Oireachtas Joint and Select Committees

Thursday, 23 January 2014

Joint Oireachtas Committee on European Union Affairs

Role of National Parliaments in European Semester and Annual Growth Survey 2014: Secretary General of European Commission

10:00 am

Photo of Dominic HanniganDominic Hannigan (Meath East, Labour)
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I remind members to switch off their mobile phones. It is not sufficient to leave them in silent mode; they must be switched off or they will interfere with the broadcasting equipment. This includes iPads.
On behalf of the joint committee, I welcome Ms Catherine Day, Secretary General of the European Commission. I thank her for coming before the committee to discuss the role of national parliaments in the European semester process and the annual growth survey 2014. She was born in Dublin and has worked at the European Commission since 1979. During a very successful career she has covered the full spectrum of European policy areas. This meeting will give her the opportunity to elaborate on the role of national parliaments, particularly those of the euro area countries. We must now formulate our economic policy in co-ordination with other European Union countries and no longer in complete isolation. This has the potential to create complete economic union and it includes the annual European process for economic policy consideration and governance. This meeting gives us an opportunity to speak to Ms Day and ask her for her views on the European semester process, how it has worked to date and what changes she expects to see in the near future.
I remind members of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official either by name or in such a way as to make him or her identifiable. By virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to the committee. However, if they are directed by it to cease giving evidence on a particular subject and continue to so do, they are entitled thereafter only to qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person or an entity by name or in such a way as to make him, her or it identifiable.

Ms Catherine Day:

It is a pleasure to have an opportunity to engage in this exchange of views. I wish to set out and follow very much the structure the Chairman has outlined, but before I do so, I will set the scene. I will be very happy to engage in a discussion afterwards, including on topics I have not raised which might be of interest to committee members.

It is always a good practice at the start of a new year to take stock and see what is coming down the track. This will be a year of big political change throughout the European Union. We will have a new Commission, Parliament and President of the European Council. We will have many new officeholders who will be in charge of driving the Union forward. They will face a number of big challenges and probably the most immediate is how to sustain growth. A fragile recovery is under way and we must consider how to underpin and strengthen it.

The topic on which I wish to spend most time today is how to get more national ownership of the new economic governance process the European Union has put in place. As the Chairman stated, those of us with the euro as our common currency must share decision-making in the future; therefore, how can we get more national ownership?

Another big issue on the agenda for the new officeholders to whom I referred will be the particular matters of relations with the United Kingdom and the wider debate about subsidiarity and where the European Union should be involved. This will be very much at the centre of the agenda. I hope that as we put the crisis behind us, the European Union can also look at the wider world, having inevitably had a very internal focus during the years of the crisis. Committee members know we are engaged in very big and exciting trade negotiations with the United States and other partners. I hope that in the next five years our agenda will include a much wider look at the world.

I congratulate Ireland which had a very successful Presidency in the first half of last year and a successful exit from the programme at the end of last year. In European terms, 2013 was certainly a good story for Ireland. I want to consider what exiting from the programme means. It still means major engagement with European partners. We certainly draw the lesson from the crisis that one cannot have a common currency without much closer co-ordination of policy. During the crisis years we were trying to put in place instruments which would allow us to work more closely together. These go from building up funds to help member states in difficulty to having regular surveillance to avoid problems starting in the first place. To use the inevitable Brussels jargon, we want to put more emphasis on the preventive than the corrective.

In the heat of the crisis many necessary decisions were taken, but they were quite complex. What we are now trying to do is to explain better to people what is behind all the legal jargon and what it means. I like to explain it in terms of an annual health check. When one goes for an annual check-up, one undergoes many different tests. At a certain point one sits down with the doctor who interprets the results and gives guidance. The guidance could be that one should take more exercise or lose some weight, or that one has serious problems that must be acted on immediately. Often it is not just a one-to-one exercise between the person and the doctor; it is also the person and the family. Similarly, with regard to European economic governance, it is about doing the tests on how the economies are doing - sitting down, first, with the Commission, who interprets the tests and makes recommendations, but then discussing with the family of the other member states, particularly those who are in the euro, what has to happen in the coming years. That is a very simplistic way of describing what is very complicated and very calibrated. There are different rules for the euro and non-euro areas and for countries in severe difficulty, countries with not too many problems and a whole range in between. Basically, it is about making sure that in the future we are aware of problems as they emerge and that we intervene long before the problems get to the scale of what we have been dealing with in recent years.

For me one of the most important moments of the cycle is in May. This is when, once a year, the Commission sits down with all the analyses, looks at the results of the different tests and gives an opinion on where we see a member state in relation to where it has agreed it should be, and the Commission makes recommendations. Just as in the annual health check, one can ignore the doctor's advice, but then there are consequences. In the European system there are sanctions and fines if countries repeatedly ignore recommendations that have been decided together. Long before the European system gets to apportion consequences, as we have seen in the crisis, the markets judge very quickly. If they do not think a country's economic policy is credible there is a fairly savage and immediate reaction long before the processes in Brussels get to conclude that a country is out of line. Part of all of this process is about transparency; it is about putting the data out there and collectively drawing the conclusions.

We are in the European semester, the first half of the year. This is the fourth time we have done it. We have now reached a good working partnership with the member states, also involving the European Parliament and the national parliament. I would like to provide one chart which shows a summary of the year and what happens. I hope this is a reasonably accessible summary of what happens at different points in the year. It is clear from the chart what the Commission does in the different months, what the European Council and the Council do, what the member states do and what the European Parliament does, including when it works with national parliaments.

The role of national parliaments is very important for us because we would like to have all of this discussed nationally in order that one gets the buy-in, that people do not see all of this economic governance as being decided far away in Brussels and imposed on member states but rather that it is a participatory process. Certain things are decided nationally and certain things are decided collectively in the European Union. The involvement of national parliaments varies from one country to another but national parliaments vote on national budgets, as members will be aware, because Ireland also had to change the timing of its national budget as a result of things that were agreed at European level. From now on, the Commission issues opinions on draft budgetary plans in November of each year and then makes recommendations the following year based on that. We have all aligned a cycle of when we take decisions so that we can then draw conclusions together. All of this needs to be not only debated nationally but explained nationally in terms of the positive effects of taking economic policy decisions together, and we also have to be open about the constraints that go with the benefits of belonging to a common currency area.

All of this is about organising a process so that political-level decisions can be taken based on the soundest possible economic analysis. That is why all of the euro member states have agreed to set up independent fiscal authorities so that the members are detached from policy making in order that the sound basis is there for everyone to see. It is why the euro area countries have now enshrined a debt brake in their national legislation but it is also why the Commission is making a particular effort to provide much more information to national parliaments. As members are aware, there is not only the willingness of commissioners to come to national parliaments but also the possibility for national parliaments to call the economics Commissioner to appear before them if they want to debate the policy decisions that are being made.

I will make two final points. We are working to step up our interaction with national parliaments. In our representations - Barbara Nolan is our head of representation here - in all the non-programme countries, of which Ireland is one, we will have two dedicated European semester officers. Their job will be to reach out to national parliaments and stakeholders such as the social partners and provide a two-way channel, passing information on each country to the Commission and then being available to give briefings on how the Commission is thinking and what is the import of decisions either taken or to come. I would encourage the committee, once these officers are appointed in Dublin, to make use of them as a link between the European and national levels.

Finally, I wish to make a request. The committee is aware that Europe has a growth and jobs strategy, which we call Europe 2020. We will be reviewing it this year and will then launch a public consultation to run between April and the autumn. It is about gathering the input to design the post-crisis growth strategy for the European Union. Nobody is better placed to respond than Ireland - having just come through a most difficult time, having successfully exited from the programme and having lots of ideas about where growth should come from - so I would like to see a solid and strong input from Ireland. I give the committee advance notice that the invitation will come, but I hope it can be taken up, including by the Oireachtas. This is an opportunity to influence European policy. As a country that has been through much in recent years, Ireland has a particular take on it. I hope we can get a very strong input from Ireland.

Photo of Dominic HanniganDominic Hannigan (Meath East, Labour)
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I thank Ms Day for her comments. She mentioned the country-specific recommendations. As Ms Day is aware, up to now Ireland's only recommendation has been to carry out the programme. It is a one-line recommendation. This is going to be the first year in which we will have some meat on the bones of that recommendation. I am wondering how that will be received by the Irish public because, as Ms Day said, there is probably a lack of awareness with regard to the semester. Everyone is aware that the bailout has finished and that we have seen the end of the troika, but the danger is that the country-specific recommendations might be seen as more diktats from Brussels. Of course that is not the case, but the fact that the semester has not been communicated sufficiently to date might play a part in that. Perhaps Ms Day would tell the committee how they have been received in other countries to date? Has there been much coverage of them when they have been published and what has been the reaction?

Ms Catherine Day:

I hope that meetings such as this and other meetings that are planned will help to create an understanding of the semester. The semester is the normal way that Europe does business. The programme is an extraordinary response to an extraordinary situation. Ireland is now back in the normal mainstream but because we are in a common currency area and as we have seen during the crisis, the decisions taken in one country have a direct and sometimes very damaging effect on another.

The norm will be that countries in the euro area will pool their decision-making much more tightly. The members are correct to ask what is happening in other countries and we have had some very interesting debates. All of this is evolving. I have said this is the fourth time we have been doing what I have described and we have gradually developed a better way of interacting with member states. The chart I have to hand shows that three times a year we have a bilateral meeting with the member state to avoid surprises. We should be sharing our analysis and examining last year's recommendations and discussing with member states what they have implemented, why they have not implemented certain measures and whether they have done certain things in a different way.

Our approach has given rise to quite a lot of discussion in various member states. Let me give the committee two examples. Two years ago we recommended to Belgium and Luxembourg that they take another look at their wage indexation systems. We felt they were very rigid and causing them to lose competitiveness, both inside the European Union and internationally. Their first reaction was that their systems were part of their way of working based on social partnership and they questioned why the Commission should be telling them why they should revisit their systems. However, the fact that the Commission had put the spotlight on this matter led to a year-long debate, particularly in Belgium. Instead of just assuming its system was a natural part of the landscape, Belgium started to examine why the Commission was focusing on the matter. The Belgians, in acknowledging they had a competitiveness problem, asked whether the indexation system was a part of it. At the end of the year the Belgian authorities did not completely follow the Commission’s recommendation but came up with changes to the system that took away the problem about which we were worried. They found a way of keeping the structure overall, while tackling the competitiveness problem. In such cases there is a movement from a position in which countries ask why the Commission is picking on a certain subject to having a debate. This leads to an understanding of why the Commission adopted its position and a realisation that the matter needs to be addressed.

This year the Commission decided it would carry out an in-depth review of Germany. When we decided to do so, there was much comment in the German press questioning whether the Commission had gone mad. Considering that Germany has a strong economy and not had problems, it was asked whether the Commission wanted to make Germany less competitive because other member states were less competitive. It was asked whether the Commission was trying to drag Germany down. This was not the case at all. We wanted a serious analysis of the consequences for a country like Germany of having a big surplus. Of course, it is more comfortable to have a budgetary surplus than a budgetary deficit, but we asked what the right policies would be for Germany as a country and also for Germany as the leading economy in the eurozone. Is there a way in which Germany can craft its future economic policies so as to have a positive spillover for other member states and avoid negative spillovers? There was a big debate in the German press for two or three weeks and many eminent German economists argued different points. Very quickly, however, an awareness developed to the effect that the Commission had a point and that Germany had to have the debate.

These are just two very concrete examples of how our approach works, although it may not be immediately obvious. The way we are working together is helping member states to focus on issues on which they need to focus. We wanted to use our approach more to help member states to tackle together issues that they would face such as raising the retirement age. If every country has to do it, why do we not discuss it and determine where there is best practice? We must ask whether it is easier for countries in a currency union to make moves together rather than alone?

10:10 am

Photo of Dominic HanniganDominic Hannigan (Meath East, Labour)
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I welcome Ms Barbara Nolan who has appeared before the committee on many occasions. It is nice to see her again.

Photo of Dara MurphyDara Murphy (Cork North Central, Fine Gael)
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I welcome Ms Day and Ms Nolan.

I have three questions. Ms Day's chart on the European semester or European economic timetable is very helpful. "Semester" is a new word that we will have to add to our vocabulary. The process seems to focus very much on draft budgets. The final part is the budget. Is the process out of sync with our system in Ireland? In other countries such as Sweden the budget is the final point of discussion. This poses a question for our committee structure in the Oireachtas. The committees abroad scrutinise the draft measures as part of their European scrutiny process, whereas in Ireland the budget is the starting point. Then, when it is almost too late, we engage our committees. Do we need to change? I am reasonably sure the Government is open to it.

With regard to the country-specific recommendations, in the past the Commission and the European Union – I am thinking of the Stability and Growth Pact – did not really have the necessary power to face down the bigger countries such as Germany and France. To what extent are they now in a better position? Particularly given some of the political commentary from the United Kingdom, perhaps difficulties of the French President and the fact that the Germans are still holding the purse strings of Europe, will the Commission apply the same rules and criteria to the bigger countries? If so, is it now in a better position to achieve what it wants?

This week a number of us were at the European Parliamentary Week events and we came back last night on the same aeroplane. We hear a lot about democratic legitimacy and jobs. We have an elected national parliament and the elected European Parliament. The Commission clearly has a difficult job to do. Ms Day states there will be consequences if its recommendations are not implemented. Does she believe the Commission has sufficient democratic legitimacy? It is the European Central Bank and the Commission that people talk about when they talk about a lack of democratic accountability. How could it be improved if it needs to be improved at all? How can the Commission's role within the democratic system be better explained to ordinary Europeans?

Photo of Timmy DooleyTimmy Dooley (Clare, Fianna Fail)
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I welcome Ms Day and also Ms Nolan, whom we meet regularly and who keeps us well briefed on what the Commission is doing.

Ms Day talked a little about the importance of engagement with national parliaments and encouraging debate in this regard. From an Irish citizen's perspective, it is always helpful if there is visibility or acceptance that the Commission is doing what we believe is good for us as citizens. To that end, could I have Ms Day's view on how she envisages the Commission re-emerging? Throughout the crisis it was largely sidelined. We witnessed the spectacle of France and Germany taking an exceptionally hands-on approach to dealing with the crisis. However, I do not want to go back over that issue. Does Ms Day envisage the Commission re-emerging and taking its place as it should in the overall architecture of the institutions?

From a strictly Irish point of view, can Ms Day give us some visibility on how quickly she believes banking union will be achieved? Perhaps my next question is a political one that Ms Day will not want to answer. Does she believe the completion of the banking union process will ultimately lead to Ireland being in a position to draw down funding from the ESM associated with the legacy investment in our pillar banks?

Photo of Catherine NooneCatherine Noone (Fine Gael)
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I welcome Ms Day and Ms Nolan and thank them for their presentation. Ms Day mentioned policies that countries might tackle together. I have been doing a little work on the issue of youth unemployment. Is Ms Day aware of any strategic approach to tackling youth unemployment and unemployment generally? Deputy Timmy Dooley spoke about the crisis, to which youth unemployment at a European level is related.

Ms Day mentioned the retirement age. This is relevant to all member states but some much more than others.

While it is a huge question, I am interested in hearing a brief outline of Ms Day's views on the scrutiny of European Union legislation by different member states. I believe Ireland is under-performing in that regard and while there are many different views and approaches, Ms Day might comment briefly on how Ireland might improve its performance.

10:20 am

Ms Catherine Day:

I thank members for some very interesting questions. First, on the discussion of the draft budget and the reason member states in the euro area have agreed that the Commission will look at their draft budgets, it is to make sure that at a stage when the member state in question can still change and the Commission still can have an influence, the budget is on track. This is because in all the different processes, there are pathways to arriving, hopefully, to the steady state. It is important that before budgets are decided, governments know whether, in the Commission's opinion, they are on-track or off-track, in order that it does not happen too late when all the negotiations are done and a decision must be taken. Consequently, we do not judge the quality of the policy at the stage when we consider the draft budget. We look more at whether it is well constructed or meets the essential criteria. We then look at the choices that are made in the May moment to which I refer. I honestly think it is for every member state to figure out what works best for it. I mentioned Ireland being obliged to move forward to October with the adoption of the draft budget. This was because Ireland and a few other countries had a different cycle from most of the other member states but that is a one-off change and now it will happen every October. Countries are so different and organise themselves so differently that the Commission has this single moment when we must look at all the budgets because we must also compare them. However, the question of how parliaments and governments organise themselves to get there is not really our business. That they be at the point of rendezvous with the right material is where we bow out.

The question about the big and small member states is really valid. I am absolutely categoric in stating that if the Commission does not apply the rules equally to all member states, we are not doing our job and there is no hope that any system like this will work. It is very important that the big member states submit themselves to the same discipline as everyone else and that they follow the approach. This has not always been the case, and if one goes back to 2003 or 2004 one will see that France and Germany basically agreed to ignore the Stability and Growth Pact and the seeds of some of the problems we have seen since were sown at that point. What is different now is that the enormity of the crisis has made member states realise that being in a common currency requires a different governance system and that all member states must be part of it. Consequently, I do not envisage any member states challenging the system or challenging the role it has asked the Commission to play. While challenging the interpretation of the facts, the recommendations, etc., is a different matter, no member state now is stating it does not wish to be part of this or will not implement it. Legally, the member states have committed themselves to consequences. We hope we do not get into this territory but if a member state was to ignore systematically both the recommendations of the Commission and the decisions of the Council, as I stated, there now are fines and sanctions as part of the system. We hope they are the kind of deterrent that must exist on paper in order that the system has teeth, but that in member states' own interests, they would realise the need to take action long before getting to that situation. The Commission is not only legally permitted to so do but sees this issue in exactly the same way as does the Deputy - that is, how can one have rules that only apply to some member states, as they must be applied to all. While I do not wish to draw a direct comparison now, my explanation a moment ago about Germany and the in-depth review is a clear illustration of the rules applying to everyone. Moreover, the trigger points in the system now are so transparent that everyone can hold the Commission to account as well. However, the political determination to be even-handed across the member states is very strong.

On the question of democratic legitimacy, there always is room for improvement. However, it is very important that through members of this committee, we make clear to people that the Commission does not decide anything. The Commission makes proposals and has a very strong power of persuasion. It has a very good analytical capacity but everything we recommend goes to Ministers to be decided. Consequently, it is democratically decided by Ministers who were elected by each member state. Sometimes it is convenient to give the impression that it is the nasty Commission that takes all the tough decisions, but really, as members are aware, the decisions are taken by Ministers and, in deciding the framework legislation, with the Parliament. It can always be improved, and that is the reason the Commission is making a big effort to staff up its representations to be good links between the different capitals and the decision-making machinery in Brussels. It also is the reason Commissioners are stepping up their visits to national parliaments. It also is the reason the Commission would like to have more input from national parliaments.

Perhaps I will jump to the question about what can be done on the scrutiny of European Union legislation. What we have seen, after an initial enthusiasm from national parliaments about getting all of the Commission proposals in draft, is that most national parliaments are swamped. My main piece of advice is that, somehow or other, each national parliament must find a way to choose the priorities on which it will concentrate. Members are aware that all European legislation starts with a Commission proposal. Moreover, a lot of European policy proposals also start in the Commission. We publish our work programme each year and publish what we call roadmaps, which are a first analysis of problems on which we are working, thereby giving an indication that there may be proposals coming down the track. It is a question of organising with the secretariats what are the next things on which members will focus that really matter in the national context and then developing on that, rather than trying to cover everything. The European Union is involved in so many things and there is so much going on at the same time that it is not possible. However, I think it is very important to be selective.

Photo of Catherine NooneCatherine Noone (Fine Gael)
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I should have mentioned that there was much talk about the Seanad being a home for the discussion of such matters I suppose one must be careful about what one wishes for, because the detail contained in some of this legislation could have all Seanad Members in the House for five days a week until 9 p.m. Does Ms Day have a view in this regard?

Ms Catherine Day:

Because we are sophisticated countries and economies dealing with highly complex problems, inevitably the detail of the policy-making is highly technical. However, I think we have become lost in the fog of the technical issues and have failed to explain to people in clearer terms the reason we are doing all of this. Why does it matter, for example, if a country's national budget is out of line or it is doing things that are harmful to the neighbours? Everyone can understand that is not a good situation in which to be, but we do not manage to describe it in that way. I really think this is where the national parliaments have a role, which in a way is to be a transformative body that has the capacity to understand and follow the technical stuff but then has the capacity to explain to the man or woman in the street the reason we are doing this and not, as we tend to respond from Brussels, with an outpouring of alphabet soup jargon and technicalities of process. While that is necessary to deliver the results, we should be explaining the issues on which we are working. That is where we really-----

Photo of Dominic HanniganDominic Hannigan (Meath East, Labour)
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Yes, phrases such as the six-pack or the two-pack simply go over people's heads.

Ms Catherine Day:

Exactly. But of course it is shorthand for those who are insiders and if one can say three pieces of jargon, it is much quicker then saying three sentences. However, we are failing because we then look like an impenetrable bureaucratic labyrinth, which we are not. I hope those members who travel to Brussels would agree the institutions actually are fairly open. However, we are somewhat handicapped by being multinational and multilingual, which is also a bit of a problem. While we then manage to agree on corruptions of different languages to speak a secret code that we understand, we have lost the ability to speak directly, clearly and simply to people. I believe national parliaments can play that role in between.

Photo of Seán KyneSeán Kyne (Galway West, Fine Gael)
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I welcome Ms Catherine Day and Ms Barbara Nolan before the joint committee and have a few questions. What has the Commission learned in respect of the European semester process over the three years? Is an ongoing fine-tuning of the system under way? Second, on the country-specific recommendations, has the Commission made recommendations in the past regarding the banking sector, which obviously had a huge role to play in the economic problems experienced across Europe in recent years? Stress-testing is under way; has it been part of the process?

Regarding Ms Day's comments that the markets have been judging the problems in the European processes, does she believe the markets are likely to be less jittery because of the European Semester, the processes put in place and the fact that countries will get used to those?

Ms Day commented earlier that the Irish people passed the stability treaty in 2012 and accepted the rules and regulations. Some people may be surprised by that. People like to know that countries have to adhere to rules and that we cannot have the runaway budgets we had in the past. That would be a common view across Europe.

10:30 am

Photo of Eric ByrneEric Byrne (Dublin South Central, Labour)
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Language is important. I was here before Ms Day arrived and I asked my colleagues jokingly the definition of a semester. In my innocence I understood it to be some sort of programme for American students on semester here for the summer. Ms Day said that as parliamentarians, our duty will be to demystify the work of the European Commission, explain the meaning of "semester" and so on. She will understand the implications of the rather unsatisfactory term "six-pack". People here know the meaning of the term "six-pack" but they do not know it in the context of the European Union. I am on a learning stream and I thank Ms Day because I am learning while listening to her.

I have a couple of questions. I have been reading the annual growth survey that identifies five or six key areas including unemployment, etc. but I am mystified, and Ms Day might explain it, about the term "reforming public administration". If public administration is being reformed I presume it is being reformed for some reason. Is it that Ms Day believes they are all inefficient? Does she want a structure put in place as a result of the reform? In other words, what reforms does she seek to accomplish the outcome?

The 2014 alert mechanism report concludes that 16 member states, which is more than half, may require an in-depth review. Will Ireland be part of this, making it 17 member states? I am trying to come to terms with the work of Ms Day's institution. It is processing preliminary draft budgets of 28 countries. Does her organisation have an army working for it that can carry out these close-up studies of 16 or 17 member states?

Ms Day said she had a very good analytical capacity but is an analytical capacity of itself the way to resolve issues? I am a little nervous of academics and people with analytical minds imposing their economic concepts on a nation that is dealing with a range of diverse social and economic difficulties. I encourage Ms Day to continue the good job she is doing but for us to explain her work and objectives to the public requires us to first understand it ourselves.

Photo of Seán CroweSeán Crowe (Dublin South West, Sinn Fein)
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Ms Day spoke about the fragile economy behind all the jargon and what it means for ordinary people. It is not the first time she will have heard this but there is a sense among many people I meet, and it is probably a view across Europe, that the members of the Commission, the Council and those who pull the strings in Europe have no real understanding of the hardship people are experiencing. I was woken this morning by a phone call from a journalist who told me that a learned judge is calling for the Civil Defence to be brought into my area. The judge is talking in terms of a breakdown in social order, and this is one of his solutions. The area I represent, which is not unique in Ireland or across Europe, has one of the highest unemployment levels in the country. The local hospital is in the news frequently regarding cutbacks and the difficulties they cause. The social services have never been under so much pressure in terms of the number of cases. There is unemployment, poverty and indebtedness. Children are going to bed hungry. That is not unique to my area and it is not unique across Europe. Those are the difficulties in my area and at the same time Ms Day talks about fragile economies. People talk about the potential for growth and so on but many of the people in the difficulties I describe are in the same position they were in three years ago; it has probably got worse. They do not see actions coming from Europe in regard to that.

I read all the background information in which there is a good deal of reference to avoiding boom and bust cycles, and restoring economic growth. All of that is hugely important but there is no mention of equitable growth and poverty reduction. Will the reforms we are discussing investigate that area? Will alert mechanisms be in place when a country posts high growth but an increase in inequality? It is not just a matter of facts and figures; we are talking about real people who are suffering. A figure that struck me was the number of young people leaving Ireland at a rate of one every six minutes. That is the reality with which we are dealing.

Is there any scope for an increase in the lending capacity of the European Investment Bank? Many of us would argue there is a need for a stimulus package and that the EIB should alter its rules to allow it to lend on a 75:25 ratio rather than the current 50:50 ratio. Many people across Europe would see that as a hugely positive development. Someone spoke about youth unemployment, youth investment and so on. To encourage growth investment should be allowed in those areas.

What is the possibility for growth in Ireland and similar countries across the European Union? Our GDP is 120%. I refer to the separation of banking debt and sovereign debt. The retrospective recapitalisation for Ireland was €65 billion, which it pumped into banks, but we are not hearing that. People are saying growth is coming down the track, there is half an agreement in place and so on but people have lost confidence in the entire process. We know about the potential for negative social change. That is happening across Europe with the rise of Fascist parties and so on but there does not seem to be any sense of that. We are not getting that at any of the meetings. Everyone is talking about the positives in regard to it but this is all happening in the areas in which we are living. The judge speaking about my area this morning is a wake-up call but I am sure learned judges across Europe are making the same statements about what is happening socially and so on. Ms Day's message this morning is about giving hope but the message people want to hear is that we will seriously tackle those inequalities and the burden that has been put on the shoulders of people who did not cause this crisis.

Photo of Aideen HaydenAideen Hayden (Labour)
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I welcome Ms Catherine Day and Ms Barbara Nolan to the meeting. I have two questions. There is a good deal of support in Ireland for the idea that we would have more robust monitoring of our economic performance at a European level. There is a much greater realisation in Ireland than perhaps in some of the other countries of the importance of Europe to us into the future and its role. There is also a peculiar dichotomy in the sense that Europe has enlarged spectacularly in recent years but I have a suspicion that if a survey were done in the morning, 90% of Irish people would not be able to name the member states of the European Union. To what extent will that undermine what the Commission and the members states are attempting to achieve in terms of European stability?

The second issue relates to the Commission's role. There is an argument that the Commission, to some extent, as the permanent civil service, is the conscience of the European Union and its job is to see difficulties coming around the track. Does Ms Day feel the Commission has to take responsibility to some extent for the way in which the European roadmap has taken a significant hit, particularly economically, in recent years? What way does she think the Commission in its engagement with the national parliaments should have more of a blue-skies mandate in the sense of future-proofing the Union to an extent? I think, for example, of key issues coming down the track that could significantly undermine Europe’s capacity going forward, such as how the age profile of our population could seriously undermine us in the years ahead.

10:40 am

Photo of Dominic HanniganDominic Hannigan (Meath East, Labour)
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I thank Senator Hayden. I believe Deputy Murphy wishes to speak briefly before we go back to Ms Day.

Photo of Dara MurphyDara Murphy (Cork North Central, Fine Gael)
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I think we are good for time in any event. I wish to return to the process itself and pose another tiny question.

To tease out the matter, in March the Commission will publish the in-depth country reviews and then through the summer in May and June it will propose country-specific recommendations. Shortly after that Ministers will discuss them and then leaders will endorse them. The in-depth reviews will be published publicly. Will the country-specific recommendations be published before they get to be discussed in a closed room by Ministers? It would be interesting to know that from the point of view of accountability. I can see why the doors would be closed on discussions between the time the Ministers discuss matters and EU leaders endorse them. It is quite a protracted annual process and then, in European style, the final bit seems to be very tight.

The Irish in the Commission are, broadly speaking, part of the civil service wing. Are there sufficient Irish people working in the Commission and trying to be part of the European civil service? I see Ms Day shaking her head and therefore assume she will say no. How could we encourage young people who are extremely talented to get involved? It is fair to say that the Irish do very well in large organisations around the world. How could we get the message across that we need more Irish people in the Commission?

Photo of Dominic HanniganDominic Hannigan (Meath East, Labour)
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To follow on from the question about timescales for the semester, does Ms Day foresee any potential difficulties with this year’s timescales given the elections to the European Parliament in May, the new Members, and the changing of the guard in the Commission later in the year? How does she think it will play out? Should we have any concern about timescales? Deputy Murphy and I spent the past couple of days talking to our European colleagues from other national parliaments and the European Parliament at the Article 13 conference during European Parliament week in Brussels. One thing that was clear to us is that the European Parliament itself wants a much larger role in the semester process. That clearly causes potential conflict between national parliaments and the European Parliament. Does Ms Day have any thoughts on how that might be resolved in the coming years?

Ms Catherine Day:

I thank the members again for a very interesting second round of questions. I will try to be more systematic in answering. On the lessons learned, yes, we are learning all the time. First, we have learned that we need more contact throughout the year with member states. We have a lot of contact but we have these three fixed times at key moments in the cycle when we come together with the member states. To invest more in the partnership side of it is important. We have also learned that the Commission needs to have much more country-specific knowledge than was traditionally the case. All departments are now doing that, so that not only are we very good on issues of policy relating to transport or agriculture but we know in detail what it means in country X, Y or Z and we can put the geographic and thematic knowledge together so that we really have a good picture and we understand the specifics for each country.

A third lesson learned is that we have got to strike the right balance, being clear enough that a member state understands what we are trying to get at while not being overly prescriptive, particularly in how they should deliver the result. We should not just say that a country should reform its pension system but say that it needs to align life expectancy with retirement ages, and then member states will find different ways of doing it. Every year we try to be better at that.

Photo of Seán KyneSeán Kyne (Galway West, Fine Gael)
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Are timescales provided for specific recommendations such as the realignment of pensions? I presume it is not required to be done for the next budget. Does one get a number of years to make the change?

Ms Catherine Day:

That is also something we are trying to get better at, together with the member states. If it is a ten-year project, as some of the issues that need to be tackled are, then we must see whether we can work with the member state to have the right kind of plan and see if its plan will deliver in ten years but also to check whether in year three it is ahead of schedule or falling behind and the reasons for that. It is not just a question of what are the obstacles or why a country is off course but what we can do to help. What is necessary is to break plans down into manageable chunks. Sometimes it is very clear and we need to say countries should adopt a law on this or repeal a law on that. That is something one can do in a year. The recommendations tend not to be wildly different from one year to another but from year to year they become more nuanced because, normally speaking, the country is moving through different stages of trying to achieve big and demanding reforms.

We have made recommendations on the banking sector. I have in mind the 2013 round when, for Spain and Slovenia - both countries that have been tackling big problems in the banking sector - there were much more detailed recommendations to them on what they should do than to other countries. For example, we have picked up on the housing market in a number of member states, even in countries such as the Netherlands and Sweden where, again, they did not initially think they had a problem but after much more detailed discussions they recognised that they would have to do certain things because otherwise they might have a problem.

The semester will definitely help with jittery markets. We have all lived through the past few years when a lot of the media predicted the imminent demise of the euro and said that Europe could not do it and was not able to address the issue. We have convincingly demonstrated to the markets that Europe has the political will to keep the euro as a strong currency and the existential question has now been put to one side. We can only be convincing to very hard-headed market analysts because we have good systems in place. They want to see the transparency, the mechanisms that will push constantly for the necessary kind of sound behaviour. That is all part of being more credible in the future.

On the annual growth survey, it is a very good question to ask what we mean by public sector reform. We look at this from a lot of different angles. First, in most European countries we are used to a very big public sector, and this is expensive, so we have to look at whether the public sector is paying its way in terms of the capacity of various economies. Then we look at the performance of the public sector. For example, in some countries there is a very big gap between the theoretical tax take and the actual tax take. One can see in countries such as Greece, where there is a very dramatic difference, that there is an incapacity in the public sector to get in the tax revenue that should be levied by law, but the Government needs to have the income to provide the social services. What we want to do is to look at whether we can help. In the case of Greece one has a number of member states giving their expertise on how to run a modern tax system. My colleagues were telling me recently that one can begin to see a turnaround in the Greek tax collection system. That is just one example.

We would like to push to make public sectors more directly accountable to the citizen. We would also like more electronic means of conducting public sector business such as doing one’s taxes online. This would cut out opportunities for corruption and speed up the process, but it would also mean the citizen could be directly in touch with the public sector. It would also mean that one could enter one’s details once rather than filling in forms duplicating information to cover each government agency or Department.

It is different in member states because each has a different tradition, with some being federal and others highly centralised. We believe, however, that the public sector is not performing as it should over a range of issues. For example, one could point to the quality of education, skills mismatches or, as Deputy Seán Crowe pointed out, how unemployment services are working. In many countries unemployment services are being overhauled to make them more personalised rather than just adopt a mass approach. These are all aspects of public sector reform and we want to look with member states at where they need to improve their performance.

There is also the issue of sharing best practice. Most member states are grappling with variations of similar problems in the public sector. Perhaps groups of member states can share solutions. All the public sector employment agencies work much more closely together. We have developed a Europe-wide job vacancy site, EURES, which has 1 million vacancies on it at any given time. This offers practical help to member states to work better together in the interests of the citizen.

We do not have an army of bureaucrats and we do not need one. We work with member states in trying to use their knowledge and capacity. As our understanding of each member state’s economy is improving year on year, one does not have to go back to the beginning every year. However, member states do not know very much about each other. They might know a little about their immediate neighbours. Accordingly, we are trying to give them a more digestible picture because they now understand that it does matter to them if Greece is off track or there have been developments in Ireland or Spain.

We give member states comparative data which allows them to benchmark themselves. National civil services do not necessarily have all of that information. By producing tables on performance in various areas, we were able to set a benchmark, for example, for the administrative time it takes to set up a small company. The tables showed it should not take more than three days and cost no more than €100. When some member states saw it took them between 75 and 300 days, there was quite a dramatic change and overhauling of their systems.

Members have asked if the European institutions have a heart, understand people are suffering and that there is hardship. Yes, we do and it worries us very much. We are wrestling with what are the right polices to overcome the problems we have. We believe sound public finances and a functioning economy are part of the way out of the crisis. We have proposed more targeted programmes. For example, members will be familiar with the youth guarantee because the Irish EU Presidency helped us to deliver it. That is a practical way of trying to give all young people not in full-time education or employment the opportunity to be taken up by the system and improve their employment chances. In our growth strategy, Europe 2020, we have five target areas on which the European Union should be working. These include increasing participation in the labour market and lifting 20 million people out of poverty. We recognise that while a job is the route out of poverty for many, it is not for everyone. We have to have policies to support and surround this. In the crisis we are not doing very well; that is not a reason to change the target or give up but actually to redouble efforts.

In addition to the hard economic indicators which underpin the semester process, last year the Commission proposed to add a set of social indicators to give a more rounded picture of what growth we wanted to achieve. It is not growth at any price but having inclusive growth. While I know we publish many impenetrable documents, in many of them the concept of fairness is very clearly included. The Commission is worried about growing inequality which we want member states to address. It comes back to my point on taxation. If one does not have a functioning tax collection system, there will always be people who will have to pay and those who will not be able to pay. That is fundamentally unfair. If it is because of inefficient systems, it should be tackled.

The idea of increasing the lending capacity of the European Investment Bank was agreed to a year and a half ago. The bank’s capital was increased by €10 billion which it is reckoned will lead to a roll-out of investment amounting to €180 billion. There is increased activity on the bank’s part. The Commission has come up with more ideas for stimulating lending to small and medium-sized enterprises, but not all of them have been agreed to by member states.

Enlargement has been a phenomenal success and an economic success for the member states which have joined recently. For the older member states, it has been a phenomenal political success to rejoin the Continent. It is very distressing that people do not feel this but instead feel it is putting pressure on the European Union. When we come out of the crisis, we will grow into our new size. I am not sure so many Americans could list their 50 states. I can never list the seven dwarves and get stuck on the fifth or sixth. Therefore, I am not sure listing all of the EU member states is the best test of Europeanness. We need to find some way of feeling proud of what we are achieving. We all know from meetings in Brussels that it is extremely tedious to sit there while 27 other member states give their position. It takes two or three hours to go around the table once. However, it is great we are doing this. The miracle is that, despite the complexity, we still manage to take important decisions and move on. There is no other regional grouping in the world that is anywhere near as successful as the European Union. Sometimes it would be great if we could focus on the positives we are achieving.

We take seriously the idea of the Commission as a conscience. That is why the Commission’s President, José Manuel Barroso, will soon produce ideas on the rule of law in the European Union. We have seen problems in some member states where there is no respect for the European value of the separation of roles, namely, an independent Judiciary without interference from the political sphere. The Lisbon treaty has a nuclear option - the taking away of the voting rights of a member state that does not respect European values. That is an unimaginable state at which to arrive, but we need ways to see how the rule of law functions in member states before there is such a scenario.

As we come out of the crisis, I hope the Commission will go back to its long-term mandate. What it can do to complement the work of member states is to design long-term frameworks that can take 30 years to deliver. Tackling our aging society, for example, is part of a long-term target that we could do better together rather than separately.

Yes, I agree that the timing of the country-specific recommendations, CSRs, is tight. It might be too tight. They are published by the Commission at the end of May.

Everybody knows what the Commission recommends. Then the member states in both the Economic and Social Council and the Economic and Finance Council prepare for discussion endorsement by the Heads of State in the June European Council, which is normally at the end of June. I think that is too tight because it allows us to have only a bilateral process between the Commission and each member state who try to say we should fine-tune the recommendations or we have it all wrong or sometimes, albeit rarely, that we should have insisted more on something. We want a peer discussion whereby the Commission puts this on the table so all the member states can agree that this or that country should do more or less in a different area, but there is no time for that. We can improve these matters as time goes on.

11:00 am

Photo of Dara MurphyDara Murphy (Cork North Central, Fine Gael)
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Why is there not time in a 52-week year?

Ms Catherine Day:

The member states send us the input only at the end of April, and some of them are a few days late, so the process begins in early May. We work every public holiday and weekend in May to turn this around so by the end of May we can come out with the country-specific recommendations. It must be possible to agree with the member states to advance by a few weeks into April or even the end of March so that we could come in mid or early May and have two months for this process rather than one. It is a question of trying to move national civil services to bring us the data a few weeks earlier.

Photo of Dara MurphyDara Murphy (Cork North Central, Fine Gael)
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It means our committee, and other parliaments' committees, have no space in the middle of the process to be part of that dialogue.

Ms Catherine Day:

While the country-specific recommendations will change from year to year, there will be certain long-term trends. We will discuss the new recommendations but year by year, as everybody gets more familiar with it, the national parliaments can also discuss the ongoing recommendations, and 90% of it will be valid for the following year. There should be fewer surprises. A member state should know that if the European Commission has pinpointed something important that was endorsed by the other member states, and that member state has done nothing about it, it would be no surprise if the Commission comes back the following year. As people get used to the system we will find ways of dealing with it. We could also agree collectively to have more time to do a better job. That would be very important.

The Chairman asked about this year's timing. Because the European elections are in late May, the Commission will not be able to produce the recommendations at the end of May as we normally do. We have told the member states that this year we will produce them on 4 June, so the period will be even more squeezed. Maybe it will be so squeezed that it will give us the basis for a debate with the member states on whether we should allow a little more time for the interactive process.

On Irish representation in the Commission, we face a problem in the future. During the Celtic tiger years the Commission salaries were not attractive enough so there is a missing generation of people who in other circumstances would have joined but did not. There may also have been a tinge of euroscepticism in those days which meant people did not join. The cohort there is ageing and many of us will retire in the coming years. The Irish are proportionally over-represented at senior level now but that will evaporate very quickly in a few years because of retirements. The authorities here are concerned about this and are developing ideas on how to deal with it. We must also try to encourage people to see it as a fantastically interesting career opportunity and to encourage people to apply.

There are many different ways to work in the different institutions and the Commission is very concerned to have the appropriate level of geographic balance. Not on any one day but over the course of a year or two years we need to have good representation. We need country-specific knowledge to make informed policy decisions. Very soon we will not have enough Irish people in the Commission and we need an active policy to do something about it. From our side, we will be encouraging that and trying to find ways to support Ireland in doing that, as we do with the other under-represented nationalities.

Photo of Dominic HanniganDominic Hannigan (Meath East, Labour)
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On behalf of the committee I thank Ms Day and Ms Nolan for coming here today, for their presentation and for answering our questions so thoroughly. We look forward to seeing them before the committee in the future.

The joint committee adjourned at 11.15 a.m. until 2 p.m. on Tuesday, 4 February 2014.