Oireachtas Joint and Select Committees
Thursday, 9 May 2013
Joint Oireachtas Committee on Finance, Public Expenditure and Reform
Six Month EU Scrutiny Report: Discussion with Department of Finance
10:15 am
Peter Mathews (Dublin South, Fine Gael)
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I welcome the following officials from the Department of Finance: Mr. Aidan Carrigan, Mr. Tony Gallagher, Mr. Des O'Leary, Mr. Fergal Ó Brolcháin and Ms Niamh Campbell. I look forward to their presentations and the opportunity to discuss with them the issues arising. Mr. Carrigan will be invited to make his opening statement, which will be followed by a question and answer session.
I remind members, witnesses and those in the Visitors Gallery that all mobile phones must be switched off. I advise the witnesses that by virtue of section 17(2)(i) of the Defamation Act 2009, they are protected by absolute privilege in respect of their evidence to the committee. If you are directed by the committee to cease giving evidence on a particular matter and continue to do so, you are entitled thereafter only to qualified privilege in respect of your evidence. You are directed that only evidence connected to the subject matter of these proceedings is to be given and asked to respect the parliamentary practice to the effect that, where possible, you should not criticise or make charges against a person or persons or an entity by name or in such a way as to make him, her or it identifiable. Members are reminded of the long-standing ruling of the Chair that they should not comment on, criticise or make charges against a person outside the Houses of the Oireachtas or an official by name or in such a way as to make him or her identifiable.
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.
10:35 am
Liam Twomey (Wexford, Fine Gael)
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I thank Mr. Carrigan. I understand that Senator Byrne is speaking on behalf of Fianna Fáil.
Thomas Byrne (Fianna Fail)
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Yes. Deputy Michael McGrath has asked me to pass on his apologies for his inability to be in attendance at this meeting.
Liam Twomey (Wexford, Fine Gael)
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Okay. I will give ten minutes to each of the main parties at the outset.
Thomas Byrne (Fianna Fail)
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I might not take all of that time. I have a number of concerns. I will raise two of those issues this morning. The first of them relates to the multi-annual financial framework. People are starting to perceive a certain degree of backslapping on the political side about the brilliance of the deal that was done. I do not expect the witnesses to comment on that. The Irish Presidency has been congratulated on playing a role in concluding this deal. Some of that backslapping is reflected in Mr. Carrigan's speech, for example, in his remark that "the final outcome represents a good outcome for Ireland". That is in the report as well. The reality is that the multi-annual financial framework provides for a cut of between €34 billion and €35 billion in real terms. In my view, that is disastrous. The question of whether Ireland continues to be a net recipient of the EU budget is irrelevant at a time when the EU as a whole is spending less money. Nobody supports the maintenance of bureaucracy, obviously, but cuts have been proposed on the investment side as well.
Some people are starting to talk about the need for a move away from austerity, but that will not really be put into practice if the largest spender - the EU - cuts its budget. At national level, we absolutely accept that we have to reduce our budget deficit. However, austerity is not needed at every level of society, and particularly not at EU level. Cuts in the EU budget will have a real effect on investment, growth and unemployment in this country. It seems to me that people gave into the push to cut the EU budget, which stemmed from particular electoral difficulties being faced by the Tory party in England. I would like to know what the officials think of the criticism that is starting to be made. In my view, getting an agreement is not sufficient in itself for this country. We need a good agreement that is good for Europe and therefore good for this country as well. I would be very critical of the agreement to cut the multi-annual financial framework in real terms.
The second issue I would like to raise is the practical arranging of this year's budget. It will be held on 15 October, which is the deadline in the new EU legislation for the bringing forward of a draft budget. Is there any diminution in the status of this year's budget? Will the document published on 15 October be the draft budget that is required by the EU, with the actual budget to be adopted being set out in the Finance Bill to be published before 31 December? I suppose that is my question. If the answer to it is "Yes", does that imply any change in the status of budget day? Will the publication of the draft budget be followed by two months of political wrangling? That often happens after the budget when people want certain aspects of it to be changed. Will there be any diminution in the status of budget day?
Mr. Carrigan mentioned that the Finance Bill will be passed at an earlier stage to give effect to the financial resolutions. One assumes that any financial resolutions that are needed will be passed on the night of the budget. Will that stay the same? I have another question about the practicalities of this process. The Social Welfare Bill is normally enacted a week or two weeks after the budget. Will that continue to happen? I know it is a matter for the Department of Social Protection. Obviously, the social welfare budget will play a key part in the deficit reduction process. Will the Social Welfare Bill be open for wrangling until 31 December, which will presumably be the date by which it will have to be passed? Those are the two broad issues I wanted to raise.
Ms Niamh Campbell:
It is true that the multi-annual financial framework, with which I deal, was cut for the first time in the history of European negotiations. That has been acknowledged by everyone. I am sure the Senator will be aware that the multi-annual financial framework was discussed at two meetings of the European Council - in November 2012 and February 2013 - that were chaired by Mr. Van Rompuy. The ultimate outcome was the result of a very difficult compromise, basically between the net contributors to the EU budget and the net beneficiaries of that budget. Ireland's objectives for the multi-annual financial framework were to maintain funding for the Common Agricultural Policy in nominal terms, to secure the maximum outcome for the Border, midlands and west, BMW, region and to secure a continuation of the PEACE programme. It is the case, based on current information, that Ireland will continue to remain a net beneficiary of EU funds. That is a very good outcome for Ireland, especially in light of the data for all the other countries. Ireland has the highest income, in terms of gross national income per capita and in terms of EU receipts, of any country that is still a net beneficiary. While it is true that there was a reduction, that reflects the realities of reaching a deal unanimously at the European Council.
Thomas Byrne (Fianna Fail)
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I am not surprised that politicians have over-egged the pudding in trying to claim credit for the roles they played in these negotiations. However, I was surprised to hear an official say in an official statement that "the final outcome represents a good outcome for Ireland" because there are differing views on that. We accept Ms Campbell's point that it can be classed as good that Ireland is still a net beneficiary. Our view and that of other people is that the overall reduction means it is not a good outcome for the country. It may well have been the only outcome that was possible in the negotiations, but that does not mean it is a good outcome or that the negotiations were successful. I wonder whether we pushed hard enough. I accept that the negotiations were difficult. The impression is being given that the negotiations were a huge success for this country. I do not think that position is shared by everybody. I was disappointed to see what I consider to be an opinion that is not shared for everybody - maybe it is going too far to say it is a political opinion - expressed as it was in an official text. It is not an opinion that is shared by me or by many of my colleagues.
Mr. Des O'Leary:
The two pack and the six pack referred to "draft budgets", but the status of the budget itself will not change at all. The budget that takes place on 15 October will have exactly the same status as the budget that has always taken place in the first week of December. Equally, there will be no change in the status of the Finance Bill. It should be through by the end of the year. Financial resolutions are introduced as temporary legislation, in effect, to cover things that need to come into effect before the Finance Bill itself comes into effect. If the Finance Bill is coming into effect at the end of the year, there may be a requirement for financial resolutions to be introduced to cover issues that are due to come into effect on budget night or before the end of the year. Things which are due to come into effect at the start of 2014 will be covered in the Finance Bill itself. I would not want to impinge on the area of the Department of Social Protection by saying too much about the Social Welfare Bill process. I have no expectation that the process will be changed by the changes in the budgetary process.
10:45 am
Thomas Byrne (Fianna Fail)
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Are local authority budgets affected by the two pack and six pack in terms of their process?
Peter Mathews (Dublin South, Fine Gael)
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I wish to take up one of the points made by Senator Byrne, the need to be careful on how we present outcomes. While it may have been the best possible outcome, given the circumstances and the competing objectives, if we feel there could have been a better outcome overall and in the subsets of the overall, we should say so, otherwise nobody will know that we are aiming for a further destination. I think that is the point Senator Byrne was making. If we say we are pleased with the outcome and remain silent on the fact that we were hoping for a much better one and fighting harder for a much better one, and what we have achieved is just about acceptable, and we accept it because we do not want the whole thing to collapse, I think we should express that we are all aiming for more.
Deputy Heather Humphreys has asked me if there is any confirmation of the amount of money being made available under the rural development programme. It has been said that we have secured additional funding. What is that amount? What is the amount for the PEACE programme?
When we are giving our views of what is happening and taking part in the debate on the appraisal of what is happening and what has happened, let us be robust and clear in our use of words, as we would be across the dinner table at home. It is helpful because it gets people better motivated and it helps the public to be engaged in what is going on. For instance, to the average person listening to the radio or reading about two pack and six pack in the newspaper, they do not have a clue what the terms mean. Could that term be explained in simple language each time it pops up, because it can be explained? Would anybody like to try to give an explanation now for the record?
Peter Mathews (Dublin South, Fine Gael)
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Does Ms Campbell know the original figure?
Peter Mathews (Dublin South, Fine Gael)
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That is great.
Peter Mathews (Dublin South, Fine Gael)
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For public consumption, if there are key or highlight areas that we held the line or improved the line, a little table stating that the Border, midlands and west region will get an allocation of €335 million and the rural development has been allocated €115 million so that people can capture the information quickly rather than having to travel through sentences as to what was gained. At a glance they should be able to see the pluses and minuses. I think that would be helpful to communicate the message.
Mr. Tony Gallagher:
I admit the terms two pack and six pack are pretty confusing to most people. The background to the two pack which applies to the euro area is that the economic governance system was just not good enough and did not identify emerging problems and imbalances in time to head them off before they became a problem. The two bits of the two pack are first to enable the budgetary plans of member states to be assessed in good time and to ensure they are co-ordinated across the euro area. If one is a member of a monetary union, one's plans cannot be independent as they can have a spillover effect on other member states. It is important-----
Peter Mathews (Dublin South, Fine Gael)
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To put it in simple, across-the-table language, it is a peer review framework of the budget plans of the separate countries in the eurozone area, so that they can decide if there is too much or too little of change in the government budgets of a particular country.
Peter Mathews (Dublin South, Fine Gael)
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That is nursery room speak that people can understand. When one is talking in language with more syllables and all the rest, it is impossible to understand.
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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One could just call it a straitjacket.
Peter Mathews (Dublin South, Fine Gael)
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No. It is like a template framework to look at the key areas of budgeting, expenditures and incomes, country by country, government by government, at a certain time in the year before the plans get formalised. There can be judgments about what tweaking needs to be done.
Mr. Tony Gallagher:
It is to see that the overall budgets are realistic as well as the strengthening of economic and budgetary surveillance for countries that are in difficulty or may be in difficulty. These are difficulties that could cause adverse spillover effects on other member states, so it sets out procedures by which member states can be brought under enhanced supervision to see that they are behaving.
Peter Mathews (Dublin South, Fine Gael)
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It is more like a quarantine type review.
Liam Twomey (Wexford, Fine Gael)
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One syllable only now.
Peter Mathews (Dublin South, Fine Gael)
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People understand that because they leave their cats in quarantine.
Mr. Tony Gallagher:
The six pack comprises reforms that were identified as necessary when the Stability and Growth Pact did not work. As a result, President Van Rompuy was given the job to set up a task force to look at the weaknesses of economic governance to correct these. The main ideas behind them are to strengthen budgetary discipline in each member state to see that their budgetary frameworks are sound, to bring in a new framework to prevent macroeconomic imbalances, to toughen the rules of the Stability and Growth Pact and to introduce surveillance on macroeconomic imbalances. These have been brought into the EU semester to try to make it a seamless process every year and to ensure there is discipline in the budgets and economic policies of member states.
Liam Twomey (Wexford, Fine Gael)
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Before I invite Deputy Donnelly to put his questions, may I ask Mr. Gallagher which body in Ireland will endorse the draft budget which must comply with the following statement: that the draft budget must be based on independent macroeconomic forecasts produced or endorsed by an independent body? Will that independent body be the Fiscal Advisory Council?
Liam Twomey (Wexford, Fine Gael)
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At present, the Fiscal Advisory Council more or less works on a voluntary basis. From where will it get the additional resources and expertise to help it to draw up the draft budgets, because it will take time and the Fiscal Advisory Council will incur additional costs?
10:55 am
Liam Twomey (Wexford, Fine Gael)
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That has all been established already.
Stephen Donnelly (Wicklow, Independent)
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I was in Brussels on Tuesday for an EMU conference and spoke to various officials and Members of the European Parliament, all of whom were very positive about the Department of Finance officials and I imagine about the people in this committee room. People are speaking of all of them with very high regard in Brussels at the political and bureaucratic levels. I do not know what they have done but they have obviously done a good job and have earned a lot of respect in Europe. I want to pass that back and congratulate them as I imagine they have all been working very hard for some time. It is great to see all their names for once rather than the Minister for Finance, Deputy Michael Noonan, being flanked by various officials. I thank Mr. Carrigan for his time and his preparation and for his statement. I have a variety of questions covering various areas. Perhaps the Chair will tell me when my time has expired.
On the European semester every member state has to submit a budget in October. Is that a draft budget that has to be submitted and does it have to come into line with the SPU or what would happen if, after the SPU was submitted in April, the budget came in with some serious changes in it?
Stephen Donnelly (Wicklow, Independent)
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That is very useful. That was my understanding, as well. An awful lot of the talk in Brussels on Tuesday was about parliamentary input, parliamentary legitimacy and the disconnect between executives, cabinets or governments and their parliaments. I know this is not an issue for the officials to comment on but the reason I ask it is that it is important that we understand that the European semester does not require the Government to submit the budget. The Government is choosing to submit a final budget and in doing so is continuing the bypassing of the Oireachtas in what it does. Other member states are, in fact, going to submit draft budgets. Their parliaments are going to discuss them as is done in a grown-up democracy and then, after parliament has ratified it, the budget will be sent by the end of December to Brussels but in our case the Government has decided to bypass parliament and submit the actual budget. That is something we need to keep in mind. It is an awful pity. What happens if the budget is very different from the SPU?
Stephen Donnelly (Wicklow, Independent)
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Is it envisaged that the actual budget in our case, or in other more enlightened countries the draft budget, which is submitted in October, will line up more or less to the SPU which will be submitted in April?
Stephen Donnelly (Wicklow, Independent)
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I am not expecting the officials to comment but it is worth noting, and is very important, that the SPU is being submitted to Brussels without any parliamentary oversight or input whatsoever. We were given an hour, I think I got about four and a half minutes to question the Minister on it. That is essentially the blueprint for the budget. Again there was zero parliamentary oversight. We saw the Minister's reaction to my suggestion that maybe next year we could have some input. Something very serious is going on and it is contrary to the spirit of what I heard in Brussels which was some very sensible views around parliamentary input to the European semester. In Ireland the Government is moving in exactly the opposite direction and ensuring virtually zero parliamentary input into the European semester. It is not for the officials, it is a political point but I wanted to put that on the record. It is something the committee should be pushing back on.
On the European semester, between the two pack, the six pack and the various other resolutions and directives, under how many metrics will the budget and the SPU be examined? As that is a rather unfair question, let me ask a slightly fairer question. Is it in and around ten macro-micro indicators or in the 40 to 50 range?
Mr. Tony Gallagher:
All I know is that in the macroeconomic imbalance procedure there are 11 metrics. That is not a budgetary process although the recommendations of the EU semester are expected to lead to budgetary decisions so that if macroeconomic imbalances are identified they will feature as countries' specific recommendations can. The 11 indicators to which I have referred are only a starting point to highlight to the Commission if further investigation is needed of a member state.
Stephen Donnelly (Wicklow, Independent)
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When we submit our SPU and our actual budget who assesses them?
Stephen Donnelly (Wicklow, Independent)
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Who are they?
Stephen Donnelly (Wicklow, Independent)
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I did.
Stephen Donnelly (Wicklow, Independent)
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Okay, could Mr. Gallagher repeat them? Who are they?
Stephen Donnelly (Wicklow, Independent)
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Do they appear before the relevant European parliamentary committees?
Stephen Donnelly (Wicklow, Independent)
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Can Mr. Ó Brolcháin find out?
Stephen Donnelly (Wicklow, Independent)
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I thank Mr. Ó Brolcháin.
Stephen Donnelly (Wicklow, Independent)
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Mr. Gallagher is correct in saying I have asked this question previously. I am genuinely concerned. I am not concerned about our Department of Finance assessing political proposals from me or the Government or whoever, because the officials appear before the committee and there is, at least, some parliamentary oversight. We have got a group of people - civil servants, economists, PhDs, social scientists and so on - and I do not know to whom they report, their level of competency, or what parliamentary oversight they have and given that they will make countries' specific recommendations which are essentially binding I am concerned. If I could have a report back on that issue that would be useful.
Liam Twomey (Wexford, Fine Gael)
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Are they binding?
Stephen Donnelly (Wicklow, Independent)
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Sanctions can be attached to them.
Stephen Donnelly (Wicklow, Independent)
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I thank Mr. Carrigan.
Deputy Stephen Donnelly:
I thank Mr. Carrigan. If he would also check what Oireachtas input there is to that, it would be very useful.
May I have some context with regard to what is being looked at? Part of my concern is to do with the fact that the IMF has a 50-odd year history of getting some things right and some things very badly wrong. It will admit that the reason it has got many things badly wrong, such as privatising education in Africa, is because a bunch of very smart theorists who sit in Washington fly out on planes to visit countries and, without living in the country in question for a while or without understanding the idiosyncrasies of the country, apply Chicago school of economics principles. Sometimes this worked, but much of the time it did not. The IMF would admit that one of its greatest weaknesses has been that it did not really understand the countries it was redesigning. My concern is that we will have a bunch of people sitting in Brussels who do not have the kind of understanding Department of Finance officials have of this country and that we will get some cookie cutter country-specific recommendations that may have sanctions attached to them, but on which there will not have been sufficient input from us and the Department of Finance team.
I have one other question, which is again slightly unfair. Mr. Carrigan has highlighted very well what has gone well in the Irish Presidency in terms of the various directives. What has not happened? I know the Presidency is ongoing, but within the remit of what the Department is reporting on, what would it have liked to and what did it intend to achieve that did not happen?
11:05 am
Stephen Donnelly (Wicklow, Independent)
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On the same question, Mr. Carrigan has highlighted various things he is happy with, but what have not been included are issues about which he is disappointed or things that have not happened.
Stephen Donnelly (Wicklow, Independent)
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Why not?
Stephen Donnelly (Wicklow, Independent)
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I am not trying to set a trap here. I am genuinely interested. Is there nothing that has happened within the Department's remit that Mr. Carrigan is less than happy about?
Mr. Aidan Carrigan:
My colleagues can speak about their areas. My particular interest is in financial services and I have made it clear that we have made some significant progress and have broken some issues that have been a long time, from 18 months to two years, on the table. There are some other major issues in the banking union area around bank resolution, which brings a lot of political issues with it. We are pursuing that and have now brought it to the Minister's attention. We hope to make progress on it. The markets in financial instruments directive, MiFID, has been around for two years and we have been trying very hard to break the impasse that has existed in that regard for a number of years. We are still hopeful we can do that. We are progressing various other issues as far as we can. I presume the situation is similar with regard to tax issues.
Mr. Des O'Leary:
With regard to the tax issues and setting priorities for a six-month period, one must take account of issues that are live at the time one assumes the Presidency. It is not possible for a small country to select issues it wishes to pursue, as its role in the Presidency is that of chairman. On the issue of tax, we have prioritised a number of areas and we feel we have made considerable progress on those. Within my specific area, we hope to reach agreement on the taxation of savings directive at ECOFIN next week. This issue has been a long-running saga.
With regard to the financial transactions tax, we pursued that issue at a number of meetings. Eleven countries have come to an agreement on that, but we are not among them. On issues of indirect tax, there have been a number of dossiers, particularly with regard to VAT, and we are satisfied we have achieved our objectives so far. There is another month to go, but we feel we have made considerable progress.
Stephen Donnelly (Wicklow, Independent)
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I think the Department has made considerable progress and it is to be congratulated on the work it has done, which has been recognised at a European level. However, I am always deeply suspicious of any individual or theme that gives all the good news but, when asked what the bad news is, says there is no bad news. This lack of counter-introspection takes generally from the credibility of the report. However, it seems the Department has done a very good job.
Kevin Humphreys (Dublin South East, Labour)
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I wish to echo Deputy Donnelly's remarks regarding the work done over the past few months with regard to the Presidency.
I want to concentrate on two areas, the first of which concerns the financial transactions tax, FTT. We heard at this committee previously that an FTT would be revenue neutral for Ireland, but I dispute that. There is to be enhanced co-operation between 11 member states and the briefing referred to debt management and trade in secondary bonds and said these must be looked at further on. Has an analysis been done with regard to how this affects Ireland, or will it have any effect? Has an analysis been done of any impact this will have on the Irish banking sector, particularly in light of the fact that the UK has done an analysis and is looking at a legal challenge? Have we done that analysis?
Ms Brenda McVeigh:
We have not done an analysis for the simple reason that we feel the directive or proposal has not yet been fleshed out and there are still a lot of unknowns in it. That said, we have contacted the NTMA and asked for its view on the impact it will have on debt management. We have also sent on to the NTMA what details we have relating to the UK challenge - not a lot - and have asked it to examine that and see whether it concurs with the analysis. We have preliminary soundings back that suggest it agrees to a large extent with what the UK authorities have been saying all along on the debt management issue. However, no formal debt analysis has been done.
Kevin Humphreys (Dublin South East, Labour)
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Will Ms McVeigh clarify whether the NTMA is saying it would concur with the UK analysis that this will have an impact?
Kevin Humphreys (Dublin South East, Labour)
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Will that be felt in Ireland?
Kevin Humphreys (Dublin South East, Labour)
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Has that impact been quantified?
Kevin Humphreys (Dublin South East, Labour)
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At what stage will we see-----
Kevin Humphreys (Dublin South East, Labour)
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There must be some analysis done to try to influence and measure what the impact would be.
Ms Brenda McVeigh:
It has been a very short time period for all of us and it has gone at a hundred miles per hour. The only analysis was that done by the Central Bank of Ireland and the ESRI in the context of the original proposal. However, the goalposts have moved since then. It is four to five months now since the working parties began again on the analysis of the new proposals - since enhanced co-operation. There would not have been time to do an impact analysis in that time. We have asked the Commission, through the working parties, to come forward with an appropriate and detailed impact analysis, but we do not even have that from them.
Peter Mathews (Dublin South, Fine Gael)
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One could not make an analysis because-----
Liam Twomey (Wexford, Fine Gael)
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Deputy Humphreys, without interruption.
Kevin Humphreys (Dublin South East, Labour)
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As Ms McVeigh says, it is moving at a hundred miles per hour. Will this come to completion at the same time as the enhanced co-operation for the 11 member countries? We have not fleshed out the details of the tax with reference to the 11 members involved in enhanced co-operation. We recognise the move could have an effect on the Irish economy, depending on the structures of the tax. I am concerned that we are somewhat behind on this rather than on top of the issue. I question the ESRI analysis, which I thought was fundamentally flawed. As this is moving so quickly, is there any mechanism to provide that additional information be given to the committee?
Ms Brenda McVeigh:
On that point, we are not behind on this, for the simple reason that we are chairing the working party meetings and are raising all of these issues. We are there and are aware that other member states are having the same issues with it. Many of them, even the participating member states, are having the same issues we are having.
The Commission has been asked for an impact analysis. Specifically, at the next working party meeting, which is 22 May, we have asked for a presentation by members from institutions like the European Investment Bank and the European Bank for Reconstruction and Development to come to talk to member states about the debt impact and the impact on Sovereigns with regard to debt management. Our understanding, following advice from the Council legal services, is that they cannot attend and present at working party meetings, but we plan to keep this alive and before member states and keep them focused on it by producing a paper before the working party meeting in May which we will give to members. At the moment we are teasing out the possibility of asking members, possibly as a derogation from normal procedures, to allow the likes of the EIB to come to the following meeting, scheduled for June, to discuss the presentation and the paper.
11:15 am
Kevin Humphreys (Dublin South East, Labour)
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Is it possible for this committee to see the paper after it has been presented on 22 May?
Kevin Humphreys (Dublin South East, Labour)
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Has the NTMA given the Department some indications of its view? Has the Department requested anything? Has any information come back from the NTMA?
Ms Brenda McVeigh:
I gather we had some preliminary information but it was largely related to what the United Kingdom has done as opposed to our analysis. I repeat the point that it is rather difficult to analyse something when there are so many unknowns. There are even more unknowns since the new proposal was put in place at the start of the year. The enhanced co-operation proposal only materialised on 14 February.
Mr. Aidan Carrigan:
I wish to add a point on the basis of the Minister's statement yesterday evening. He indicated there was still a good deal of uncertainty about the structure of the financial transaction tax, FTT, and that it would be difficult to work out the impact. Ireland's main concern is the competitive impact on the country. It is not really possible to carry out a detailed analysis at the moment because we do not know what will emerge. The Minister remarked that what could emerge could be similar to the stamp duty already in place. We must wait and see.
Kevin Humphreys (Dublin South East, Labour)
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A transfer of the tax base might emerge because the tax will follow the transaction.
Kevin Humphreys (Dublin South East, Labour)
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If the tax falls on the transactions it will mean a significant loss to the Irish economy, especially if we are not a member of the group of 11 countries that move forward. I presume some thought process is operating within that.
Ms Brenda McVeigh:
That will depend largely on the final draft of the directive but it is nowhere close to finalisation in the working party. At this stage we have a kind of hybrid between an issuance and an establishment principle in respect of the tax and the application of the tax, but not even that has been agreed. My view is that we are not much further down the road than we were last year with the new proposal.
Peter Mathews (Dublin South, Fine Gael)
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It is probably being driven by a Federal Deposit Insurance Corporation, FDIC, requirement.
Kevin Humphreys (Dublin South East, Labour)
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I want to clarify something based on the previous question. I take it that moving the budget and financial regulations forward with the budget could mean a once-off gain if there is an increase in VAT or excise duties. If they are moved in the night there could be a once-off gain this year because of the budget moving forward. Is that correct? There could be a once-off gain by moving the budget forward but it may not be seen in the current budget estimates.
Kevin Humphreys (Dublin South East, Labour)
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If the financial regulation is moved on 15 October with the result, for example, that there is an increase in VAT or excise duties, then there could possibly be a once-off gain in this year's budget. Is that the case?
Kevin Humphreys (Dublin South East, Labour)
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Normally excise matters are agreed for 15 October and therefore there is a possibility of it.
Kevin Humphreys (Dublin South East, Labour)
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Ms Campbell gave the committee figures on the multi-annual financial framework, MFF, the PEACE programme and the Border, midlands and west, BMW, funding, all of which are positive figures. There is the Leader programme and so on as well. There are particular areas where there is economic disadvantage and there is social infrastructure funding available under these programmes. I raised this matter previously with the Minister for Public Expenditure and Reform, Deputy Howlin. He mentioned that it was a possibility during the negotiations to bring in some funding for urban areas under the social infrastructure element. Was that dealt with at any stage in the process?
Ms Niamh Campbell:
The MFF relates to over-arching amounts. What Deputy Humphreys is referring to comes under the broad heading of the Cohesion Fund. That is part of the sectoral negotiations and we are not dealing with that. It is a matter for the Department of Public Expenditure and Reform but we can get the information and send it to the committee.
Kevin Humphreys (Dublin South East, Labour)
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I appreciate that. I wish to be very precise. Under the various programmes that come through there is money for social infrastructure in rural areas through the Leader programme, the CAP, BMW regional funding and the PEACE programme, but there is nothing for urban areas, although the indicators on social disadvantage are the same if not higher. Anyway, no money whatsoever is coming into urban areas. Will the Department examine that and provide me with the figures?
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I welcome the officials to the committee. I will echo Deputy Donnelly by saying it is a pleasure to meet the real Government, the power behind the throne.
Liam Twomey (Wexford, Fine Gael)
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Mind your manners.
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I hope the officials can give us some insight on some of the big issues facing us. We are being told there is progress being made on the banking resolution regime. When did the big shift in policy take place? From my point of view it seems to have happened as a result of what occurred in Cyprus when the initial move to raid the savings of people with under €100,000, which had been put forward by the EU, was defeated because of popular protests. Then, there was a shift to a new approach whereby bondholders could be burned and depositors with over €100,000 hit. Now, a new policy has emerged on foot of that which proposes to deal with banking crises in a very different way. It is a progressive shift but it seems to date to that moment. Is that a fair assessment of the new shift in policy when it comes to dealing with banking crises?
Mr. Aidan Carrigan:
It is probably not a totally fair assessment. The fact is that the resolution proposal has been on the table for some time. It had been on the table and technically worked on throughout the Cyprus Presidency. The whole area of the bail-in, resolution funding and bank resolution has been on the European agenda. It goes back to the Heads of State statement which referred to banking union as an integral part of economic and monetary union. Resolution had been a key element of that banking union proposal. The reality is the situation in Cyprus, to which the Deputy referred, caused more attention to be focused on the elements of the bail-in and how they interact, but it was on the agenda for assessment by Ministers in any event. It was a live issue under examination at the time.
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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Can Mr. Carrigan be more specific? Naturally, banking resolution has been on the agenda for some time. However, something fundamental occurred which coincided with events in Cyprus. The European authorities' first reaction to that crisis was essentially to pursue what the Government has pursued hitherto in Ireland and elsewhere which was to say that we cannot burn senior bondholders. Then, lo and behold, within three days of protests the issue of burning senior bondholders came on the agenda and was accepted and agreed. Now, we seem to be discussing a banking resolution regime which is rather different and under which it is possible to burn senior bondholders, something we had been told for the past four years was not possible. My question is not about whether there was a proposal to have a new banking resolution regime - I know there was - but about the shift in terms of what that banking resolution regime would be and whether it would and could involve the burning of senior bondholders. That is what I am asking. When did that come out?
Mr. Aidan Carrigan:
What the Deputy is referring to as burning senior bondholders is technically referred to as the bail-in arrangements.
The bail-in has been an integral part of the resolution proposal since it was published well in advance of what happened in Cyprus. It was part of the agenda for the resolution-----
11:25 am
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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If that was the case, does Mr. Carrigan know why the Commission's first proposal to deal with the crisis was to state it needed to protect the senior bondholders and that ordinary savers had to take the brunt, a policy which then shifted? I would like to know about the process that led to the shift in policy.
Peter Mathews (Dublin South, Fine Gael)
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That is where Ireland was wrecked.
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I will not pursue the issue any further because time is short, except to say statements came not from the Cypriot Government but other EU member states, including our own Minister for Finance, that the initial proposal was good for Cyprus and Europe. That does not quite tally with Mr. Carrigan's account. Given that there has been a change of policy, whenever it dates from, on how to approach banking crises, how far have we progressed in our attempt to secure retrospective recapitalisation of the banks through the ESM or some other EU mechanism?
Mr. Fergal Ó Brolcháin:
I am covering them for this committee. The ESM's direct bank recapitalisation instrument is still being considered at technical, senior official and ministerial levels. The euro area Heads of State and Government issued a statement on 29 June 2012 referring to the need to break the vicious circle of bank and sovereign debt. That work is continuing. In December the euro area Heads of State and Government mandated Ministers to produce a result by June. Work is continuing with a view to meeting that deadline. There are several issues to be considered, one of which is the extent to which there would be scope for retrospective recapitalisation in our case, with specific reference to our circumstances. These discussions are continuing and have not concluded. The Irish officials and Ministers are pursuing the Irish position, but other member states have other positions on what should happen.
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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Will Mr. Ó Brolcháin elaborate on the obstacles involved? We know what we are told we are looking for; therefore, what is the reason for the hold-up? Is it a legal or a political matter?
Mr. Fergal Ó Brolcháin:
It is political. There are several concerns. The ESM was established with a lending capacity of €500 billion in total. It was aimed at several elements, one of which was to provide stability support for member states; another was to provide help in the recapitalisation of financial institutions. It is all set out in the ESM treaty. One of the issues is ensuring the capacity of the ESM is maintained and that it is not pre-empted by one particular instrument. The other concern is the scope of retrospection or retroactive recapitalisation. Our position is that the viable banks should be eligible for recapitalisation. I cannot speak for other countries in terms of what their positions would be. It would not be appropriate to speculate on it. Their concern may have to do with the size of any such liability.
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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The theme of the Irish Presidency has been stability, growth and jobs. Reading the dossiers to which the delegates refer in their introduction and hearing their comments today and the Minister’s comments yesterday, most of them seem to relate to what is called financial stability, banking union, supervision, economic surveillance and so on. Will they be more specific about where we are pursuing the latter two priorities of the Presidency, jobs and growth? What exactly have we discussed with our European partners in these two areas?
When we talk about the metrics of economic surveillance – I tried to make this point to the Minister yesterday – is unemployment examined, or is it all about deficits, debts and the so-called stability of the financial sector? Are there metrics to do with unemployment or employment levels when we are pursuing the jobs and growth agenda? It is talked about, but I cannot see much hard evidence that it is being taken seriously as an agenda item at these various gatherings.
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I am talking about the European Presidency.
Mr. Aidan Carrigan:
The Minister for Jobs, Enterprise and Innovation, as President of the Council, deals with jobs and enterprise policy. Our role is to deal with the financial sector, budgeting and providing the necessary foundations for growth. It is clearly understood and accepted that many of the problems and crises we have experienced in recent years and the resulting job losses stem from the collapse of the financial sector which fed through to the collapse of construction and various other sectors. Our key objective in the Presidency is to put in place a sound financial sector which can underpin future economic growth and provide the necessary lending for SMEs and provide stability in the financial sector which will oil the engine of economic growth and drive that agenda forward. The targets for job creation and so on are a matter for the Minister for Jobs, Enterprise and Innovation.
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I want to tease out this issue briefly. I understand the Minister for Jobs, Enterprise and Innovation is supposed to come up with specific concrete proposals about how we might create jobs, but that is not what I am asking about. I am asking about unemployment and employment as a macroeconomic category, as a metric by which to measure the viability and health of the economy overall. Is that not a key metric in examining whether the medicine is working, whether the surveillance and macroeconomic oversight are working? Is Mr. Carrigan telling us the process is concerned only with supervision and the stability of the banks?
11:35 am
Mr. Tony Gallagher:
I referred earlier in my comments to 11 indicators under the macroeconomic and balances procedure. The unemployment rate is one of those. Every year each member state’s unemployment rate is looked at and the Commission will then, if it deems it necessary, make recommendations as to how the problem could be addressed. Also, the Europe 2020 strategy has a key objective, namely, the achievement of a high employment rate for people in prime age categories, that is, aged 20 to 64 or 75% of those in employment. The major focus of the EU semester is on achieving enhanced employment growth and, therefore, reducing unemployment.
Liam Twomey (Wexford, Fine Gael)
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Does Deputy Mathews have a short question?
Peter Mathews (Dublin South, Fine Gael)
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I do. I would like to pick up on something Mr. Carrigan said. It is now acknowledged across the eurozone that the financial system buckled and remains very fragile and loose around the joints. It is like a cardiovascular system. The real economy of Europe, including businesses, SMEs, households and all the rest, cannot breathe, exercise and create economic growth unless the cardiovascular system is working. The system has been fast-tracked to deal with banking resolution, supervision and other such matters. There is a word-play involved. When one hears of the ESM being available to recapitalise banks, as if they need cortisone injections or steroids, the question arises as to whether retrospective capitalisation can be done.
Nobody abroad understands our system because the message has not been explained. Our banks were all bust, and resolution rather than recapitalisation was involved. The promissory note was the creation of an asset that the people of Ireland underwrote to stick into a dead bank to enable the euro system to get money into it to repay bonds. That message is only slightly understood here and there. There is a moral imperative for the euro system to somehow devise a retrospective resolution for our banks.
It is not recapitalisation in the sense that Spanish banks are stumbling along and need some cortisone in the form of €100 billion. We can safely say they need €500 billion because when bankers say they have a problem, history has shown the figures must be multiplied by five to get somewhere into the territory of the truth. We should talk to Europe in the language used across the dinner table because that is what gets effected. Pensions have been hammered. We heard that in IBRC, a €400,000 deposit owned by a pension fund will be eviscerated by the resolution process.
It comes down to real lives and businesses. We have to snap out of the theoretical, abstract and hypothetical language of papers and considerations, and get down to the real measurement of what is at stake and where. SMEs have too much historical debt. They are smothered in it. Fiona Muldoon said €25 billion in loans is impaired and distressed and needs to be dealt with surgically. If one had a body with a gangrenous limb, it would be cut out. One would not keep putting ointment on it and see how it is after five or seven years, as the insolvency regime does. That is not the way to solve the problem. If Dunnes Stores or another firm bought in bad stock which the market would not take, there would be no point in feeding it in at 10% a year over the next five years to see whether the market would take it. That is how the drip-feed method of dealing with bad debts in banks operates.
The banks need a good injection of capital. Waiting to see how PCAR 3 goes is not the right approach. PCAR 1 and 2 were wrong. PCAR 3 should not engage in a cosmetic exercise, rather it should get into the banks’ balance sheets, look at the loans and do whatever it takes. Retired people from the banks, who understand how to do cashflow calculations, should be employed. Such calculations are straightforward; they are not rocket science. We can find out what needs to be written off.
Liam Twomey (Wexford, Fine Gael)
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I thank Deputy Mathews. Deputy Donnelly had a couple of questions.
Mr. Tony Gallagher:
They cover EU countries. In terms of the procedure, two countries, Spain and Slovenia, were selected for special attention and happened to be in the euro area. That process is still in train. The in-depth reviews will be reflected in the country-specific recommendations for member states at the end of this month.
I wish to clarify two matters. The Deputy raised the question of local authority budgets. I can confirm that, under the two pack, all budgets, local and central, must be published by 15 October.
The second point concerns a situation where the Commission considers that a draft budgetary plan is problematic. It reverts to the member state within two weeks to make revisions to the plan. However, the Commission cannot change draft budgetary plans, although it will publish its opinion.
Deputy Stephen Donnelly:
I understand Deputy Humphreys asked about local budgets. I will pass the information on.
I have another point of clarification. On the retrospective recapitalisation by the ESM, it was mentioned it was only for sustainable or viable banks. The Irish position is that retrospective recapitalisation was sought. Am I right in thinking that we are explicitly not looking for retrospective recapitalisation for the public moneys used to recapitalise Anglo Irish Bank and Irish Nationwide? If that is true, why is that the case?
Mr. Fergal Ó Brolcháin:
In the case of retrospective recapitalisation for viable banks, the definition would not cover those the Deputy mentioned. As to why that is the case, I understand it is a question of what it is possible to achieve. Keeping the IBRC institutions in the process would damage the prospect of any retrospective recapitalisation.
Liam Twomey (Wexford, Fine Gael)
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There is a vote in the Dáil. I ask Deputy Boyd Barrett to be brief.
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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Is unemployment one of the 11 metrics by which we judge the economic imbalances in economies?
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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Is there any indication on the basis of Britain’s challenge to the FTT?
The UK is now taking a legal challenge to stop 11 other countries doing it, which indicates that it is worried that the FTT might adversely affect it. This seems to suggest the opposite view from the UK about what the FTT might do.
11:45 am
Liam Twomey (Wexford, Fine Gael)
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I should adjourn the meeting as there is a vote in the Dáil. I apologise to the Deputy.
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I thank the witnesses.
Liam Twomey (Wexford, Fine Gael)
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I thank the witnesses for attending. We really appreciate it. It could have gone on a bit longer. I thank Mr. Carrigan and everyone else who gave their time to be here with us today.