Dominic Hannigan (Meath East, Labour)
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Will those present check their mobile telephones and ensure they are switched off? It is no good switching them to silent mode because they can still can interfere with the broadcasting equipment. The five presidents' report, Completing Europe's Economic and Monetary Union, was published in May. We are delighted today that Mr. José Leandro from the European Union Commission will talk about this report. The report sets out a timeframe and a process to complete economic and monetary union through deeper economic, financial, fiscal and political union. The report references the role of national parliaments in the context of ensuring democratic accountability. President Juncker's cabinet is seeking a reaction to the plan, particularly from members of national parliaments. We will spend time in the next couple of months looking at the plan. Today is the first of a number of meetings that we hold on this subject. As members will remember, the committee has published two political contributions on different aspects of economic and monetary union in both 2013 and 2014. Of course, they relied heavily on our experience of the economic crisis.

Today we will hear an outline of what the five presidents' report entails and proposes over the next number of years. I welcome Mr. Leandro and Mr. Graham Stull to our meeting. Mr. Leandro is a director for policy strategy and co-ordination in the directorate general for economic and financial affairs of the European Commission. He is an adviser to President Juncker and is responsible for the preparation of the five presidents' report. He will brief members on the report.

Before we begin, I also wish to remind members of the long-standing parliamentary practice to the effect that they should not criticise or make charges against a person or body 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 joint committee. However, if they are directed by the Chairman to cease giving evidence on a particular matter and they continue to so do, they are entitled thereafter only to a 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 they are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person, persons or entity by name or in such a way as to make him, her or it identifiable.

Mr. José Leandro:

I thank the honourable Chairman and members for the opportunity to address the joint committee on the topic of the so-called five presidents' report on the completion of the economic and monetary union. As you know, the report was chaired by President Juncker in co-operation with the president of the euro summit, the president of the Eurogroup, the President of the European Central Bank and the President of the European Parliament. It was published in June. It is the result of an inclusive process which followed from a series of discussions between the presidents and the member states.

The report presents a vision and a roadmap for the completion of economic and monetary union by 2025, at the latest. It is ambitious and yet pragmatic. It is built on the experiences of the recent crisis, which exposed important gaps in the structure of the economic and monetary union. The completion of the EMU is not an end in itself but a means to create a better life for its citizens and to prepare the EU for future global challenges, enabling each of its members to prosper.

One of the legacies of the crisis is the significant divergence across the euro area. In some countries unemployment is at record highs while in others it is historically low; in some fiscal policy can be used counter-cyclically while in others fiscal space will take several years of consolidation to recover. Today's divergence creates fragility for the whole union and a new convergence process must be launched.

Progress is needed on four fronts toward four unions, economic, financial, fiscal and political union. All unions depend on each other and progress will have to be made in parallel. The reports suggest moving forward in two stages. In the first stage until mid-2017, the measures concentrate on what can be done right now, building on and making the best use of existing instruments. In the second stage the report proposes a set of more fundamental steps to complete the economic and monetary union. Some may require changes to EU treaties in the second stage. There is, therefore, a gradual move from a rules based system to a system with further sovereignty sharing within common institutions. As President Juncker stated in his State of the Union address, the Commission will move forward without delay with the first stage initiatives.

Let me say a few words on the proposals put forward by the report. First, economic union should aim to deliver more real convergence, jobs and growth. In the first stage, this would be achieved through a renewed impetus to the implementation of reforms and strengthening the current governance framework, to be followed in the second stage, by commonly agreed standards with possibly a legal character. In the first stage economic union rests on four pillars, a euro area system of competitiveness authorities, a strengthened implementation of the macroeconomic imbalances procedure, a greater focus on employment and social performance and a stronger European semester.

The Commission has already made some changes to the European semester this year, to sharpen its focus, better involve national stakeholders, improve reporting and strengthen the social dimension. We intend to continue this work, to further streamline it and to integrate the euro area and national dimensions better.

The competitiveness authorities should build on existing structures with an emphasis on reform implementation, increased national ownership and a push towards increasing convergence. The implementation of structural reforms should facilitate the ability of member states' economies to adjust to future economic shocks, while supporting convergence towards the best performance and practices in Europe. In Ireland, a rapid adjustment was key to restoring competitiveness in the aftermath of the crisis but as in many member states, fragilities remain, particularly in the non-traded sector.

Second, the aim of the financial union is to create a truly single financial and banking system where monetary impulses are transmitted uniformly across countries and where financial markets contribute to the stability of the EMU by diversifying risk across countries. The setting up of the single supervisory mechanism and the single resolution mechanism has already contributed to weaken the links between banks and sovereigns but initiatives have to be completed. First, we need to focus on implementing what has already been agreed, including the transposition of the Bank Resolution and Recovery Directive and reaching an agreement on bridge financing and a back stop to the Single Resolution Fund. A common deposit insurance scheme is also indispensable for a complete banking union and to ensure that the safety of bank deposits is the same in all member states. The Commission intends to come forward with proposals on first steps towards such a scheme before the end of the year. This could take the form of a re-insurance system at European level for the national deposit guarantee schemes.

It will also be important to ensure that all banks participating in the banking union enjoy a level playing field by reducing the still-significant discretion at national level that has important implications, notably for the quality and composition of banks' capital. Finally, a capital market union will contribute to the integration of equity markets, reduce the volatility of cross-border investment and enhance risk-sharing. In Ireland, where small and medium-sized enterprise, SME, financing costs remain above the euro area average and Irish SMEs still look primarily to banks for their financing needs, the capital market union will have a particularly important role to play.

As for the fiscal union, in the first stage the report proposes that a new advisory European fiscal board would be created with three functions. First, it would co-ordinate the work of the national fiscal councils. Second, it would offer an economic, not legal, view on the appropriate fiscal stance and third, it would carry out ex postevaluations of how the fiscal governance framework was implemented. In the second stage, a new macroeconomic stabilisation function would improve the cushioning of large macroeconomic shocks. In addition, a euro area treasury would be set up in the second stage and could be a place for collective decision-making on some aspects of fiscal policy. Ireland has made remarkable progress in placing its public finances on a sustainable path and this is welcome. However, public debt levels remain high, as they do in many member states, underlining the need for continued prudence and for a strong and transparent fiscal governance framework.

Finally, the initiatives put forward in the report involve further sharing of national competences and hence require further steps towards strengthening democratic legitimacy. It is necessary to increase co-operation between the European and national parliaments and involve them more closely in the European semester. I know this committee has been engaged in discussing the semester and has shown a keen interest in continuing and deepening that dialogue, which we welcome. I am interested to listen to the ideas put forward by members on this point. The strengthening of democratic oversight will also be achieved by the integration of some intergovernmental arrangements into EU law, including the European Stability Mechanism. A strengthened Eurogroup also will provide a stronger co-ordination centre, possibly with a permanent president in the longer term. A more consolidated external representation of the euro area should strengthen its voice in international financial institutions, particularly at the IMF, and make it commensurate with the euro area's economic weight.

Completing the economic and monetary union is a dynamic and evolving project and the Commission remains open to answer questions and to listen to members' views. I thank the committee.

Dominic Hannigan (Meath East, Labour)
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I thank Mr. Leandro and at the outset will pose a few questions on which he may be able to expand. In his useful contribution he mentioned a proposal for new competitiveness authorities. I note from the report that one key role would be to assess whether wages are evolving in line with productivity and to compare with developments in other euro area countries, which is fine, as well as in the main comparable trading partners. I take "comparable trading partners" to mean places like the United States, Asia and elsewhere. I have concerns this might mean such competitiveness authorities would come up with proposals to reduce rates perhaps, whereby wages would be forced down or recommendations made that wages be reduced because of factors such as what are termed "McJobs" in the United States and the race to the bottom in many areas. Can Mr. Leandro expand on the co-ordination that would happen to suggest wage levels across Europe? In addition, how might this be reflected in the annual growth survey and the country-specific recommendations? Were countries to fall foul of those, might they be subject to a corrective mechanism? I worry because Ireland has just set up a body called the Low Pay Commission to address the issue of low pay, to recommend whether the minimum wage should be increased and to consider proposals such as the living wage. It appears to me as though this new competitiveness authority would be in direct conflict with the commission. Consequently, I ask Mr. Leandro to expand on that point and perhaps settle my concerns and nerves in this regard.

Before inviting questions from my colleagues, my second and final question concerns the proposed euro area treasury. Mr. Leandro stated a genuine fiscal union will require more joint decision-making on fiscal policy. While he recognised many decisions will still be left to national governments, he noted some decisions would increasingly need to be made collectively, while ensuring democratic accountability and legitimacy. What type of decisions does Mr. Leandro think can be made collectively? Can he expand on the type of things one should expect to see done together, as opposed to done by national parliaments on their own? I now call on Deputy Durkan.

Bernard Durkan (Kildare North, Fine Gael)
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I thank the guests for their appearance before the committee. Arising directly from Mr. Leandro's address, can he indicate the extent to which he expects eurozone countries to reduce progressively current borrowing, that is, their budget deficits? Are all countries progressing satisfactorily and what does Mr. Leandro perceive to be the benefits accruing therefrom? In addition, with regard to total debt among eurozone states, to what extent does the Commission remain satisfied as to the ability of each state to continue to reduce its overall debt in line with projections and expectations? To what extent does the Commission envisage the total debt in each country within the eurozone will reduce and as a consequence, what will be the eurozone average reduction? I am conscious of the average at present within the European Union, within the eurozone and in Ireland, as well as the progress made and the progress that still remains.

My final point relates to the ability of each state within the European Union to avail of the kind of conditions Mr. Leandro has outlined and to increase its productivity, competitiveness and economic growth in the knowledge that at present, there is a huge disparity in the growth and development of individual member states. Remarkably, this State has the highest growth rate in Europe at present, as well as one of the highest rates in the world. What difficulties or obstacles does Mr. Leandro perceive to be preventing some European states from availing of extraordinarily low interest rates and capitalising on them as a means of creating jobs and reducing numbers on the live register?

Dominic Hannigan (Meath East, Labour)
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I thank Deputy Durkan and call Deputy Kyne.

Seán Kyne (Galway West, Fine Gael)
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I welcome the witnesses to the committee and thank Mr. Leandro for his contribution. I do not believe the country-specific recommendations for Ireland caused any great surprise, mainly because we were in the programme in previous years and this was, if one likes, a continuation of that. What is the position in other European countries regarding their country-specific recommendations and are they causing problems? Overall, is there a better role for national parliaments within the European semester process and how can this be refined to ensure accountability within the system? I am specifically interested in other countries because the measures put forward in the last couple of country-specific recommendations were not a great surprise here in Ireland.

Dominic Hannigan (Meath East, Labour)
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I thank Deputy Kyne and call Deputy Eric Byrne.

Eric Byrne (Dublin South Central, Labour)
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I have questions about the four unions in this context that we have to make work. What does "political union" actually mean and how can it be achieved within the 28 or 29 EU member states or the 18 or 19 euro members? What is meant by achieving political union, given the political diversities that exist in all democracies?

This recommendation speaks of a system with further sharing of sovereignty. The British, or the English, hate the notion of loss of sovereignty and they might even pull out of the Union on the basis that they are no longer a sovereign. They may have a future queen or king but they feel their sovereignty is adversely affected. Can the witnesses ease my mind on the sovereignty issue and the issue of political union?

Aideen Hayden (Labour)
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My first question relates to the text of the introduction to the document, which states that the report reflects the deliberations of the five presidents and focuses on the euro area. It states that, for obvious reasons, the currency is facing common challenges and responsibilities and that the process towards deeper union is open to all EU members. Do the witnesses not think that, on one level, we are deepening the chasm between those members of the Union who are in the euro and those who are outside? A lot of the proposals in the report which are designed to lead to the strengthening of the euro area could be seen to remove independence of action on another level, or remove sovereignty from some other nation states which are not involved in the euro area, particularly the United Kingdom, with which we have a relationship based on our history and geography.

In his statement about the success of Ireland, Mr. Leandro stated that rapid adjustment was key to restoring our competitiveness in the aftermath of the crisis. I was struck by the idea that one size fits all in terms of the economies of member states. There may be particular reasons why a rapid adjustment may have suited Ireland. In particular, we do not depend to the same extent as other member states on trade within the union and so may be less exposed to the financial health of the Union than some other member states. Does Mr. Leandro have any thoughts on this? Are we, perhaps, too wedded to a one-size-fits-all approach for fixing the economies of other countries which have suffered from the global financial crisis? If we are to put in place better shock absorbers against future economic shocks do we need a rethink on how rapidly we are asking some member states to fix their balance sheets? Maybe slower progress might be better.

Mr. José Leandro:

I will try to address all the questions. The first was on wages. Competitiveness is not just about costs or wages. It is also about productivity, which concerns a very wide range of issues from skills, education, innovation, etc. The report states that the competitiveness authorities will be institutions or bodies which will foster a debate about policies which foster competitiveness. As part of their mandate they should cover the evolution of wages compared to productivity because this is one of the indicators of competitiveness, which is called, in technical terms, "unit labour costs". This is just one indicator of competitiveness and there is a wide range of other indicators of competitiveness. In Ireland the National Competitiveness Council is already looking at a very broad set of indicators of competitiveness. It has not been decided yet but the Commission will propose a mandate for competitiveness bodies and this mandate will be broader than the simple, narrow focus on cost competitiveness.

These authorities are not aimed at harmonising the way wage-setting mechanisms are negotiated across the eurozone. These mechanisms respond to a wide range of national preferences and legal traditions and the intention is not to interfere with them at all. It is simply to add one more element of information that would be useful when the wage negotiations take place among the social partners, business and the unions. They would have a view of the implications of the different options compared to the main trading partners. In Ireland the main trading partners are the UK, other member states in the eurozone and, because it is a very open economy, countries outside the EU. It is not just about competitiveness among EU member states. The competitiveness authorities would not interfere with the setting of the minimum wage.

Dominic Hannigan (Meath East, Labour)
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Why, then, are they going to meet and co-ordinate an approach? What is that co-ordination going to suggest and what is the European Commission going to do with it? I do not understand how it can just be an advisory role and yet there is going to be a co-ordinated approach across all the bodies which will then be given to the Commission for action, as opposed to advice.

Mr. José Leandro:

The Commission would co-ordinate this network of national competitiveness bodies and would draw information from them for its own analysis of a particular country. It would be able to give recommendations on a more educated basis. We would know much better what is going on in each member state than we do now. On the other hand, these competitiveness bodies would also help feed into the debate nationally about wider issues of competitiveness within the eurozone, because competitiveness is a relative issue - one is competitivevis-à-vissomeone else. This euro-area dimension is very often absent when the national debates take place. It will work both ways. The idea is not to have a one-size-fits-all approach across all eurozone member states - let me be clear about that.

I was asked about the euro area treasury. I mentioned wages and the Chairman mentioned the Low Pay Commission in Ireland, which recently proposed an increase in the minimum wage. This is a purely national issue. The Commission would not interfere in this type of decision at all and has no intention of doing so. The report makes it clear that the euro area treasury is the culmination of a process of the gradual integration of the fiscal area.

It is not something that would happen tomorrow and that is why the report puts it in the second stage.

The Chairman asked in what areas could there be a collective decision. Each member state must still be free to decide on taxation and the exact allocation of expenditures. For example, one could think of a fiscal union, because this would be the culmination of a process leading to the fiscal union, issues like the level of debt or the level of the deficit could be taken collectively. That is the aggregate figure of the debt of the amount of borrowing; the aggregate figure on the debts could be taken collectively. Then each member state within those limits would be able to decide, depending on its own preference, on taxation issues and how to allocate expenditures. This is how we would see a euro area treasury in the longer term.

On the question regarding the debt and the progress so far in reducing debt, there has been progress at an aggregate level. The level of the debt is now about 97% or 98% of GDP. We can see that the debt is clearly coming down in a number of member states. That is the case for Ireland where it has been very visible and the level is now 107% of GDP, more or less.

Dominic Hannigan (Meath East, Labour)
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It is less. We are expecting the level of GDP to be less than 100% by the end of the year.

Mr. José Leandro:

Exactly, because the growth is higher than what was projected.

Public sector debt in Ireland, Portugal, Spain and Italy is slowly coming down. A big issue that we often tend to overlook is private sector debt which remains very high, including in this country. It is an issue that needs to be tackled, probably more forcefully, but the report does not go into these issues. The report does not say how we should deal with public or private debt but simply offers a roadmap. Of course, such debt is a fundamental issue in the background.

I understood that one of the questions asked was what are the obstacles to more competitiveness, investment and growth. From my perspective, there are issues both on the supply side and on the demand side which need to be tackled at the same time. We have cyclical factors that lead to lower investment, lower consumption and, therefore, higher unemployment on the cyclical side but there are also structural impediments to higher investment and employment. We need to act on both aspects through structural reforms. We need to address the more structural elements of these obstacles while, on the demand side, we need to use the flexibility within our rules to facilitate and better manage the cyclical aspects of unemployment and investment. The Commission has decided to launch an investment programme of €315 billion which reflects the approach that one needs to act on both sides - the demand side and the structural side.

There was also a question from Deputy Kyne on how to better involve the national parliaments in the Europe semester process, particularly in terms of the country-specific recommendations. This is a key issue in the report. First, in our view the parliaments should be much more involved and consulted in the design of the national reform programmes before they are submitted to the European Commission. Second, member states should use the ability that is already there to call on Commission officials and commissioners to explain why they recommend these audit measures, including when the Commission gives an opinion on draft budgetary plans. This aspect is already provided in the so-called two-pack legislation but it is not systemic or systematically used.

There was a question on sovereignty. It is a complicated issue because it is often presented as a zero-sum game. In fact, in many areas the pooling of sovereignty is a way of regaining sovereignty in a world that is becoming increasingly globalised. Including within the European Union, where we have more and more interdependence, sovereignty becomes a very relative concept. One way of regaining sovereignty is by pooling it, including on issues of fiscal policy. For example, we have already pooled sovereignty in terms of monetary policy but we have not done so with the fiscal and financial sides which led to the mess that we all know about. Very often the pooling of sovereignty is a way of regaining sovereignty. When we put in place a single supervisory or resolution mechanism for the banks it was a way of gaining sovereignty over the financial sector.

The division between the ins and the outs is an issue about which the Commission is very sensitive. The report focuses on proposals to strengthen the euro area. Many of these issues have implications for the non-euro area member states, including for the banking union. For example, when we talk about a deposit insurance scheme or the capital markets union, this cannot be decided by the 19 euro area member states alone; it has to be decided by 28 member states. Any issue that touches upon the functioning of the Single Market has to be decided by the 28 member states and cannot be decided by just 19 member states. On the other hand, having a common currency among 19 member states creates a level of interdependence that does not exist with the non-euro area member states. There are issues on which decisions have to be taken among the 19 member states because it is key for the function of the common currency. This is the way we, in the Commission, see these issues. Maybe I shall stop there but I am happy to continue. I hope I have answered all of the questions.

Dominic Hannigan (Meath East, Labour)
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How has the report been received across Europe in other member states, particularly the countries that are outside of the eurozone? Has the delegation heard their views? I am interested in hearing the experience of the delegation.

Mr. José Leandro:

The report was published in June, the debate has accelerated and this hearing is a sign that a debate has taken hold. The position that we have seen from countries like the UK or Sweden, which are outside of the eurozone, has always been very constructive towards addressing the shortcomings in the economic and monetary union.

When the ESM and the single supervisory mechanism was launched the UK, for example, although it decided to stay out always supported the mechanism because it saw it as a way of plugging these gaps within the monetary union. For the UK, for example, it is key to have a monetary union that works properly and is not going from crisis to crisis. If we manage to take account of its concerns, including in terms of voting rights when it comes to decisions that are taken together and non-issues it would have to deal with the Single Market, then I think, we can count on its support. That has been the approach of the UK and Sweden so far.

Eric Byrne (Dublin South Central, Labour)
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Mr. José Leandro has done a good job in explaining sovereignty. I am still confused about political union.

Mr. José Leandro:

Political union is a classic concept. Basically, it is a culmination of a process. On the fiscal side, in concrete terms, when we reach a point where decisions are taken in common on debt or on deficit we would probably be reaching one of the dimensions of the political union completely. When national parliaments are more directly and more closely involved in the European debate we would have achieved a certain degree of political union. Personally, I do not think political union means a central government with a huge budget; that is not what it means. It means the ability to take common decisions on fundamental issues that are very important for the monetary union but which are grounded on a level of accountability and legitimacy that is accepted.

Dominic Hannigan (Meath East, Labour)
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Is Deputy Eric Byrne happy with that answer? That will always be a difficult one for many of us.

Eric Byrne (Dublin South Central, Labour)
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Yes.

Dominic Hannigan (Meath East, Labour)
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This is the first session on this issue. I expect we will conclude towards the end of November and I imagine we will publish a political contribution on our views of the five presidents' report. At the forthcoming COSAC conference in Luxembourg I expect this matter will be on the agenda. As Mr. José Leandro has said people are starting to debate it. I am speaking on the radio about it tomorrow so it is getting out into the real world, apart from just inside the confines of Government buildings. I thank Mr. José Leandro for appearing before the committee. We will ensure he gets a copy of our deliberations.

Mr. José Leandro:

Thank you.