Oireachtas Joint and Select Committees

Thursday, 4 December 2014

Joint Oireachtas Committee on European Union Affairs

EU Investment Package: European Commission Office Ireland

2:00 pm

Photo of Dominic HanniganDominic Hannigan (Meath East, Labour)
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I remind members to ensure that their mobile phones are switched off. It is not sufficient to put them on silent. They must be switched off as otherwise they will interfere with the broadcasting equipment. Could those in the Visitors Gallery check that their phones are switched off?
Before we come to today's business, I welcome to the committee our latest member. Deputy Derek Keating has been appointed to our committee to replace former Vice Chairman, Deputy Dara Murphy. The Deputy is very welcome to the committee. We look forward to his engagement here and we wish him the best for his tenure.
Today the committee will be briefed on the EU investment plan for Europe, recently announced by President Juncker. His first priority is to strengthen the stimulus towards investment and jobs. He sees this plan as a central pillar of that process. We will be briefed on this plan by Ms Barbara Nolan and Mr. Patrick O'Riordan, both from the European Commission's Dublin office. We will also be briefed on the recently published annual growth survey, which will include plans to streamline the European semester process. These are both very important aspects of our work. I welcome both Ms Nolan and Mr. O'Riordan. We will begin with the investment plan and then move on to the annual growth survey.
Before we do that, members are reminded of the long-standing parliamentary practice to the effect that members should not comment on, criticise or make charges against a person outside the House or an official 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 the evidence they are to give this committee. If they are directed by the committee to cease giving evidence in relation to a particular matter and they continue to so do, they are entitled thereafter only to a qualified privilege in respect of their evidence. Witnesses are directed that only evidence connected with the subject matter of these proceedings is to be given and they are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise nor make charges against any person, persons or entity by name or in such a way as to make him, her or it identifiable.

Ms Barbara Nolan:

I thank the Chair for inviting us. We are a double act. I will begin with the investment plan before passing the floor to Mr. O'Riordan to present the second point, which is the European semester and the annual growth survey.

I would like to start with a few introductory words about the new Commission. As members know, 2014 has been a year of major change in the European Union. The ball started rolling with the European Parliament elections in May. We had changes at the helm of the European Council, the European Parliament and the European Commission and have basically had a major overhaul of the main personalities driving the EU agenda.
The new European Commission President, Jean-Claude Junker, has made it clear that he does not intend it to be business as usual. He wants to make a fresh start and to focus the European Union's activities on the key challenges faced by its citizens. He has put together a ten-point agenda, concentrating on the areas in which he believes concrete action should be taken during his term of office. The key message from the new Commission is that the European Union needs to be bigger and more ambitious on the big things and smaller and more modest on the small things. Basically, a stricter application of the principle of subsidiarity should be applied. That is our leitmotiffor going forward.
What are the priorities? We are going to discuss the first big priority today - a new boost for jobs, growth and investment. The investment plan is central to this. The biggest challenge is the economy. We have low growth and high unemployment across the EU. Youth unemployment, in particular, is of major concern. The second priority is to have a more connected digital single market. The third priority is to have a more resilient energy Union, with a forward-looking climate change policy. The fourth priority is a deeper and fairer Internal Market with a strengthened industrial base. The fifth priority is to have a deeper and fairer economic and monetary union.
I would like to underline to the committee that President Junker has been clear in the importance he attaches to the social agenda. The social agenda has not perhaps been to the fore over recent years as Europe has tried to manage the crisis, but it is very much back in vogue. The President has told the European Parliament that the stability of our single currency and the solidity of public finances are as important to him as social fairness in implementing the necessary structural reforms. He has, on a number of occasions, underlined that he is a strong believer in the social market economy. I would like to send that message very clearly because it is an important highlight of the new Commission.
Another priority is a reasonable and balanced free trade agreement with the US. Justice and fundamental rights based on mutual trust is another priority. Developing a new policy on migration is another priority as migration issues are of major concern. Another priority is for the EU to be a stronger global actor. Creating a Union of democratic change is another priority. That is a broad brush of the new priorities, the new Commission and where the emphasis lies.
I will move on to the investment plan, adopted by the Commission two weeks ago. After years of stagnation, there are still major challenges to get Europe back on the road to prosperity. The investment plan is designed to help to address this. The new Commission only took office on 1 November and three weeks into its term, it has already launched its new €315 billion investment plan. The aim is basically to kick-start investment, growth and jobs in Europe.
This plan has been developed in close co-operation with the European Investment Bank, which is the largest multilateral lender and borrower in the world. With the sovereign debt crisis over, there is a need for a fresh impetus to unlock investment. While investment is taking off in the US, Europe is lagging far behind. Despite the fact there is ample liquidity in Europe, investment levels are €440 billion below their peak in 2007. This is holding the EU back and is leading to sluggish recovery and only very marginal changes in the high unemployment levels we have currently.
The investment plan is taking a new approach. Its focus is mainly on capturing riskier projects that would not normally attract support. This is an innovative approach going beyond what we normally do in existing EU programmes and also going beyond the traditional activities of the European Investment Bank. In essence, it changes the way public money is used. Public money will not be used as grants in this particular plan but rather it will be used to leverage private funds. It will provide a guarantee to investors to help to tap into the liquidity that is already there. This block of funding aims to remove the fear factor or the reticence private investors have in funding major projects. It aims to remove that fear factor in order to help unlock the funds they have available.
The plan is built on three strands. The first is the creation of a European fund for strategic investments, guaranteed with public money. This is to mobilise the €315 billion of additional investment by 2017. The fund will be hosted by the European Investment Bank and co-funded by the European Investment Bank and the European Commission. It will provide partial risk protection and will complement current activities by focusing exclusively on strategic investments that are necessary for Europe's return to growth but investments that have a different risk profile to projects currently funded by the European Investment Bank. We are not trying to displace one sort of funding with another but are trying to tackle or open up a new seam of projects that would never be funded without giving some kind of guarantee to get them off the ground.
The fund is supposed to be operational by the middle of next year. The EU will provide a budget of €16 billion in funding while the European Investment Bank will contribute an additional €5 billion in risk-bearing capacity. However, this is only the beginning. Based on prudent assumptions and historical experience, we expect this seed funding to turn into a €315 billion investment in the real economy because the multiplier effect is calculated as 1:15, so for every €1 of public funding mobilised in the fund, we anticipate that €15 of total investment which would otherwise not have happened will be generated. The advice the Commission has had from the European Investment Bank and other banking and investment experts is that it is a reasonable assumption to make and that this could be the multiplier effect of the initial investment.
The second part of the plan, which I think will be particularly interesting to members, is the establishment of a pipeline of projects in areas of strategic importance, such as broadband, energy networks, transport infrastructure, education, research and innovation and energy efficiency.

They are the broad areas which obviously cover a whole swathe of activity.
Investment in small and medium enterprises and mid-cap companies will be a particular target. SME investment in Ireland took a big hit during the crisis and this plan has the potential to help to address that issue. The first list of potential projects is due to be announced later this month. This list is currently being developed by a task force chaired by the European Investment Bank, EIB and the European Commission with the member states feeding into this. As I understand it, it is primarily officials from the Department of Finance who are feeding in the Irish element of this. I must stress, however, that being on the list is not a guarantee of funding and not being on the list does not mean a project is ineligible either. However, we hope the list will provide relevant and transparent information about projects that may be of interest to investors.
On the question of how projects are selected, funds will be channelled to viable projects with real added value for the European social market economy. Such projects are in areas like digital technology, energy, education and so forth and have the potential to boost employment. There are three key criteria used in the assessment of projects. The first is the potential for EU-wide added value and whether the projects support EU global objectives. The second is economic viability and value which means projects with high socio-economic returns will be prioritised. The third criteria is whether the projects are shovel ready, that is, ready to start within the next three years at the latest. There must be a reasonable expectation of capital expenditure in the 2015 to 2017 period. Projects must have the ability to leverage funds and draw in private investment. The money provided by us is only the initial funding. The projects must be able to stand on their own two feet, so to speak, and be able to attract private sector investment to achieve the multiplier effect to which I referred.
The fund will have a dedicated committee consisting of experts who will validate every project from a commercial and societal perspective. The identification of specific projects will be carried out by those close to the situation on the ground, for example, by regional and local authorities and those operating in a particular market. The fund should be operational by the middle of 2015. The fund does not foresee any division or pre-allocation by member state or sector. There is no a priori earmarking as would be the case with, for example, Structural Funds. Projects will be chosen according to their viability and the process is not political but technical in nature.
The final strand of the investment plan is a roadmap to make Europe more attractive to investors by removing bottlenecks and establishing a more stable business-friendly and predictable regulatory environment. The establishment of a genuine single market in energy, the digital sphere, capital, public procurement and services is part of this. The new emphasis on promoting investment is a key element of the broader economic strategy of the European Commission which is based on the three inter-related elements of the investment plan, structural reform and fiscal responsibility. Mr. O'Riordan will focus on the second and third elements when he addresses the semester and annual growth survey.

2:15 pm

Photo of Dominic HanniganDominic Hannigan (Meath East, Labour)
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I thank Ms Nolan. We will now deal with questions on the investment plan, following which Mr. O'Riordan will make his address. My first question is on the document itself, which refers to the fact that member states can help to augment the amount of money available by putting some of their own money in. The European Commission says that in the context of the assessment of public finances under the Stability and Growth Pact, it will take a favourable position towards capital contributions from member states to the fund. My reading of that is that such contributions would fall outside the 3% deficit criteria, so if Ireland decided to spend additional money on this fund, that would not be taken into account in our deficit calculations. Am I correct in my understanding? Has that provision done the tour of European capitals? Are all of our colleague member states on board with that? Having attended the COSAC conference at the weekend, it strikes me that there would not be unanimity across Europe on how we treat expenditure and whether contributions to this investment fund should adhere to Stability and Growth Pact rules.

My second question relates to the multiplier referred to by Ms Nolan. My understanding is that we are taking around €16 billion that has not been spent from the Europe 2020 funds and existing European budgets and adding €5 billion to that from the EIB to get a total of roughly €20 billion. We are going to look for a further €40 billion through securitisation or through senior debt and then use that €60 billion to leverage a further €240 billion for individual projects. As Ms Nolan said, this is essentially a multiplier of 1:15. She maintained that we are likely to get that effect with the fund, but I would worry about that because the types of projects being earmarked for support are riskier than those normally supported by the EIB. We met representatives of the EIB last year. While it is an extremely good organisation, it is very cautious in terms of its investments. While I would not doubt that the EIB could get the 1:15 multiplier, I wonder if we will actually see that. While I welcome this commitment, I believe the amount being put up initially is not huge and is existing money, in effect. I am not convinced we will see the quantum of investment envisaged as a result of that initial amount.

When it comes to setting out the list of projects, the document before us says that geography will not be taken into account. How can Ireland ensure that it gets a fair share of the cake, bearing in mind that infrastructure in some parts of Europe, particularly in the newer member states in the east, is a lot worse than ours? My concern is to ensure that we get some of the infrastructure investment in particular.

On page 14 of the document it is argued that the Commission has made "better regulation" one of the main priorities of this mandate. We all want better regulation but I ask Ms Nolan to give me some concrete examples of what this will entail and the type of changes we can expect to see.

I invite members to pose questions.

Photo of Seán KyneSeán Kyne (Galway West, Fine Gael)
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I welcome Ms Nolan to this meeting and thank her for her presentation. The Chairman has raised a few seminal issues. On the multiplier effect, we must bear in mind that it is not a question of more than €300 billion being available, which sounds like a huge pot of money, albeit to be spread across the European Union. I have some concerns about the mathematics behind that.

Ms Nolan referred to a dedicated committee and I ask her to explain how the projects will be assessed. Will there be quotas for different countries or will they be chosen irrespective of the country of origin? The Chairman referred to regional concerns. Under previous funding for transport, for example, there was a cross-border condition attached to funding. Obviously, on the mainland of Europe, road and rail networks would often traverse several different countries but that is not the case here, apart from our attachment to one part of the United Kingdom in Northern Ireland. Will that impact on the level of funding that will be available to us?

Ms Nolan also mentioned that the investment fund would be open to projects not funded by the EIB. What type of projects is she referring to in that regard? She mentioned a number of areas that I would have thought would be eligible for EIB funding.

Are there specific projects that have not been funded by the EIB that this new funding model will be able to take up?

2:25 pm

Photo of Eric ByrneEric Byrne (Dublin South Central, Labour)
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I welcome the delegation from the European Commission office. I wish to revert to the comment on the use of language made by the Chairman. The third point in Ms Nolan's statements states:


The final strand of the investment plan is a roadmap to make Europe more attractive to investment by removing bottlenecks, and establishing a more stable, business friendly and predictable regulatory environment. The establishment of a genuine Single Market in energy, the digital sphere, capital, public procurement and services is a part of this.
The first part of the sentence is clear but I would like somebody to elaborate on the following words: "by removing bottlenecks" and "establishing a more stable, business friendly and predictable regulatory environment". Is the regulatory environment not attractive? We know we are working towards the establishment of a genuine Single Market in energy, the digital sphere and so on but there is also reference to capital and public procurement and services.I understood that procurement was an EU policy. One hears about the contract for the publications of Irish school books going to Poland, when we could do it ourselves. I would like examples of the difficulties and where the bottlenecks occur that make the market not sufficiently attractive for investment.

Photo of Dominic HanniganDominic Hannigan (Meath East, Labour)
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Deputy Byrne has made some very good points and I agree with what he has said.

Photo of Bernard DurkanBernard Durkan (Kildare North, Fine Gael)
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I apologise for my late arrival but I have read the script carefully.

Photo of Eric ByrneEric Byrne (Dublin South Central, Labour)
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The second page.

Photo of Bernard DurkanBernard Durkan (Kildare North, Fine Gael)
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I have read all the pages. My apologies for my colleague who is interrupting me, Chairman.

I thank our guests and Ms Nolan for her introductory statement. I agree that the selection of critical infrastructure is a key factor in the ongoing investment programme for Europe, as it will impact on the alleviation of youth and general unemployment and will lead to the future development and growth in the EU. I emphasise the word "growth". The method of identifying projects will be of significant importance. Identification of the infrastructural deficits and other issues that are likely to impede industrial and economic growth is the key. We have had a recession for some considerable time right across Europe. This country, ironically, is doing better than most of our colleagues and is certainly doing better than most of our colleagues in the eurozone. Is it recognised that we must deal as soon as possible with the infrastructural deficits? I see that 2017 has been set as the date by which time when most things are likely to happen. One of the major problems in the EU is the lack of speed in identifying problems and putting in place the necessary remediation measures.

I will revert to my signature theme. I have seen no reference to the adoption of a single currency across the EU for some considerable time. I presume that is based on the equivocation about the eurozone and the pressure it came under. I am firmly of the belief that as long as we have a multiplicity of currencies in the EU, we will never have stability. I believe that is a necessary target. The possibility of achieving that is more remote than it was a couple of years ago but it is an issue that needs to be brought to the fore. If the United States had five or six different currencies it would be the laughing stock internationally, but the EU - with a much bigger population and much greater opportunity of having a serious positive economic impact - could benefit if it were possible to put the single currency back on the agenda.

My final point is that this is not a political process but a technical operation. I worry about technical operations. All my life I have been worried about them because they tend to proceed very slowly. Anything that proceeds slowly in the present climate is not to the advantage to the cohesive future of the EU or to the people of the EU. Issues such as youth unemployment, unemployment in general and the lack of economic growth must be tackled. I would like to see more specific and energetic activation to ensure we meet the targets in these areas.

We have spoken about the new Commission, Parliament and Council, yet despite the best efforts of everybody in individual member states and in the EU institutions there is a great deal of work to be done on the problems we have inherited.

Photo of Derek KeatingDerek Keating (Dublin Mid West, Fine Gael)
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I will be brief. My colleague has touched on the issue I wished to raise, the process associated with the identification of the infrastructural projects. The Chairman also touched on another issue that was on my mind, the possibilities and options for Ireland in terms of getting a fair share of the available investment.

Ms Barbara Nolan:

I will start by addressing the questions raised by the Chairman. What we are discussing is at the proposal stage. This is a proposal from the Commission regarding member state participation in the fund, which we would like to see happening because it will leverage more funding for investment. The Commission has said in its proposal that it would like to see that funding be treated in a certain way and not as part of the stability and growth pack calculations. The matter is under discussion. I understand COSAC holds a different view. Member states are making their views known at various meeting in Brussels preparing the ground for the summit meeting of the European Council which will take place later this month.
The proposal will be discussed by the Heads of State and Government on 18 and 19 December. We have to see if that is accepted and it is why the European Commission is backing it. We feel we can leverage more funding if we treat it as productive investment from the member states.
I did calculate the multiplier. It has been said that a ratio of 1:15 is a conservative estimate of what can be leveraged from the initial capital. As I have said, this has been developed not only by the Commission but with the European Investment Bank, which has a great deal more experience in how much one can leverage in terms of crowd-in in investment on the basis of the initial outlay. The EIB has models that say the ratio is 1:18, but we have gone for the conservative estimate on the basis of historical experience. The ratio may turn out to be much better than 1:15 but it may turn out to be worse. Who knows? We have to see what happens. The data have been feed into the system and this is what has come out the other end.
On the issue of the share-out of the cake to the geographical regions, as I said there is no a priori earmarking for member states or for specific sectors. It is done on the basis of the viability of the projects. Every member state will be trying to go through its list of the projects in the pipeline to try to ensure that the project it submits will have a genuine chance of crowding in investment. There will not be 100% funding of one individual unless we can attract extra private sector and public sector investment.

That is the reality. The projects will stand or fall on their merits in this regard and on whether they are meeting the criteria I explained in my opening remarks. I would say it is in the interests of every member state to put forward its best and most viable projects. I am sure Ireland is working on that right now. Maybe it has already submitted some projects. That is the way we expect things to pan out.

I was asked what is meant by "better regulation". One of the innovations of the new Commission is that Commissioners will no longer simply be able to put something on the Commission agenda and have it adopted. The Commission now has a Vice-President, Mr. Timmermans, who is there to act as a guardian in that regard.

2:35 pm

Photo of Dominic HanniganDominic Hannigan (Meath East, Labour)
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I met him on Monday.

Ms Barbara Nolan:

Yes. His role is to be a watchdog. The new President of the Commission has taken on board people's wish not to see excessive Commission activity in the nooks and crannies of daily life. The idea is that Mr. Timmermans will be big on the big things and small on the small things. His job is to vet whatever is going into the Commission work programme. A situation with regard to the plastic bag issue, which is not a particular problem for this country because we have legislated on it, arose two weeks ago. Mr. Timmermans was not inclined to pursue some kind of legislation on the issue at European level. The European Parliament and key stakeholders were pressing for the legislation to be pursued. In the end, it made it through the sieve. Compared to the structure that is in place now, there will be much more vigilance about what is going into the Commission agenda and what the Commission will be adopting. Each Commissioner will have to defend what he or she proposes to do on the Commission's work programme and why it is necessary.

Photo of Dominic HanniganDominic Hannigan (Meath East, Labour)
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When is it expected that this work programme will be published? Will it happen this month or next month?

Ms Barbara Nolan:

Hopefully, yes. That is what better regulation means, at least from our perspective. Regulations that have become obsolete, for various reasons, will also be reviewed to see if we need to get rid of them. Proposals that are in the circuit but have not been adopted will be reviewed to ascertain whether they are unnecessary in light of the new thinking. We already had the refit exercise. This is building on that exercise. That is how this is expected to work.
I was also asked how the projects will be assessed. I do not have much more to add to my remarks on the criteria, on who is involved and on the committee that is being established by the Commission and the European Investment Bank with input from member states.
Many projects will be cross-border projects. I refer not only to the Border here but also to the many borders across Europe. Perhaps large infrastructural projects that cross various national frontiers will be jointly submitted by a number of member states. This will be a factor. From our perspective, it does not matter. We welcome cross-border initiatives because that is where the added value of EU activity can come into play.
I assure Deputy Eric Byrne that there are many bottlenecks in many markets. We do not really have a single digital market or a single energy market. There are many problems with the way our markets work in Europe that cause bottlenecks, put off investment and make people cautious. The unstable economic situation has been a major turn-off for investment. These are the things we are setting out to tackle with this investment plan.
I will explain what I meant when I said this process is a technical operation. Obviously, the overall goals are extremely political. We are trying to select projects that will reduce unemployment, etc. Clearly, there are major political issues here. When I spoke about a technical operation, I was referring to the fact that projects will be selected on their technical merits, their viability and whether they have a good chance of attracting the necessary investment. That is what I meant by "technical". As I said, it is not the case that an a prioriblock of money will go to each member state or each individual sector. It is an open situation until the projects are selected. I hope I have answered most of the questions. I am conscious that my colleague, Mr. O'Riordan, has not said a word yet.

Photo of Dominic HanniganDominic Hannigan (Meath East, Labour)
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We will hear from him when we move on to the next part of the meeting.

Photo of Bernard DurkanBernard Durkan (Kildare North, Fine Gael)
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I would like to seek a quick clarification before we do so.

Photo of Bernard DurkanBernard Durkan (Kildare North, Fine Gael)
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The phrase "shovel-ready projects" is an awful expression. I do not say that because it was used by Ms Nolan. I would prefer to refer to them as projects that are ready to go. Is there a recognition of the need for projects that are ready to go? How are such projects defined? Is the relevant timeframe two or three years? I believe that in a national context throughout the EU, it should be in the region of six months. We do not have time. The time is not there. We are losing ground all the time. The EU is losing ground. The investment programme is losing ground. Unemployment remains a threat. I presume the timeframe within individual member states will be six months. I reckon that at most, nine months to a year should be a target for the EU institutions themselves. If they do not set a headline target, nothing else will happen.

Photo of Seán KyneSeán Kyne (Galway West, Fine Gael)
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I would like to clarify the point regarding the cross-border issue. We have only one border. We all have to be parochial in terms of wanting to see investment in this country. Other countries like Germany and France have multiple borders with partners. If they are submitting road or rail projects that cross over all of these countries, obviously they have a better opportunity than Ireland to secure funding. That is the point I was making about borders. Would that be a fair point? Would it be a fair assessment? That was the concern with T-Trans in the past.

Ms Barbara Nolan:

Deputy Durkan asked about shovel-ready projects. We want the fund. The objective is for the fund to be operational by mid-2015. Some good projects that are probably already in the pipeline have not been able to draw sufficient funding for the reasons I have mentioned, including the risk element. Nobody is willing to take the risk factor. The idea is that projects should be ready to go in mid-2015. The Deputy was correct when he said it should be operational within six months. We should be out there getting these projects under way within six months. We want a quick turnaround as well. That is the whole point of having this plan. We want the projects to be up and ready within a timeframe that extends from mid-2015 to 2017. That is the objective.

Deputy Kyne asked about the cross-border element of these projects. There is no rule that says they must cross a certain number of countries. I agree with him that mainland Europe would clearly have a certain advantage in this regard. Of course attention will be paid to the needs of peripheral member states, such as islands, that have particular problems or need different types of interconnections. I would not say that is necessarily going to be a problem.