council that we have at the national level. Perhaps, as we know in Ireland, there are limited powers in a fiscal advisory board, particularly here. In some countries, the fiscal advisory council can set the macroeconomic projections that the government must use. In Ireland, all the Fiscal Advisory Council does is approve the projections if they are in a certain range.

We can consider what should be in the report or what is missing. It is clear there is no focus on having a eurozone fiscal stance, with fiscal integration hugely reduced. Issues like counter-cyclical policy do not appear at all. In Ireland we know the value of that. The eurozone has been going through a recession for the past five or six years but at an aggregate level, little has been done to integrate the policies. Some countries, primarily Germany, had greater scope for fiscal expansion but others did not. It would benefit the EU and the eurozone if it had such a stance but it is not there.

The European Central Bank, which is probably the most important European institution now, is also missing from the report, with very little mention of monetary policy, such as how it is set, how transparent it is and what are the objectives of monetary policy. Currently, we are down to inflation but what about employment output and the stabilisation of the economy? If we are not going to do it with fiscal policy, what are we going to do it with? That is how I view the four unions. The economic union is largely aspirational and asks that something should be done. The financial union is actually happening. Fiscal union is notional and there does not seem to be much to back it up. Political union is more about timing and the temporal perspective.

I will conclude on how the five presidents' report might impact national parliaments and whether they will have a diminished role with the enhanced oversight from an EU level. This depends on what a national parliament wishes to do. If blame is to be passed to somebody else, a national parliament should have a diminished role. So if we want to say the ECB allowed Irish banks to explode their bank lending or we adhered to the fiscal rules in the run-up to the crisis and it is all Europe's fault, there is bound to be a response from Europe to tighten regulations and say that blame cannot be passed to it any more. At a national level, we should take enhanced responsibility for what we do.

Fiscal rules set out the overall space in which we operate but we must make the decisions ourselves. The fiscal rules are like a speed limit but, in a sense, we decide how we are going to drive. When following the speed limit, one must take into account the conditions of the road or the environment. If a person is going downhill, he or she might not press the accelerator. The Irish economy currently seems to be improving and we seem to be trying to push fiscal rules to the extreme. Perhaps we should take a bit of responsibility ourselves so as not to get the maximum amount of taxing and spending from the rules but instead look to what is best for ourselves. The rules are a guideline but we are free to do as we wish.

Pushing the rules to the extreme for the upcoming budget gives us a package of €1.5 billion but that does not necessarily have to be split between tax cuts and expenditure increases. We could have a budget with €3 billion of tax increases, allowing for €4.5 billion in expenditure increases. Where we want to go is largely up to ourselves, although EU rules set overall guidelines. There is a certain amount of responsibility that can lie at the domestic level as to how these rules are applied. The behaviour and action should reflect our preferences rather than just the rules.

Bank resolution is happening at an EU level but that does not mean there is diminished responsibility at the national level. If a bank gets into difficulty, there is now an agreed way for how that bank can be put into resolution, including what creditors would bear costs and so on. At national level, one could still decide to rescue a bank and decide it is of national importance while bailing it out. The first approach still happens here. If we decide not to rescue it, we know the path as to what creditors would bear losses.

However, the ultimate responsibility still lies domestically. It is not a case of someone forcing one to bail out one's banks. One chooses to do it. If one chooses not to, they can be resolved in an orderly fashion.

Finally, on the European semester and timing, is there a limited role for body such as this in the overall European semester? By and large, many of the documents either come from our Government or Europe and are addressed or assessed here. It may be, however, that there could be a increased role in the drafting or approval of the documents. Every year, Ireland submits a stability programme update and a national reform plan. Essentially, these come from the Department of Finance and only get as far as the Oireachtas after they have been submitted. Could we not have a draft of those documents here in order that we might discover what is the focus in them and see if they are agreed? When the reply comes back from Europe, it is based on what is in the documents. Perhaps we could have a greater emphasis on what happens and what is included in them. If there was some element of drafting here, there might be a greater sense of ownership over what actually goes into them rather than having these things coming down from on high.