Ms Fiona Ralph:

Go raibh maith agat, a Chathaoirligh agus baill don choiste. I thank the committee for the opportunity to discuss these two EU regulations. In the interests of efficiency, I will make the opening statement for all Departments represented here. I will touch first on the structure of the EU budget for context before addressing the two regulations separately.

I lead the EU budget unit in the Department of Finance. As the Cathaoirleach said, I am joined by colleagues from my Department, from the Departments of Public Expenditure, Infrastructure, Public Service Reform and Digitalisation, Foreign Affairs and Trade and Defence and from the European Commission's Directorate-General for Defence Industry and Space.

From an EU budget perspective, the Department of Finance's focus is on the budget as a whole, on negotiating funding levels on a multi-annual and an annual basis and, of course, on Ireland's financial interests as a member state. Individual funding programmes, their policy context and arrangements are negotiated by the relevant Departments, depending on the policy area. We in the Department of Finance work with them on budgetary questions as they arise.

Cohesion policy and, therefore, the responsibility for the proposal under COM (2025) 123, sits with the Department of Public Expenditure, Infrastructure, Public Service Reform and Digitalisation. As a financial instrument, the Department of Finance managed the financial architecture of SAFE for the proposal under COM (2025) 122. The Departments of Defence and Foreign Affairs and Trade together managed the defence, security and foreign policy implications arising from these proposals.

On the structure of the EU budget, to set the context, the current multi-annual financial framework, MFF, runs from 2021 to 2027. This sets out expenditure limits per year and per thematic heading. The actual level of spending is then set within these limits in the annual budget procedure. All member states contribute towards the EU budget based on a system we can go into later, if it is of interest to committee members. The key elements relevant to this discussion are that the contributions that member states make follow the principle of universality, meaning they are general revenue and not earmarked for any specific purpose, and these contributions fund the EU budget's patient payments to beneficiaries.

On COM (2025) 122, the proposal on SAFE was released on 19 March 2025 alongside the Commission's White Paper for European Defence, all within the context of the EU's Readiness 2030 initiative. It was adopted by the General Affairs Council on 27 May and entered into force on 29 May. The SAFE regulation creates an EU instrument to provide member states with up to €150 billion of loans backed by the EU budget. This involves the European Commission borrowing the funds required to finance the loans for on-lending to member states. In this situation, the loans will be repaid in full by the borrowing member state and not by our EU budget contributions. However, the lending is backed by a guarantee, meaning that in the unlikely event of a member state defaulting on its loan, repayment would be covered by the EU budget.

The SAFE instrument is intended to provide financial assistance to member states to support their urgent public investments in defence industrial production, aiming to increase production capacity, improve the availability of defence products and address capability gaps. As recently confirmed by the Tánaiste and Minister for Defence, Ireland has informed the European Commission that we are not seeking to draw down funding from SAFE at this point. While Ireland is not drawing down funding, SAFE can still play a valuable role in supplementing ongoing capability efforts by the Department of Defence through the use of collaborative opportunities presented by SAFE. Ireland will seek to play an active part in collaborating under the SAFE mechanism in joint procurement initiatives with other EU member states where alignment with the requirements of our equipment development plan have been identified. In line with this approach, the Department of Defence has already opened up a contract for body armour to other EU member states under the SAFE regulation. This illustrates Ireland's support for SAFE in a very practical way. It further demonstrates visibly how the SAFE instrument can be used to the mutual benefits of the member states that choose to use it. While limited at this stage in the process, the identification of opportunities for collaboration will become more apparent as the initiative matures. This will occur through attendance at the SAFE special group meetings, monitoring opportunities outlined by member states through the European Defence Agency system and organically as the process of member states submitting their defence plans to the Commission evolves.

In relation to COM (2025) 123, on 1 April 2025, the Commission published a proposal for a regulation setting out amendments to the European Regional Development Fund and the Cohesion Fund, as well as the Just Transition Fund, as regards specific measures to address strategic challenges in the context of the mid-term review. It was adopted on 18 September, published in the Official Journal on 19 September and entered into force on 20 September 2025. The main objective of this regulation is to provide an opportunity to align cohesion policy investments to new priorities, notably, competitiveness and decarbonisation; access to water, sustainable water management and water resilience; defence and security; affordable housing; energy transition; and the challenges facing the eastern border regions. The package also provides financial incentives for these programmes that avail of the opportunity of the mid-term review to allocate resources to any of these new priorities.

The regulation, as finally agreed, included a provision which potentially allows for an element of the funds, the flexibility amount, to be transferred to the new objectives under the mid-term review despite funds having been suspended for breaches of conditionality on rule of law. Ireland, in the spirit of compromise, agreed to the final text. However, we, along with a number of other member states, believe it is inappropriate that funds which have been suspended can simply be transferred without the underlying reasons for the suspension having been addressed and that the final text should have gone further to expressly block such potential transfers. For this reason, Ireland, the Netherlands, Austria, Belgium and Luxembourg drafted and had attached to the final regulation a joint statement on the rule-of-law aspects of the proposal, expressing our support for the rule of law, our regret that the regulation, as approved, could potentially see the release of suspended funds, and calling for this issue to be addressed in future regulations, including the next multi-annual financial framework.

Given the high expected absorption of our allocation, there are possible adjustments given a minimal absorption challenge on specific European Regional Development Fund schemes. Investments under consideration include investment in affordable and sustainable housing and decarbonisation, and in actions that contribute to the objectives of this Strategic Technologies for Europe Platform, STEP. We look forward to hearing the committee members' views in respect of the regulation and are happy to take their proposals.