Oireachtas Joint and Select Committees
Wednesday, 15 October 2025
Joint Oireachtas Committee on Finance, Public Expenditure, Public Service Reform and Digitalisation, and Taoiseach
Scrutiny of EU Legislative Proposals
2:00 am
Mairéad Farrell (Galway West, Sinn Fein)
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Tá leithscéalta faighte againn ó na Seanadóirí Conor Murphy, Joe O'Reilly agus Cathal Byrne.
I advise members of the constitutional requirement that they must be physically present within the confines of the Leinster House complex in order to participate in public meetings. I will not permit a member to participate where they are not adhering to this constitutional requirement. Therefore, a member who attempts to participate from outside the precincts will be asked to leave the meeting. In this regard, I ask any member partaking via Microsoft Teams that prior to making their contribution to the meeting, they confirm they are on the grounds of the Leinster House campus. Members are reminded of the long-standing parliamentary practice that they should not criticise or make charges against any person or entity by name or in such a way as to make him, her or it identifiable, or otherwise engage in speech that might be regarded as damaging to the good name of the person or entity. Therefore, if their statements are potentially defamatory in relation to an identifiable person or entity, they will be directed to discontinue their remarks. It is imperative they comply with any such direction.
The joint committee is meeting today to discuss two legislative proposals from the EU. The first is COM (2025) 122, which is a proposal for a Council regulation establishing the security action for Europe, SAFE, through the reinforcement of the European defence industry instrument. The Commission has presented the ReArm Europe Plan - Readiness 2030, which is structured around five pillars. The SAFE regulation we will be discussing represents one pillar of the plan and seeks to provide a new EU financial instrument to raise up to €150 billion in capital markets to support and accelerate national investments.
The second proposal for discussion is COM (2025) 123, which is a regulation amending Regulations (EU) 2021/1058, European Regional Development Fund and the Cohesion Fund, and the just transition fund, JTF, in the context of specific measures to address strategic challenges in the context of the mid-term review. The EU's investment policy covers a range of programmes which seek to support job creation, competitiveness, economic growth, sustainability, sustainable development and improvements to quality of life. Cohesion policy is delivered through four specific funds, the European Regional Development Fund, ERDF, the Cohesion Fund, CF, the European Social Fund Plus, ESF+, and the just transition fund.
The legal framework for the cohesion policy programmes provides for a mid-term review in 2025, allowing member states the option to redirect resources from the period 2021 to 2027 towards investments in areas considered by the Commission as key priorities. To this end, the Commission has proposed targeted amendments that seek to use the mid-term review of cohesion policies to prioritise the priorities of the Union. Specific objectives of the proposals include extension of the ERDF to large companies in areas such as defence, strategic technologies and decarbonisation. The regulation would also create two new specific objectives within the scope of the ERDF to support defence, with the first allowing for the reprogramming of funds to enhance productive capacities in defence enterprises and the fostering of military mobility within the EU.
To discuss both proposals, I welcome Mr. Guillaume de la Brosse and his officials from the European Commission. From the Department of Finance, I welcome Mr. Matthew McGann, principal officer with the EU strategy unit, and Ms Fiona Ralph, principal officer with the EU budget unit. From the Department of Public Expenditure, Infrastructure, Public Service Reform and Digitalisation, I welcome Dr. Andrew Condon, principal officer with responsibility for EU cohesion funds and the North-South unit. From the Department of Foreign Affairs and Trade, I welcome Ms Nicole Mannion, director of the international security policy unit. From the Department of Defence, I welcome Mr. James Ryan, principal officer with the EU-industrial engagement unit.
I invite Ms Ralph to make an opening statement on behalf of all of the officials present.
Ms Fiona Ralph:
Go raibh maith agat, a Chathaoirligh agus baill don choiste. I thank the committee for the opportunity to discuss these two EU regulations. In the interests of efficiency, I will make the opening statement for all Departments represented here. I will touch first on the structure of the EU budget for context before addressing the two regulations separately.
I lead the EU budget unit in the Department of Finance. As the Cathaoirleach said, I am joined by colleagues from my Department, from the Departments of Public Expenditure, Infrastructure, Public Service Reform and Digitalisation, Foreign Affairs and Trade and Defence and from the European Commission's Directorate-General for Defence Industry and Space.
From an EU budget perspective, the Department of Finance's focus is on the budget as a whole, on negotiating funding levels on a multi-annual and an annual basis and, of course, on Ireland's financial interests as a member state. Individual funding programmes, their policy context and arrangements are negotiated by the relevant Departments, depending on the policy area. We in the Department of Finance work with them on budgetary questions as they arise.
Cohesion policy and, therefore, the responsibility for the proposal under COM (2025) 123, sits with the Department of Public Expenditure, Infrastructure, Public Service Reform and Digitalisation. As a financial instrument, the Department of Finance managed the financial architecture of SAFE for the proposal under COM (2025) 122. The Departments of Defence and Foreign Affairs and Trade together managed the defence, security and foreign policy implications arising from these proposals.
On the structure of the EU budget, to set the context, the current multi-annual financial framework, MFF, runs from 2021 to 2027. This sets out expenditure limits per year and per thematic heading. The actual level of spending is then set within these limits in the annual budget procedure. All member states contribute towards the EU budget based on a system we can go into later, if it is of interest to committee members. The key elements relevant to this discussion are that the contributions that member states make follow the principle of universality, meaning they are general revenue and not earmarked for any specific purpose, and these contributions fund the EU budget's patient payments to beneficiaries.
On COM (2025) 122, the proposal on SAFE was released on 19 March 2025 alongside the Commission's White Paper for European Defence, all within the context of the EU's Readiness 2030 initiative. It was adopted by the General Affairs Council on 27 May and entered into force on 29 May. The SAFE regulation creates an EU instrument to provide member states with up to €150 billion of loans backed by the EU budget. This involves the European Commission borrowing the funds required to finance the loans for on-lending to member states. In this situation, the loans will be repaid in full by the borrowing member state and not by our EU budget contributions. However, the lending is backed by a guarantee, meaning that in the unlikely event of a member state defaulting on its loan, repayment would be covered by the EU budget.
The SAFE instrument is intended to provide financial assistance to member states to support their urgent public investments in defence industrial production, aiming to increase production capacity, improve the availability of defence products and address capability gaps. As recently confirmed by the Tánaiste and Minister for Defence, Ireland has informed the European Commission that we are not seeking to draw down funding from SAFE at this point. While Ireland is not drawing down funding, SAFE can still play a valuable role in supplementing ongoing capability efforts by the Department of Defence through the use of collaborative opportunities presented by SAFE. Ireland will seek to play an active part in collaborating under the SAFE mechanism in joint procurement initiatives with other EU member states where alignment with the requirements of our equipment development plan have been identified. In line with this approach, the Department of Defence has already opened up a contract for body armour to other EU member states under the SAFE regulation. This illustrates Ireland's support for SAFE in a very practical way. It further demonstrates visibly how the SAFE instrument can be used to the mutual benefits of the member states that choose to use it. While limited at this stage in the process, the identification of opportunities for collaboration will become more apparent as the initiative matures. This will occur through attendance at the SAFE special group meetings, monitoring opportunities outlined by member states through the European Defence Agency system and organically as the process of member states submitting their defence plans to the Commission evolves.
In relation to COM (2025) 123, on 1 April 2025, the Commission published a proposal for a regulation setting out amendments to the European Regional Development Fund and the Cohesion Fund, as well as the Just Transition Fund, as regards specific measures to address strategic challenges in the context of the mid-term review. It was adopted on 18 September, published in the Official Journal on 19 September and entered into force on 20 September 2025. The main objective of this regulation is to provide an opportunity to align cohesion policy investments to new priorities, notably, competitiveness and decarbonisation; access to water, sustainable water management and water resilience; defence and security; affordable housing; energy transition; and the challenges facing the eastern border regions. The package also provides financial incentives for these programmes that avail of the opportunity of the mid-term review to allocate resources to any of these new priorities.
The regulation, as finally agreed, included a provision which potentially allows for an element of the funds, the flexibility amount, to be transferred to the new objectives under the mid-term review despite funds having been suspended for breaches of conditionality on rule of law. Ireland, in the spirit of compromise, agreed to the final text. However, we, along with a number of other member states, believe it is inappropriate that funds which have been suspended can simply be transferred without the underlying reasons for the suspension having been addressed and that the final text should have gone further to expressly block such potential transfers. For this reason, Ireland, the Netherlands, Austria, Belgium and Luxembourg drafted and had attached to the final regulation a joint statement on the rule-of-law aspects of the proposal, expressing our support for the rule of law, our regret that the regulation, as approved, could potentially see the release of suspended funds, and calling for this issue to be addressed in future regulations, including the next multi-annual financial framework.
Given the high expected absorption of our allocation, there are possible adjustments given a minimal absorption challenge on specific European Regional Development Fund schemes. Investments under consideration include investment in affordable and sustainable housing and decarbonisation, and in actions that contribute to the objectives of this Strategic Technologies for Europe Platform, STEP. We look forward to hearing the committee members' views in respect of the regulation and are happy to take their proposals.
Alice-Mary Higgins (Independent)
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I remind members who are participating remotely to use the raised hand feature and to cancel it when they have spoken. If a vote is called in the Dáil, as we believe it may be, the committee will continue with Senators and will suspend temporarily, if necessary.
Given that the vote in the Dáil is pending, I am going to take the opportunity, as a Senator, to begin the questioning. I will put my initial questions to the representatives of the Commission. I am conscious that, as we said earlier, their statement has been read into the record. I know they will be keen to get the opportunity to elaborate further.
Key concerns about these funds include the questions that have arisen at our previous hearings about where the money is going and what kinds of arms are being purchased. I will begin with a couple of questions in that regard. We will come to a further question about how the arms that are being purchased under this scheme are going to be used.
My next point will be relevant when I come back in later but, for now, I will address it to the representatives of the Commission. Are there any safeguards against the purchase of cluster munitions or antipersonnel mines through the loans secured under this new scheme or the moneys reallocated under the other COM we are considering? Lithuania withdrew from the Cluster Munitions Coalition convention in March 2025, followed by the Ottawa treaty on antipersonnel mines. Latvia has also withdrawn from the Ottawa treaty, as have Poland and Finland. Lithuania and Finland have now announced their intention to begin domestic production and stockpiling of antipersonnel mines. I have quotes here. The Lithuanian deputy defence minister said, "We are going to spend hundreds of millions on anti-tank mines, but also on antipersonnel mines. It will be a significant amount."
The witnesses will be aware that Ireland has the Cluster Munitions and Anti-Personnel Mines Act 2008, which prohibits the Irish State from investing, either directly or indirectly, in the production, stockpiling or use of cluster munitions and antipersonnel mines. Will the witnesses from the Commission confirm if the moneys allocated to military spending under these two COMs can or will be used for antipersonnel mines and cluster munitions? What consideration has there been of Ireland's national legislation on this matter?
Ms Dinka Dinkova:
I thank the Acting Chair and the honourable members of the committee. I will first apologise on behalf of Mr. Guillaume de la Brosse, who, unfortunately, due to a last-minute commitment, had to be somewhere else. I and my colleague, Mr. Jannik Knauer, are happy to replace him and to answer the questions to the best of our knowledge.
Before we answer the specific question, I want to make a general statement about the fact that the SAFE regulations, which the committee is discussing, should be seen in a bigger picture. The ReArm Europe Plan was mentioned. It has five pillars. The first is the activation of the national escape clause of the Stability and Growth Pact, which could mobilise additional expenditures for member states. A number of member states have already activated that clause. The second pillar is the SAFE instrument we are discussing, which is raising up to €150 billion on the capital markets to provide loans to the member states, backed by the EU budget. Nineteen member states have already expressed interest, triggering almost the full allocation of the available budget of €150 billion.
Of course, there are then other lines of action. They are all in support of member states' defence readiness and reinforcing member states' defence capabilities. Additional contributions are made from the European Investment Bank, thanks to a revision of the bank's lending policy which is now narrowing down the excluded activities-----
Alice-Mary Higgins (Independent)
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With absolute respect, and we very much appreciate the overview, much of this ground has been covered in the statement which has been shared with all the members. While I appreciate this detail, time is limited and we have very specific questions. We may come back to the escape clause from the Stability and Growth Pact if we have an opportunity later. The focus really is on the two COMs at hand and, specifically, the €150 billion in loans and the redirecting of money from the Cohesion Fund.
Will Ms Dinkova answer the very specific question on whether cluster munitions and landmines can be purchased using moneys accessed through these two COMs? What consideration has there been of Ireland's national legislation in relation to that?
Mr. Jannik Knauer:
-----good afternoon. If you look at the SAFE regulation, it is clearly defined as to what kinds of articles can be purchased by these loans of €150 billion. Specifically, it is in the second paragraph of article 1, under two different categories. It says that under category one, ammunition can be purchased. It is part of the possible products.
With regard to the specific question as to how the SAFE regulation takes consideration of national prerogatives and international law, if you look at the "whereas" of this regulation and, in particular, paragraphs 36, 38 and 39, it specifically states in paragraph 36: "This Regulation is without prejudice to applicable international law prohibiting the use, development and production of certain defence products and technologies." Paragraph 38 states: "This Regulation is without prejudice to each Member State having the sole responsibility for its national security ... and ... essential security interests". In paragraph 39, it states: "The Regulation should apply without prejudice to the specific character of the security and defence policy of certain Member States." These-----
Alice-Mary Higgins (Independent)
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I think that answers the question. We have confirmed that if that is the national policy of a country, it can choose to spend this money on cluster munitions and landmines. Of course, the key concern in the case of Ireland is the investment piece. We will be asked to collectively contribute to the guarantee. If one of these countries that chooses to invest heavily in landmines or cluster munitions were to default, it would be underwritten by the EU budget and all contributors to the EU budget effectively contribute to the underwriting of these loans. That is correct, is it not?
Alice-Mary Higgins (Independent)
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I will come back to this in a moment because it raises significant issues for Ireland, which I am surprised have not been addressed previously.
On the other question of where these weapons come from, there is a requirement that 65% of the moneys drawn down be spent on European military production. Is it being tracked as to where the predominance of that money is spent? Are there measures to track that? I wonder if we will see a huge amount of money going into industries in one or two countries, which may come at the cost of other industries in other countries.
A total of 35% can be bought from third party countries. Does that include the United States? Is Israel one of the countries and is there a limit on the third party countries where this money can be spent? This relates specifically to an issue that has arisen before. Is it the case the money could be used to purchase "battle tested" weapons? Weapons are currently marketed as "battle tested" by Israel because they have been used in Gaza in the ongoing genocide. Is it a fact that 35% of the funds can be spent on weapons purchased from Israel or the United States?
Mr. Jannik Knauer:
I will quickly reply to those two questions. On the first question about how to track where the money is spent as part of the SAFE loans, by the end of November, member states have to submit concrete plans. On the basis of these plans, there will be loan agreements between the EU and the member states taking the loans. There will be a mechanism that will allow the Commission to do ad hoc checks on where and how the money is spent. That will be the way to verify the concrete percentages on where the money is spent.
With regard to the second question as to whether member states will be able to purchase from the US and Israel, the Senator rightly pointed out there is the possibility for non-EU country components to be part of SAFE. Member states will not be able to directly purchase from the US and Israel in the current set-up. For that, there would need to be a security and defence partnership agreement and a bilateral agreement. We are currently entering into negotiations for those with the UK and Canada. However, it is possible that for procurements under SAFE, there can be components from third countries. That includes, of course, the US and Israel. The components will be up to this threshold of 35%, as it is currently.
Alice-Mary Higgins (Independent)
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There will be a threshold of up to 35%. We should remind ourselves that we are dealing with very large amounts of money. I am looking at amounts of €3 billion and €14 billion, which are extraordinarily large. I note €16 billion will be drawn down by Hungary. I think it was mentioned earlier by one of the speakers from the Department that we have had concerns about Hungary and it abiding by the rule of law. Yet, we are potentially looking at a situation where we are underwriting €16 billion in military expenditure by a country where significant concerns about authoritarianism and the rule of law have been raised. We heard discussions about the safeguards, or the lack of safeguards, on the redirecting of the cohesion funding but there do not appear to any such safeguard for the loans.
On where the military expenditure is deployed, the opening statement referred to defence but is it the case that there is not any caveat or restriction on how weapons purchased under these schemes may be used? For example, if a country used them not for defensive purposes but in an offensive military action or a military action in the service of interests, would that be a matter for that country? Would we still underwrite its loans?
Ms Dinka Dinkova:
If I may intervene to provide some clarity, member states are requested to submit their national investment plans by the end of November. The Commission then has to assess and submit a draft Council implementing decision, without any undue delay. It is then really for the Council to assess and take the decision. Subsequently, a loan agreement and operational arrangements will follow. I expect it to be signed in the first quarter of next year.
There will be checks, on the side of the Commission, of the intentions of where member states would like to spend these loans or amounts of money. Ultimately, it is a decision of the Council, through an implementing act, to provide the reassurance.
Alice-Mary Higgins (Independent)
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There are no regulations, carve-outs or caveats at the moment and no criteria attached. We know there will be a decision on implementing it but there is no conditionality to the military expenditure attached to these loans, for example, that the military equipment purchased may only be used in a certain manner. Is that the case?
Alice-Mary Higgins (Independent)
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To go back to the question again, it is another part of the tracking. Are there measures in place around tracking the flow of weapons through third countries? We know there have been situations and we heard from the Ukrainian ambassador who attended the committee on foreign affairs this week. She spoke about the concern Ukraine had about Russia's ongoing access to weapons through third countries. Is it the case in terms of export licences for weapons production in particular countries and simply by the fact a larger amount of weaponry is being produced that it creates a risk? How is that risk being planned for in terms of increasing the global supply of weapons? We know, for example, drones that have been exported to Turkey from the EU were then found to have been used in Syria. There are multiple instances of weapons developed and purchased by one country eventually finding their way elsewhere. What are the tracking mechanisms?
I know Mr. Knauer mentioned there are checks. I have seen these loan agreements before and there are checks about financial repayment. I see Mr. Knauer is nodding his head. The checks that are largely in place are financial checks but what checks are currently in place in terms of human rights and the ultimate use of weapons?
Mr. Jannik Knauer:
Let me briefly respond to that question. The Acting Chair raised very important points. The checks foreseen under the SAFE regulation pertain to the conditions as laid out under the regulation. It is about how the money is spent, where it is spent, the thresholds and so on, as I tried to explain earlier.
On the question as to where the weapons might end up, go or be re-exported, that is not part of the SAFE regulation. The SAFE regulation is solely a mechanism that will provide member states with the financial leeway, with loans, to be able to procure.
The question of exports is not dealt with under the SAFE. That is for other formats.
Alice-Mary Higgins (Independent)
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To be very clear, there are not those checks and safeguards in terms of ultimate use or human rights concerns within the SAFE regulation. I might come to the other question I had asked about Hungary. Has there been consideration or is there concern due to one of the largest drawdowns of funding for military expenditure being made by a country in which there are concerns about the rule of law?
Mr. Jannik Knauer:
To complement this, exports are a national competence. The EU does not intervene in defence export questions of member states and therefore the SAFE regulation does not enter into this. With regard to rule of law questions, it is not for the SAFE regulation to resolve any issues member states might perceive with regard to other member states' application of the rule of law. The SAFE regulation is not the place to address these kinds of issues.
Alice-Mary Higgins (Independent)
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Coming back to the other point Mr. Knauer made about procurement, we have heard from the Irish Department that Ireland is engaging in the joint procurement component of SAFE. That joint procurement can also include joint procurement with non-EU countries where there is a security and defence agreement. Will Mr. Knauer confirm that? We know Ukraine is currently included and it is possible for the United States or Israel to be included. Is it the case that we could find ourselves involved in joint procurement - we already potentially are - in relation to an active conflict situation?
Mr. Jannik Knauer:
To clarify, joint procurement with non-EU states is possible for those laid out in the regulation. As the Acting Chair rightly pointed out, this includes Ukraine. These are EEA and European Free Trade Association, EFTA, countries, so that is mainly Norway. There are acceding and candidate countries for the EU and countries with whom the EU has signed a security and defence partnership agreement. There is no such agreement with the US and right now there is no work towards such an agreement with the US. Therefore, for the time being there is no possibility for common procurement with the United States.
Alice-Mary Higgins (Independent)
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It has been mentioned that countries can be added. What is the process to be added in that way? Does it go through the Commission or through the Council?
Alice-Mary Higgins (Independent)
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Coming back to the other COM, which is COM (2025) 123. This is the redirection of cohesion funding. Apologies to the representatives of the Department. I am conscious that our guests from the Commission are time-bound and that is why I am focusing my questions on them but their moment will come. This one is quite striking because redirecting what had been social cohesion funding towards a rapid increase in Ireland's proliferation seems to be in direct opposition to the stated objectives of this fund.
We may recall the European Coal and Steel Community's very founding statement spoke about co-operation in the areas of coal and steel, when coal was less problematic at that point, being a way of redirecting our common investment away from ammunition and military expenditure. Literally, the explicit intent was the specific idea that we find ways to redirect funds from military expenditure to end investment in the manufacture of arms, of which our own people are ultimately the greatest victims. That is what we are talking about here. We are talking about EU budget being taken effectively for underwriting, and budget money moving away from social cohesion, which is something Ireland has particularly benefitted from in the context of peace.
An example of an early impact of this is that one policy - the European Social Fund Plus - has already been left out of the MFF for 2027 to 2032 against the explicit wishes of and mandate from the European Parliament, which passed a resolution stating that the European Parliament insists the EFS+ must continue to be the key and primary instrument for supporting member states, regions, local communities and people in the strengthening of the social dimension of the union and in pursuing socioeconomic development that leaves no one behind. That is an incredible message from the European Parliament about something it believes is extremely important and that was previously covered by social cohesion but which is now proposed to be dropped, even as social cohesion funding gets redirected into arms manufacture.
Has there been a full cost-benefit analysis of the arms expenditure that is taking place and the costs of peace projects? Sometimes social cohesion is taken for granted. We look to countries like the United States with massive armies but that has not protected them against measures that have destabilised them and have led to a lack of social cohesion. We hear, in many cases, lots of discussion about hybrid attacks and the attacks on democracy and the promotion of division. These are other areas. I know they might not be Mr. Knauer's speciality areas but I refer to that kind of work of building peace on a continent which has a centuries-long history of internal fighting as well as external colonialism and violence in the wider world. There is that miracle of peace where we have all of these countries with this complicated history of violence working together. Social cohesion is the kind of thing that makes it happen and not in an abstract way. We have seen it in Ireland. Has there been a risk analysis of the diminishment of social cohesion funding and the potential implications in terms of peace and security of the lowering of social cohesion funding? Has there been an analysis of the potential danger that causes?
My second point is linked. Under the climate piece, there is the just transition fund. This is another fund which is proposed to be redirected. It supports Europe's transition to a diverse carbon-neutral economy. It is meant to help Europe become greener, lower carbon and climate resilient. Now we see that can also be redirected to military conflict.
In the opening statement from the Commission, there was talk of the present threat and future generations. Has there been a proper assessment of the implications of redirecting funding from climate action and just transition? Is climate not recognised as an equal threat, and potentially an immediate threat, to European security, as well as one of the great drivers, potentially, of conflict worldwide? Some 30 million people are displaced due to climate-related disasters. By 2050, they estimate about 1.2 billion will be displaced because where they live will become unlivable. These are huge impacts. Where does that feature? Has there been a risk analysis? It is not about making the case for arms production; it is about how it balances against other risks. I am saying this in a very significant way.
I have an additional question for Ms Dinkova. She mentioned the Stability and Growth Pact. It is interesting that there was an exit clause from the pact in relation to arms expenditure but there does not seem to have been the same decision about expenditure on the climate emergency.
Will the witnesses answer the last set of questions on social cohesion and climate? We will suspend shortly. I am happy for whoever wishes to answer those questions to do so but it was Ms Dinkova who mentioned the Stability and Growth Pact.
Mr. Jannik Knauer:
I will start with the question on the cohesion funds and then Ms Dinkova will complement as necessary. I would like to underline one important point when it comes to the possible redirection of cohesion funds. It is at the complete discretion of member states whether to make use of this possibility.
As a Commission, we are in a situation where member states and the European Council asked us to identify additional funds that could be spent in the area of defence. Here we are looking at defence infrastructure projects and military mobility projects; we are not talking about arms. We introduced in the revision of the cohesion funds the possibility that member states could decide to use a certain percentage of unused cohesion and social funds for projects relating to defence, infrastructure and military mobility. That is the focus of this.
It is not our recommendation that member states diminish expenditure on social and cohesion projects. It is rather that money that has not been used and will, most likely, not be used before the end of this MFF - that is, within the next two years - for another priority, and that is defence. It is a way to find money that will not be used and redirect it to defence. It is the sole prerogative of member states to make use of this possibility.
There is a huge difference in the amounts of Cohesion Fund money spent in different member states. Some have already allocated most of the money until the end of this MFF, while in others there is a significant share of money that has not been allocated yet. This is primarily an opportunity for those member states which have not yet allocated funds to use them for defence purposes.
Ms Dinka Dinkova:
Of course, we are not in any way underestimating the risks of climate change or other risks facing our societies. We are not ranking the risks here. We have to be clear about the role of the Commission. We have proposed that legislative decision-making is in the hands of the European Parliament and Council. This provides a facility for member states that wish to do so to use parts of their underused cohesion money to invest in security and defence capabilities. We are talking about strengthening industrial capacity, supporting projects of European defence interests and fostering military mobility, but also about opening opportunities to invest in skills and workforce development tailored to the defence sector, ensuring the long-term competitiveness and innovation of the whole industrial fabric of countries.
Maybe some countries assess the security risk as higher than others. Therefore, there is a special emphasis placed on supporting eastern border regions, which face immediate and maybe heightened security challenges. The decision as to whether the money will be spent on security and defence challenges is in the hands of the member states.
Alice-Mary Higgins (Independent)
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Can Ms Dinkova confirm there has not been the use of an escape clause in the Stability and Growth Pact in relation to climate expenditure?
Alice-Mary Higgins (Independent)
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Perfect. If possible, I would like to get a follow-up note confirming that. I would also like a follow-up note on my question about tracking the expenditure. Ms Dinkova has described it as an industry-support measure but there is a question of potential imbalance if the industry tends to go to one or two countries with large-scale arms manufacturing. Has there been a tracking of where the money will end up going? Maybe a further note could be provided on how it will be tracked.
Alice-Mary Higgins (Independent)
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It related to SAFE, specifically the €150 billion. We know which countries are drawing it down; the question is where it gets spent. Some 60% of that will be within the EU. Will it be within particular countries? How is that balance determined? Much of it has been framed as industry support. That would be useful supplementary information.
My time is up and my colleagues have returned, so I will pass over to them. I see Mr. McGann has been indicating. I will, if there is an opportunity, come back later on cluster munitions legislation, as well as coming back to Ms Ralph on the concern around Hungary drawing down from the €150 million loan.
Mr. Matthew McGann:
In fairness to our colleagues from the Commission, they do not deal with the Stability and Growth Pact. It would be our interlocutors from the Department of Finance in DG ECFIN who would deal with that. I know a little about the SGP. Unfortunately, it is quite complex. The Cathaoirleach Gníomhach was correct that the national escape clause has not been activated in respect of climate but there are provisions in the reforms of the economic governance framework and the SGP that relate to climate investment. I can go into more detail on them as time allows or as the members wish.
Alice-Mary Higgins (Independent)
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That may be a supplementary discussion. The actual Chair of the committee and I have engaged quite a lot in relation to the Stability and Growth Pact but it might be too much of a sidebar given the current focus on these two COMs.
Ms Ralph wanted to come in but perhaps she can come in later on the cluster munitions legislation nationally and the concern she expressed about Hungary and the redirection of cohesion funding.
Do those same concerns apply in respect of the drawdown of €16 billion from the loan facility?
Mairéad Farrell (Galway West, Sinn Fein)
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Thank you, Senator. We might let the others in. I thank the Senator for taking the Chair while we were all gone for a vote. Next is an Teachta Burke and then an Teachta O'Callaghan.
Colm Burke (Cork North-Central, Fine Gael)
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I thank all of the officials for the work they are doing in this area. It is complex. The whole issue has changed dramatically over the last three years. What are now priorities might not have been priorities three or four years ago. To the Department of Finance, we continue to spend just 0.2% of GDP on defence and we have not drawn down SAFE funding. We received only half the requested allocation under the NDP, but announced nearly an 11% budget increase. In the officials' own view and with those funding constraints, how can the Government dramatically scale up the resources available to our Defence Forces? Finland was neutral and has now changed its position. Given Ireland's own position of military neutrality, do the officials believe that we, too, should ensure independent capability that is not reliant on the military capacity of other nations? If so, how could the Government plan to build Ireland's defence technology on an industrial basis towards this objective? On resourcing and acquiring the equipment in Ireland, will the Department outline what proportion of current defence capital expenditure leaves the State and what measures are being taken to increase the level of local industrial participation in defence procurement? For example, given that the Defence Forces have an identified requirement for drones, which could play a significant role across multiple operational areas, what specific steps are being taken to ensure that indigenous Irish businesses can participate in and benefit from the procurement process? Those are three questions I think the Department of Finance officials might be able to deal with.
Mr. Matthew McGann:
I am not sure we will be able to deal with the detail of the expenditure with our colleagues here today. The Department of public expenditure manages the detail of the various expenditure lines. To the Deputy's first question about why Ireland did not apply for use of the SAFE borrowing capacity, we considered it in conjunction with our colleagues from the Department of Defence and the Department of public expenditure. Ultimately, we did not see that there was a financial case for it for two reasons. First, at the moment, Ireland borrows more cheaply than the Commission. It is an on-lending facility so the Commission borrows on capital markets and then lends to member states. In particular for high-debt member states that access funding at a higher level, it means they can access funding more cheaply and it supports their additional spending. We are in the fortunate position of having a relatively low level of borrowing costs on the market. Our costs can vary at different times but over the last six months we have been borrowing at about 2.9%, and the Commission at 3.2%. Even more significant than that is the fact that we run a surplus at the moment. If there is additional spending needed, there is not a financial case to borrow to fund that additional spending when we have a surplus.
Colm Burke (Cork North-Central, Fine Gael)
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Okay. The other issues were maintaining our independence and being able to upgrade what we have, where there is availability within the country, rather than buying from outside the country. Have those two items had been considered?
Mr. Matthew McGann:
If I understand the Deputy's question correctly, it is about how we spend the money from the Defence Vote. I am afraid the Department of Finance does not have oversight of or responsibility for specific expending within the Defence Vote. That would be for the Department of Defence with colleagues in the Department of public expenditure.
Colm Burke (Cork North-Central, Fine Gael)
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Does it come in under public expenditure or would the Department of Defence have the details on that?
Colm Burke (Cork North-Central, Fine Gael)
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Is it not something that the Department of Finance would also carefully monitor?
Colm Burke (Cork North-Central, Fine Gael)
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Would that information be available from the Department of public expenditure as regards what expenditure of the defence budget is going outside the country?
Colm Burke (Cork North-Central, Fine Gael)
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Then there is whole issue of maintaining neutrality but at the same time making sure we have capabilities, looking at what Finland has done. What do we need to do in that whole area?
Mairéad Farrell (Galway West, Sinn Fein)
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Mr. Ryan was indicating, a Theachta, just to let you know.
Mr. James Ryan:
We are undertaking what we call a mapping exercise currently, identifying what capabilities are existent in the innovation ecosystem in Ireland, what companies are out there and what capability they could supply to the Department. We have an equipment development plan that is ongoing and under development. Items that are on that plan would be put to tender. We would have an open tendering process. The Deputy mentioned the requirement for drones for the Defence Forces. Any requirement for drones would be put to tender. That may be something we could look at under the SAFE joint procurement initiative. Small drones are part of the category 1 opportunity for capability within that.
Colm Burke (Cork North-Central, Fine Gael)
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That whole issue is being examined at the moment, am I correct?
Colm Burke (Cork North-Central, Fine Gael)
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No, just the whole issue of looking at where we are sourcing our equipment and seeing if it is available through Irish companies or companies that have connections to Ireland. Is that being considered or is it just a case of putting it out to tender?
Mr. James Ryan:
We would just go to tender, to the best of my knowledge. That is not my area of expertise. We have an open tendering process whereby any requirements for the Defence Forces capability are put out to tender. As I said, we are looking at identifying what companies exist in the innovation ecosystem within Ireland and, it is hoped, assist them in developing equipment that they could sell on the European market.
Colm Burke (Cork North-Central, Fine Gael)
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I will move on to our representatives from Europe and deal with the issue of protection of the European borders. We have had support from the United States. That seems to be changing now. Do we have any idea as to the involvement of the United States now from a European context? How reliant are we? Is this the reason we now need to make sure member states are adequately equipped if there is a total withdrawal by the United States from any involvement in European defence?
Ms Dinka Dinkova:
I thank the Deputy for the question. Parts of it go beyond the competence of myself and my colleagues here and, in fact, of the Directorate-General that we represent.
We look at defence more from an industrial perspective and what has to be done to assist member states in ramping up their defence industrial capabilities so that they are up to the level needed to ensure our common security defence and meet the requirements set up by NATO, such as the 5% investment in defence. In general, security and defence policy is the domain of the European External Action Service, EEAS. The objective of the European defence programmes we are managing is to strengthen European industry and independence in our industrial capacities and reduce our dependencies, whether they are on components, raw materials or defence products. That is why, in most of the European programmes, there are certain thresholds as to the involvement of third-country partners or how much of the budget can be spent on components originating from non-European countries. There are new notions in the new programmes on the table about the concept of European authority.
Colm Burke (Cork North-Central, Fine Gael)
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We have a strong reliance on the United States, whether it is for-----
Ms Dinka Dinkova:
We acknowledge that, in certain areas, we will continue to rely on our allies and partners. In order to be a credible partner, however, we also need to reinforce our independence. I do not know if my colleague, Mr. Knauer, wishes to come in. We do not wish to be completely self-sufficient, but we need to have a more autonomous European defence industry that is capable of meeting the needs of the member states. That is part of the industrial policy objectives that we are setting at EU level.
Mr. Jannik Knauer:
To add one quick point, it is important – and this is reflected in all the documents we put out – that for those member states that are also NATO allies, NATO remains the cornerstone for anything that pertains to deterrence, collective defence and operational questions. As Ms Dinkova pointed out, and I wish to underline again, the Commission is only looking at the defence industrial dimension. We do not have any say when it comes to actual operational questions or the heart of the defence policy of member states. The European Commission does not enter into those matters.
Cian O'Callaghan (Dublin Bay North, Social Democrats)
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To follow up on those contributions, just so I am clear, two of the key objectives are to help EU member states meet their NATO objectives and strengthen the military industry. Are those the two key objectives?
Cian O'Callaghan (Dublin Bay North, Social Democrats)
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I wish to ask about the issue of safeguards. As part of this, what safeguards are in place to ensure we do not have a situation where Ireland, along with other EU member states, ends up underwriting loans that could be defaulted on to countries where there are significant and serious rule of law issues? What safeguards are there to prevent those countries from using these weapons in ways that would not enjoy any support from the Irish public? What safeguards are in place to ensure that, at a future stage, these weapons will not be used against the citizens of that country? What are the safeguards for Ireland in underwriting these loans, collectively with other member states, so that we do not end up in a situation where we have underwritten loans in which the weapons are used in those kinds of ways?
Mairéad Farrell (Galway West, Sinn Fein)
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I ask Ms Lo Bue Oddo to turn on her camera.
Ms Paola Lo Bue Oddo:
I am sorry about that. In Article 14 of the SAFE regulation, there are provisions related to inserting controls and audits in the loan agreements. We will conclude the loan agreements towards early 2026, with the member states taking the loans. They will be specific to each member state and we will insert any necessary provisions regarding controls and audits that respect Article 223 of the financial regulation. This includes any conditions related to fraud and default. It is really those standard conditions present in the financial regulation that will ensure that we have sound financial management rules in place and that the rule of law is also respected.
Cian O'Callaghan (Dublin Bay North, Social Democrats)
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If funding is provided for these weapons, and they are purchased and in the hands of a government or state that already has serious issues with the rule of law, how will Article 14 and these controls and audits in the loan agreements prevent that government or state from, for example, misusing those weapons? The example I provided was those weapons being used against a civilian population. Will Ms Lo Bue Oddo explain how these controls and audits will prevent that if the weapons are purchased and in the possession of that state?
Ms Paola Lo Bue Oddo:
The specific provisions will be present in each loan agreement. We will ensure that we have access to any information, including classified information, that is necessary for the purposes of verifying the disbursement of the payments and carrying out checks, reviews, audits, investigations, reports, controls and any other audits. In that sense, we need to have access to information related to the loans.
Any loan payments we make to the member states will be made in instalments. The request for the instalments will be submitted, which has to be based on a duly justified request for payment. Once the Commission receives this duly justified request for payment, we assess it and decide whether to disburse the payment. If we assess that the request is not duly justified and that there are some issues related to controls and audits, we can make a negative assessment, which means the payment of the loan can be suspended partially or fully. In that sense, there will be specific provisions in each loan agreement. Articles 12, 14 and 21 in the SAFE regulation clearly explain that we have strong safeguards in this regard.
Cian O'Callaghan (Dublin Bay North, Social Democrats)
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It sounds like the safeguards relate to fraud and financial management. If the Commission becomes aware that the money disbursed through the loans is not being used to buy the weapons, these safeguards will kick in. It does not seem that there is any protection to ensure that these weapons, once purchased, cannot be misused. I am asking this from the point of view of the Irish public because the Irish public are underwriting these loans. It is in our interest. The Irish public will not want to underwrite loans for a government that has serious issues around the rule of law.
We already have that situation. In Hungary, for example, there are not the norms we expect in Ireland, such as rule of law and humans rights law norms, or treatment of the LGBTI community in the Hungarian Government banning pride marches and so forth. There are some very some serious issues and red flags there in terms of lack of basic respect for its own citizens. What protections or safeguards are there to ensure that we will not be underwriting a loan to a country in the European Union that does not respect the basic rights of some of its own citizens? What protections are there to ensure we will not be underwriting a loan to get more weapons in the hands of that government, which could be used and abused in ways that would not be acceptable to the Irish public? I appreciate there are financial management and fraud provisions but are there any safeguards for what I am asking about?
Mr. Jannik Knauer:
I will jump in on this one. It is important to clearly differentiate the purpose of the SAFE agreement and its loan principle to provide member states with loans to purchase, including the purchase of weapons, and the actual use of these weapons. As I tried to underline at the very beginning - I think it was my first intervention - in the recitals of this regulation, there are some clear references to laws prohibiting the use, development and production of certain defence technologies and products. To a certain degree, part of the scenarios that the Deputy pictured are covered by these provisions. Of course, apart from that, and this is not the SAFE regulation, the rule of law regulation still applies, which is outside the SAFE regulation per se. The question of the rule of law with regard to specific member states is not part of the SAFE regulation. It is the overall objective. If you see it in the overall as key to the EU it is covered, but it is not in the regulation per se.
Cian O'Callaghan (Dublin Bay North, Social Democrats)
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To be clear, there are no provisions or safeguards in this to cover issues around the rule of law and human rights for citizens in EU member states. Am I clear on that? It is outside of it. There are no safeguards.
Cian O'Callaghan (Dublin Bay North, Social Democrats)
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I thank Mr. Knauer.
Edward Timmins (Wicklow, Fine Gael)
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I thank the witnesses for the presentations. I have a couple of questions on SAFE funding for the Commission. Does the SAFE funding of €150 billion sit outside the 1.5% of GDP that member states are allowed to borrow on top of their 3% limit? Is it a separate loan? At the moment, states can borrow 1.5% of GDP for defence purposes in addition to the normal 3% guideline they are limited to. Is the €150 billion additional source of funding on top of the 1.5% they can borrow?
Mairéad Farrell (Galway West, Sinn Fein)
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Will the Deputy indicate exactly who the question is for?
Mairéad Farrell (Galway West, Sinn Fein)
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Okay. I see there is an indication-----
Mr. Matthew McGann:
I can come in on that. I think the Deputy is referring to is the national escape clause under the Stability and Growth Pact, SGP, where member states can have an additional excess up to 1.5% of GDP over the net expenditure path they have submitted that has been approved in their medium-term plan. For the main national expenditure clause under the SGP, borrowing under SAFE is limited to statistical measurement of defence expenditure, known as the classification of the functions of government, COFOG, 2, which is the European system for classification of expenditures. Any borrowing or expenditure that is funded through SAFE is also eligible for the national escape clause. However, it is still limited within the 1.5% of GDP cap for each member state.
Edward Timmins (Wicklow, Fine Gael)
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Is there a time limit on the drawdown of this €150 billion? How much has been drawn down so far and by whom?
Mr. Jannik Knauer:
The SAFE instrument is a short-term instrument meaning it has a lifespan until the end of this decade. No loans have been disbursed yet for that. There is the need for loan agreements. As my colleague pointed out, that will be the case early next year. The loan disbursements will be step by step. Depending on the loan agreement, there will be a timeline according to which, based on conditions that need to be fulfilled, these loans will be disbursed for four years in total.
Edward Timmins (Wicklow, Fine Gael)
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Can the purpose of the loans cover measures such as cybersecurity?
Edward Timmins (Wicklow, Fine Gael)
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I will go back to the Department. Where do the officials see Ireland's weaknesses in relation to security? What are we planning to do about it?
Edward Timmins (Wicklow, Fine Gael)
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Could these new regulations result in the loss of cohesion funds to Ireland?
Dr. Andrew Condon:
Ireland's cohesion funds are not being allocated to defence spending. We do not have this in the current round. We are allocating our cohesion funds to affordable housing and energy decarbonisation, where we have had difficulties with absorption. We are not allocating them to SAFE.
Edward Timmins (Wicklow, Fine Gael)
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Is there a danger of our cohesion funds being lessened as a result of these regulations?
Dr. Andrew Condon:
I would not like to speculate about the next multiannual financial framework because it is under negotiation and is at a very early stage of negotiation. What we have always advocated for is a degree of flexibility in cohesion policy, so that where other member states may choose to spend on priorities such as defence, Ireland would spend on our priorities of addressing deprivation, infrastructure, science, research and green energy. That has always been our policy approach. That flexibility allows us to do things with cohesion money that might be different from other member states. We hope that will continue.
Edward Timmins (Wicklow, Fine Gael)
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I am particularly concerned about affordable housing and that we maximise our use of it in that direction.
Pearse Doherty (Donegal, Sinn Fein)
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Fáilte chuig an gcoiste. What is the current playing field? We hear a lot about the militarisation of Europe and whether hard-pressed Irish taxpayers are contributing towards the funding of the militarisation of Europe, particularly as we are a neutral state. Currently, is Irish taxpayers' money being used to subsidise the European arms industry in any fashion, particularly through the EU budget, the European Defence Fund or the Act in Support of Ammunition Production, ASAP, or any other mechanism?
Mairéad Farrell (Galway West, Sinn Fein)
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Does Deputy Doherty want to begin with the Commission?
Mairéad Farrell (Galway West, Sinn Fein)
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We will begin with the Commission.
Ms Dinka Dinkova:
Maybe I can venture to reply. We are not subsidising. These are collaborative European programmes that invest in research and development in the case of the European Defence Fund or investing in developing industrial capabilities, ramping up industrial production through the measures that the Deputy mentioned. All of these are measures that are co-funded so there is a certain amount of the EU budget that goes into those programmes and an amount, depending on the action that is co-funded, by the member states or the companies themselves. We do not see this as a subsidisation of the defence industry. It is an effort to develop European defence capabilities and the contracts or projects are awarded on a competitive basis, as in other areas of European programmes.
Pearse Doherty (Donegal, Sinn Fein)
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To clarify, Ms Dinka is saying that Irish taxpayers' money is going in to fund the militarisation of the European Union. Am I not right in saying that ASAP has a €500 million budget and some of that is to buy munitions? This is not just research and development, it is weapons is it not? The name of the programme refers to ammunition production. Are Irish taxpayers funding the development of munitions in Europe through the ASAP budget?
Mr. Jannik Knauer:
The ASAP programme, as the Deputy rightly pointed out, is the Act in Support of Ammunition Production but the emphasis here is on production. The programme was not about buying ammunition. The programme aims at increasing the production capacities within Europe for ammunition, in particular in view of providing support to Ukraine.
Pearse Doherty (Donegal, Sinn Fein)
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Thanks for the clarity. Am I right in saying - and steer me if I am wrong on this - that Irish taxpayers are funding the production of munitions in Europe but not necessarily the sale of them? We are just funding more bullets, more munitions and more armaments of work in Europe. Is that what is happening at the minute?
Mr. Jannik Knauer:
As I tried to point out, but maybe I was not clear, it is about the production capacities. So we are talking about industrial production sides and questions of supply chains but we are not talking about this money being used to actually produce because there are no orders placed for actual ammunition with this money.
Pearse Doherty (Donegal, Sinn Fein)
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I will return to the fact that there are no audits but the aims of this programme is to stimulate the production of munitions. Explosives have got €124 million of a budget, powder has a projected portfolio of €248 million and shells has €90 million. Is not the answer to the question that the Irish taxpayers are funding the production of munitions in Europe not clear as the nose on my face?
Mr. Jannik Knauer:
Again, I think it is important to be clear on what the ASAP programme is aiming at. It is not about buying the ammunition. ASAP is aiming at creating the possibilities for member states to procure this ammunition but the orders will come from member states. The EU funds, so the ASAP programme, is not used to actually procure ammunition.
Pearse Doherty (Donegal, Sinn Fein)
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Yes, it is for the production. Is not that correct? The production of, not just ammunition, but also missiles. There is a €50 million budget for missiles. It is about the production, is it not, of these types of munitions?
Pearse Doherty (Donegal, Sinn Fein)
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So hard pressed Irish taxpayers are supporting the capacity for European countries to produce missiles, munitions and explosives en masse. Is that not the case? Is that a factual statement?
Pearse Doherty (Donegal, Sinn Fein)
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Sorry, Mr. Knauer and I were having a conversation. Is not that not a fact, Mr. Knauer?
Pearse Doherty (Donegal, Sinn Fein)
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Irish taxpayers are funding the capacity of the production of ammunition, including explosives, powder, shells and missiles within Europe.
Pearse Doherty (Donegal, Sinn Fein)
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Does Ireland contribute towards that?
Pearse Doherty (Donegal, Sinn Fein)
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Of which this is a part.
Can I ask a straight question? Why will Mr. Knauer not just tell it as it is? Ireland contributes, through the EU budget, to this programme which is designed to increase the capacity of Europe in relation to munitions, including explosives, powder, shells, missiles and other capabilities to the tune of half a billion euro. Is that not a factual statement and why are we dancing around this? From the point of view of the EU Commission, do the people who are listening to this debate not deserve the unblemished truth about what has happened? If the European Commission wants this direction to happen in Europe then be proud of it and wear it as a badge of honour. There will be many people in this country who disagree with the direction but at least tell them the truth about what is happening and where their hard-earned taxpayers' money is contributing as a result of the direction that Europe has taken.
Mr. Jannik Knauer:
Apologies if the Deputy had the feeling that I am dancing around something. I was really trying to be precise in what this programme is supporting. It is important to me to be very specific on this because, as the Deputy rightly pointed out, the EU funds cannot be used to directly procure arms and ammunition. It is an important distinction that I was trying to make. If that offended the Deputy then I am very sorry for that.
Pearse Doherty (Donegal, Sinn Fein)
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No, that has not offended me at all. I will come to the issue of Article 41.2 at a later point in relation to how the treaty completely bans the use of European funds to procure arms. What we are talking about is increasing the capabilities and in my view, that is a way around. Ultimately, about half a billion euro will flow to companies to increase their capabilities in specific areas that are identified, namely, missiles, munitions and other types of armaments of war, and the Irish taxpayer contributes to that. Is that not a fact?
Pearse Doherty (Donegal, Sinn Fein)
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I appreciate that.
Ireland is a military neutral country.
Pearse Doherty (Donegal, Sinn Fein)
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Yet we have just determined that Irish taxpayers are funding the military complex within Europe.
Pearse Doherty (Donegal, Sinn Fein)
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No, sorry, I understand the Irish piece. Sorry, I did not understand the point made by Mr. Knauer but I get it now that Ireland's neutrality is respected. How is it respected if we are a net contributor to a fund which actually increases the military munitions capabilities for other EU member states? Therefore, people in my constituency, and people around this table, that is, the Irish citizens and taxpayers here, are indirectly funding the militarisation of Europe. We are funding the ability for other member states to do what they want to do as a nation but that should not happen through Europe. If France, Germany or any other country wants to increase their military capability then they should do it.
Why should they be asking Irish taxpayers to help fund their capabilities? That is what is happening through ASAP.
Pearse Doherty (Donegal, Sinn Fein)
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It is very clear under the Article 41(2) of the Treaty on European Union, where it excludes the use of EU budget "arising from operations having military or defence implications". The European Union has found a way around this. It is using another article, which is about subsidising companies and so on and, as Mr. Knauer mentioned, not procuring ammunition or weapons of war. The reality is that it supports that industry. It supports that complex. It supports that capability. Irish taxpayers are being asked to fund a portion of this. As a military neutral country, that sticks in my craw. I think most people in Ireland do not support that idea. If member states want to increase their military capabilities, they should be entitled to do that. If they are part of NATO, it is their decision. Why is the European budget being used? I come to the regulation we are dealing with now. Will a portion of the European budget not be used to service the loans of up to €150 billion provided to member states? A portion of the European budget will be used in that context, which means Ireland will be contributing to that. Is that not the case?
Mairéad Farrell (Galway West, Sinn Fein)
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Does Mr. Knauer want to respond to that?
Pearse Doherty (Donegal, Sinn Fein)
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Where will the interest rate that services the loans come from?
Pearse Doherty (Donegal, Sinn Fein)
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Does it not come from the overall European budget which Ireland contributes to? If member states draw down these loans, will there be no debt-servicing costs in terms of the European Union or is this all free money the EU is getting?
Pearse Doherty (Donegal, Sinn Fein)
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Okay, I will come back in later. I thank Mr. Knauer.
Mairéad Farrell (Galway West, Sinn Fein)
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Go raibh maith agaibh as teacht os comhair an choiste inniu. At the start we had to be a bit more haphazard than usual because we had to run out for votes.
I am really concerned around these two COM proposals that came before our committee. I am even more concerned after having this committee meeting today. I am extremely concerned with Mr. Knauer's response to what Deputy O'Calllaghan asked about how certain countries break different laws and their access to funding. I am also really concerned about the impact this is going to have on the Irish taxpayer.
I will begin with a question on what would happen if these loans were to default. I am aware that Latvia, for example, is getting a €5 billion loan. Their general budget is €15 billion. That is a significant sum of money. I am very concerned that certain countries would not be able to pay the loans back when there is that kind of ratio. I am not concerned by a particular country, because I do not know the economic situation of different countries, but when there are those levels of money I am concerned. It has been suggested it is unlikely for a member state to default on their loans but we know that if they do, it will be guaranteed by the EU budget. What are the incentives for countries to pay back these loans? I will start with the Commission.
Mairéad Farrell (Galway West, Sinn Fein)
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What is the incentive? I am not saying any particular country would not want to, but are there particular repercussions that have been outlined for countries if they do not pay them back? At the moment they are guaranteed by the EU budget.
Mairéad Farrell (Galway West, Sinn Fein)
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We are the finance committee of the Houses of the Oireachtas in Ireland and we are being told that member states are likely to repay these loans and that is the working assumption. However, there is a lot of talk about war coming to Europe and that this is the reasoning behind these member states needing to increase their military capabilities. Surely, in a situation like that they are less likely to pay back their loans. We are being asked to backstop those loans. We are supposed to be in a position to assist with that. It is crucially important for the finance committee of the Houses of the Oireachtas to know exactly what is expected from these member states and why it is anticipated that they will pay the loans back.
Mairéad Farrell (Galway West, Sinn Fein)
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Then I would like for us as a committee to be furnished with exactly what that is, because I want to know if it is fiscal austerity that the EU is planning to impose on these countries. I would like to know exactly what those obligations are. To me, it is simply not good enough to be told there is a working assumption and that we are not told why exactly. Does the witness have any reasoning why this is the working assumption?
Mairéad Farrell (Galway West, Sinn Fein)
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This does not fill me with confidence. From our engagements on this issue, the reasoning for the increase in military spending is based on the fear that there could be a war in some of these countries or an invasion in some of these countries. Surely, that would impact on their economy. How much, in terms of the EU budget, is being set aside on a yearly basis at present for what in Mr. de la Brosse's view is the unlikely scenario that these countries cannot pay back their loans? I am sure this is being done. How much per year is being set aside?
Mairéad Farrell (Galway West, Sinn Fein)
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This is the finance committee, however. I ask again that we are furnished with this. The issue here is very clear. These are significant loans for some of these countries. If there is a country which, through absolutely no fault of its own, is unable to pay back these loans because it is in an economic crisis from, perhaps, war in that country, this finance committee will be looking at this in years to come wondering what impact this is going to have on the EU budget and what impact that is going to have on the spending within Ireland and, indeed, how much money we are going to give, and the knock-on impact. For that not to be very clear for us, when looking at it from a finance committee's perspective, is deeply worrying.
I do not know if this something the officials have looked into or are aware of what it might be. I will let one of them come in.
Ms Fiona Ralph:
I am from the Department of Finance EU budget unit. When the EU budget is used to lend, there are two different ways it can be done. It can be provisioned, as in money is set aside in the budget in a kind of savings account, like what the Cathaoirleach said. There is a number of instruments for which that is done, for example, certain macrofinancial assistance, InvestEU and the European Fund for Sustainable Development. In that way, a pot is put aside in case there are defaults.
Mairéad Farrell (Galway West, Sinn Fein)
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Is that the case here?
Ms Fiona Ralph:
No. That is not the case here. The other way this is done is that the guarantee is featured in the headroom of the EU budget. There is the agreed budget, then slightly above that are the multi-annual financial framework ceilings and above them again is the own-resources ceiling. The own-resources ceiling is set in current legislation at 1.4% of EU GNI with an additional 0.6 percentage points to cover Next Generation EU specifically that can be called in from all member states in a given year in the extremely unlikely event of a default.
Mairéad Farrell (Galway West, Sinn Fein)
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For us, how much is that in a given year?
Mairéad Farrell (Galway West, Sinn Fein)
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Over the next ten years, for this particular instance, it is legitimate to have concerns if countries will not be able to pay it back. I am not expecting Ms Ralph to answer that particular part but it is legitimate to have concerns in relation to that. Is that done out? Do we know how much we are setting aside?
Ms Fiona Ralph:
On lending via the European Commission to member states, the scenario the Cathaoirleach is talking about is in the case of a sovereign default of a member state, which is why we are saying it is extremely unlikely. To my mind, there is no precedent for what would be done in such a situation and how the repayments would feature. When we agreed the legislation for the own-resources decision, which is the legislation where this 1.4% of EU GNI is set out, we took on board that it is a contingent liability we might have to cover financial liabilities arising for the Union. It is extremely unlikely to ever reach that point but it is something we have to be prepared for in the very unlikely case.
Mairéad Farrell (Galway West, Sinn Fein)
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I understand it is unprecedented but the way this is being sold to us in relation to SAFE is that we are in unprecedented times and we do not know what will happen. That is where the concern is. I thank Ms Ralph.
Mr. Guillaume de la Brosse:
I am sorry to interrupt. I was discussing these matters with my colleague. So far, member states have never failed to repay a loan at maturity. That is the experience. In the case that they fail - this sounds to us very unlikely - we would need to declare the event of default, which would create a big national risk for that member state and lots of reactions on capital markets. Then, we could set the money against payment due to the member state. As a last resort, we could go to court to get an injunction to pay. Different steps are foreseen to get member states paid in the unlikely scenario that would happen.
Mairéad Farrell (Galway West, Sinn Fein)
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I understand you are all saying this is unlikely but we are consistently told all this money has to be borrowed because there could be a war in a country. I do not see how billions and billions of borrowing can be paid back in a ten-year period by a country that could be devastated by war. The hope is that this will not be the case, but why is there €150 billion in militarisation?
Mairéad Farrell (Galway West, Sinn Fein)
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We can agree to disagree with different policy positions. We are focused on the financial aspect. I am aware an Teachta Shay Brennan has come in. I want to let him in. I will then let people in for a second round.
Shay Brennan (Dublin Rathdown, Fianna Fail)
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Thank you, Chair. I missed a portion of the meeting due to another commitment. If I ask a question and it has been answered, I ask the witnesses to tell me and I can play the video at a later stage and get the answer that way. On my way out of the office, I think I heard Deputy Doherty ask what the interest rate is on the loans. Will the witnesses confirm that?
Shay Brennan (Dublin Rathdown, Fianna Fail)
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To take a step back then, what is the structure of these loans? What is the instrument? Are the bonds issued by the sovereign nations or the EU? Is it third-party bank lending, for example?
Mr. Matthew McGann:
I can give an overview but my colleagues in the Commission might be better placed to do so. Essentially, the EU borrows the money on capital markets and on lending to member states, it provides a different source of funding for member states. For high-debt members which face higher levels of borrowing costs, the EU can borrow more cheaply than they can. It provides them with a lower-cost source of funding for the purposes of the spending under the regulation.
Shay Brennan (Dublin Rathdown, Fianna Fail)
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That is advantageous to the borrowing nation. Is there any danger that nations could redirect their military spending and use this fund to replace borrowing they are doing elsewhere?
Shay Brennan (Dublin Rathdown, Fianna Fail)
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Essentially, yes.
Shay Brennan (Dublin Rathdown, Fianna Fail)
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An example might help to get it across. If you spend €100 million on your military and you borrow within your economy anyway for other reasons, given you are doing it anyway, could you now put the €100 million you are spending on the military under the SAFE instrument and borrow that €100 million from the EU at a lower rate to reduce borrowing elsewhere that you were going to spend in the domestic economy at the higher rate because of your sovereign rating?
Shay Brennan (Dublin Rathdown, Fianna Fail)
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Is that likely to happen? I am not directing all the questions at Mr. McGann. It is a general question.
Shay Brennan (Dublin Rathdown, Fianna Fail)
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What is the seniority of these loans? I am thinking of a Brexit-type scenario, whereby a nation actually leaving the EU has obligations to the EU. Where in that pecking order does this particular instrument sit?
Mr. Guillaume de la Brosse:
If a country is leaving the EU, we would have to organise a proper leaving of the Union. That would be part of the obligations of that country, as in the case of the UK. The UK has to pay back certain elements as part of the obligations coming from its membership. The scenario described by the Deputy would be the same. It would be part of the obligations of that country leaving the Union properly.
Shay Brennan (Dublin Rathdown, Fianna Fail)
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Sovereigns default all the time. I will go further on what the Chair asked. The tone is quite optimistic that no one is going to default.
Have any scenarios been run, like actuarial scenarios? If a bank is to lend you money, it is going to do its due diligence. It is going to work out the probability of default. Has anything similar to that been done?
Ms Fiona Ralph:
I can cover this in the round and the Commission might want to comment specifically on the SAFE instrument. This is not the only borrowing instrument that is guaranteed by the headroom of the EU budget or guaranteed by provision. The Commission reports annually on the stress tests and other qualitative and quantitative testing it does of our contingent liabilities. It reports on it in a number of places. There is one report that should be due out in a few weeks which is called the Article 256 report on the contingent liabilities of the Union, in which it sets out the outcomes of stress testing. There is also the draft budget every year, the working document XI, which covers the borrowing that is provisioning. It sets out the risk involved and in each case to date, it has stated that the provisioning is adequate and the existing mechanisms are able to cover even the most the adverse scenarios. That is obviously backward looking. The latest report we have on those is for the financial years 2024 or 2023, depending on the report in question. I am not sure if the Commission might be able to add anything specifically with regard to SAFE but once the SAFE borrowing begins it will be carrying out all of this on an ongoing basis, including for the SAFE borrowing.
Shay Brennan (Dublin Rathdown, Fianna Fail)
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I appreciate that before a default takes place, work will be undertaken to restructure and assist that nation. Even without this instrument, an EU nation defaulting is problematic for the Union so support would be there.
There is one thing I want to understand. If a nation comes in tomorrow to draw down €5 billion, it is a case of the EU having to go to the market to raise that €5 billion or will the first X amount be taken from existing EU funds?
Ms Fiona Ralph:
The Commission operates a unified funding strategy, which essentially means that rather than borrowing for each specific instrument, it does general EU borrowing and then passes it on to each EU instrument. It would have to be new borrowing in the sense that this is newly created and the money, as discussed before, does not come from the actual Union budget at all. It is coming from borrowing on the marketplace. When the Commission goes to the capital markets, it goes to seek EU bonds rather than SAFE bonds.
Shay Brennan (Dublin Rathdown, Fianna Fail)
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I should have this figure but Ms Ralph might have it. What is the current level of EU debt?
Ms Fiona Ralph:
I can point the Deputy to where more information can be found on that. I will say that it changes quite regularly because of real borrowing and repayment of existing borrowing. The European Court of Auditors published its annual report just last week. That went into the level of EU debt as of the end of 2024. That would provide further information on that. Like I said, it changes.
Shay Brennan (Dublin Rathdown, Fianna Fail)
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I thank Ms Ralph. I will obtain that figure. Related to that, what level of default can the EU absorb before a capital call is made on sovereign nations?
Ms Fiona Ralph:
This is speculative so I do not really want to get into the details. You have the EU budget as it exists. In the extremely unlikely case of a call on the default, you are going to look at the various measures available before calling in additional funds from member states. The European Commission mentioned earlier that it will always owe member states money at different points in time. One extremely speculative option is that it could use that to net that off. There are a lot of different options you can take in your overall budget with regard to how you are going to spend the money you have to meet the financial obligations you have.
Shay Brennan (Dublin Rathdown, Fianna Fail)
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Okay. I apologise for my scattergun questions.
Mr. Matthew McGann:
I will make one distinction there. This is not an increase in common debt for the EU in the same way that the recovery and resilience facility was. The EU issued debt to fund the recovery and resilience facility and it is being paid back through the EU budget. It will make those payments on the debt. It is the member states that will pay back this debt. The member states that benefit from the borrowing will pay it back and that, in turn, will pay back the EU's debt. It is not where it is being serviced from.
Shay Brennan (Dublin Rathdown, Fianna Fail)
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I appreciate that but it is an increase in EU debt. It is on the EU's balance sheet. I know there is another side to it.
As a parting comment, my concern is not about a default of a single nation. Like I said, I believe the EU is there to support a single nation if it gets into financial difficulty for whatever reasons. It is systematic risk. If the worst-case scenario happens here and a nation has to default because it is invaded or there is a war situation, it is quite likely that is not just going to affect one nation. It is quite likely that whatever causes that nation to default will mean contagion for other nations. It is likely that regardless of what the cause is, it is also going to apply to other nations. While it would be a black swan event, it would be quite a serious one. If that were to occur, individual countries would have difficulties in meeting their obligations to the €150 billion, I would imagine. Where would that leave the overall EU project financially?
Shay Brennan (Dublin Rathdown, Fianna Fail)
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I appreciate it but our role is to ask those kinds of probing and "just in case" questions. I wanted to get a view as to whether that had been thought through or to what extent it was.
I am pretty much done. Have I time for one more question that is not directly related?
Mairéad Farrell (Galway West, Sinn Fein)
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We will let people in for a second round anyway so does the Deputy want to have a think and come back, or does he have one final question?
Shay Brennan (Dublin Rathdown, Fianna Fail)
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I have one final question. I might have missed this and the witnesses might tell me if I did. Will there be any specific amount mandated to be spent in Ireland? For example, we have drone-building capabilities. I know a percentage of the military spend has to be spent within the EU. Will a portion of that be mandated for Ireland?
Mr. Jannik Knauer:
I will try to respond to that. Mr. de la Brosse can jump in as necessary. There will be no identification of where the money is spent specifically at this stage. It is the choice of member states that take the loans to decide where to spend this money. At this stage, however, it is not possible to tell the Deputy whether any of this money will be spent in Ireland or any other member state specifically.
Mairéad Farrell (Galway West, Sinn Fein)
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We will move on to a second round of questions. An Teachta Doherty has indicated. If anybody else wishes to, that is okay.
Pearse Doherty (Donegal, Sinn Fein)
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I am looking for some clarity with regard to SAFE. I also have some quick questions. Regarding the drawdown of the loans, is it exclusively EU member states that can draw down the loans?
Pearse Doherty (Donegal, Sinn Fein)
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Then, under other rules regarding common procurement, it is EU member states plus other states, is that correct?
Pearse Doherty (Donegal, Sinn Fein)
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Yes, but with regard to the drawdown of the loans it is only EU member states. It is not candidate states and all the rest. Okay.
Regarding a point I raised in my first round of questions, Europe will go to the capital markets to issue bonds to raise the capital for these loans. Do we have any indication of what the likely interest rate is that will be charged in regard to those bonds?
Pearse Doherty (Donegal, Sinn Fein)
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Okay. I appreciate that and obviously that is a completely accurate answer. On the whole premise, however, this is not just a guarantee, is it not?
Europe is raising the capital and then lending it to member states. Am I right in that?
Pearse Doherty (Donegal, Sinn Fein)
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It is not a guarantee, as such; Europe is a non-lender in this regard. Europe is taking its financial power to be able to borrow at a lower cost and then providing the benefit to other countries.
Pearse Doherty (Donegal, Sinn Fein)
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There must be some kind of estimate as to what range we are looking at in terms of interest rates. Are we looking at somewhere in the range of 0.5% to 1.5% or between 2% and 3%?
Pearse Doherty (Donegal, Sinn Fein)
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When Europe draws down these loans and then lends them on to a member state, is it the case that Europe will have to service that debt? Is that not correct? There will be a debt on Europe's books and it will have to service the debt. Is it not correct that there will be an interest charge?
Pearse Doherty (Donegal, Sinn Fein)
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Okay. The point made here at the committee is that it is the member states that will service the debt, because they will be charged interest rates. Is that correct?
Pearse Doherty (Donegal, Sinn Fein)
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What is the grace period that exists for member states that draw down these loans?
Pearse Doherty (Donegal, Sinn Fein)
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Will the Commission have the same grace period for servicing its debt?
Pearse Doherty (Donegal, Sinn Fein)
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Is it not the case that it is unlikely? You do not go to a capital market and say, "I am not paying you any interest for ten years." Is that not the case?
Pearse Doherty (Donegal, Sinn Fein)
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Just for clarity, is the Commission telling the Irish finance committee that there is a possibility that this funding will be secured in the capital markets with a grace period of ten years?
Pearse Doherty (Donegal, Sinn Fein)
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Does Mr. de la Brosse think there is any possibility of securing such an arrangement?
Pearse Doherty (Donegal, Sinn Fein)
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Of course there would not be. That is the reality. The markets do not lend like that. We all understand that. Therefore, the Commission will have to service this debt before member states repay it. Is that not the case? Where does that debt come from? This is the point I was making earlier: where does the servicing of the debt come from? It comes from the European budget. Is that not correct?
Pearse Doherty (Donegal, Sinn Fein)
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Okay. In relation to the contingent liability, member states do not default - although we unfortunately know that member states do default, in particular when we have wars and all of that, we have a higher risk in that regard. We can see the challenges that Ukraine, for example, faces at this point in time as a result of the illegal invasion and bombardment of that country by Russia. S and P Global reported earlier in the year that Ukraine defaulted on a large part of its debt. It is not unique for circumstances to change. We would not wish what Ukraine is going through on anybody else.
Ms Ralph mentioned 1.4% in terms of contingent liability. People at home do not have a clue what that means. What is the contingent liability of the State, regardless of whether the Commission believes the risk will materialise? What is it in cash? What is the amount of money that Ireland is on the hook for if we agree to this programme which would allow for loans to be given for the militarisation of Europe?
Ms Fiona Ralph:
First, if Deputy Doherty is talking about a potential default of all of these things, the assumption is that it does not happen in a given year, and it is spread out over several years because bonds are repaid over the cycle. In that regard then, we are talking about both the principal and the interest. The interest will change based on when the loan was taken out, what the interest rates are and how they evolve over the years. I am not able to put an exact figure on that.
Pearse Doherty (Donegal, Sinn Fein)
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I appreciate that. I would not expect an exact figure but are we talking about a potential full drop? Contingent liability may never materialise but we have to look at the outer limits. If we are talking about loans of up to a certain value, we have to assume that they are being drawn down and then we have to assume an average interest rate based on historical performance. I have no doubt the Department has run those numbers because it has done the due diligence on it. What is that number?
Ms Fiona Ralph:
What I can tell Deputy Doherty is that the maximum that can be called in from Ireland in a given year is Ireland's share of 1.4% of EU GNI. That is related to the entire budget for everything that is guaranteed under the headroom. That includes the European Financial Stabilisation Mechanism, the SURE instrument and various other things. It does not include the Next Generation EU mechanism because that is an additional 0.6% of EU GNI on top of the 1.4%. In a given year, the maximum that Ireland can be legally required to pay is our share of 1.4% of EU GNI.
Pearse Doherty (Donegal, Sinn Fein)
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That is helpful but it does not really answer the question because our liability would be spread. Is it not correct that if there is a default, Ireland would be on the hook for a portion of this? When we are discussing legislation, we should know what something looks like. Is it €100 million, €1 billion, €2 billion or €10 billion? I have no idea, but I suspect that Ms Ralph does. What is the outer limit for Ireland's contribution, not in any given year for what we can pay under the overall budget and the cap of 1.4% but, rather, the overall contingent liability if we enter into this? This would be just normal. Resolutions are brought before the Dáil on multilateral organisations such as the IMF, for example. It is stated very clearly that this is the contingent liability and exactly what we could be on the hook for. We are looking at these measures without any figure. What is the figure?
Ms Fiona Ralph:
In response to an earlier question from the Deputy we talked about where he could find the figures on the total amount of contingent financial liabilities for the EU budget. He can apply Ireland's share of the EU budget to any of those. I do not have those figures to hand right now but we can look back at them. I will come back to the Deputy in writing. However, I do have to caveat it all by saying how extremely unlikely it is. The numbers are there in a bunch of places and we can put them together and come back in writing.
Pearse Doherty (Donegal, Sinn Fein)
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That is fine. We are dealing with an instrument here that has a very significant amount of contingent liability. Is Ms Ralph telling me that the Department has come before the committee that is scrutinising this without an understanding or any work done on the contingent liability of this issue? I am not interested in the contingent liability of other issues. We have dealt with those other issues - loans to Ukraine and all of that. When we were dealing with loans to Ukraine, we discussed the contingent liability. It is quite large. Then we went into it with our eyes wide open. Has the Department done any assessment of the contingent liability regarding this issue, regardless of how likely it is to materialise? Does the number exist?
Pearse Doherty (Donegal, Sinn Fein)
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It is based on Ireland's share of the €150 billion. I thank Ms Ralph for the clarification on that. We will park the interest rate. What is our factor?
Pearse Doherty (Donegal, Sinn Fein)
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If the ratio stayed the same, our contingent liability would be at least €3.5 billion before we factor in interest rates. I thank our witnesses for the clarity in relation to that.
Mr. Matthew McGann:
I would just add something which might be helpful in relation to the previous point about the grace period. There is a reference in the regulation to the grace period but it is only in recital 28 and is not in any of the articles. The reference is to a grace period on the principal for up to ten years. It is just the principal, so to the Deputy's point about the interest having to paid on the EU loans, the grace period relates to the principals.
Pearse Doherty (Donegal, Sinn Fein)
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I ask the Commission representatives their views on an issue we discussed earlier, which I think is a workaround, although I know the Commission will have a different view. I refer to the complete ban on using the EU budget for military and defence purposes. If I sit down with my 15-year-old children and tell them that Europe is potentially giving €150 billion in loans to increase munitions capabilities, and that we have another Act supporting ammunition production which is worth €500 million, they will say that is a bit of a workaround. I do not expect the Commission representatives to say that it is a workaround but what is the Commission's view of the Bundestag's reading of this? A Bundestag committee has questioned the legality of what is being proposed under this programme in the context of conflicts with Article 41.2 of the Treaty on European Union. Does the Commission have any concerns with the fact that the Bundestag has offered that opinion? What would they say to people like me and many others, including members of the Bundestag, who have a view that what the EU is doing here is trying to find a way around the articles of the TEU to actually fund the militarisation of Europe using EU funds, which is banned under the treaty? We have a kind of workaround which says we are giving grants to companies. We are saying that we are not procuring but are just increasing the capabilities but, at the end of the day, it is the same result.
Mr. Guillaume de la Brosse:
On the legal basis that we used to design the instruments, we strongly believe, and it was assessed several times, including by the Council, that it was the right instrument considering the situation that we face. We are not interfering with the action that was undertaken by European parliaments. We have no say in that. We are in a wait-and-see mode.
Mairéad Farrell (Galway West, Sinn Fein)
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Does anyone else wish to contribute on the second round? If not, I will ask two brief questions. Deputy Brennan asked about how the money will be spent and how we can be sure that it is spent on what it was supposed to be spent on. We heard earlier from the Commission that whether or not states are abiding by the law will not preclude them and is not part of the analysis in relation to receiving this funding. What is the oversight in relation to this spending? Is the European Court of Auditors looking at it? Will it do an audit of this spending? It is my understanding that it does not
Ms Fiona Ralph:
As it is a new instrument, I cannot be sure what the court's approach would be but I do know that the court is always interested in feedback from member states across the board. The court does not just do an annual report on the EU budget but also does special reports, reviews and investigations into certain things. I suspect it would be-----
Mairéad Farrell (Galway West, Sinn Fein)
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We do not know if the court will have a role in auditing this going forward. Is that correct?
Mairéad Farrell (Galway West, Sinn Fein)
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Would the Commission representatives know?
Mr. Jannik Knauer:
The European Court of Auditors is an independent body. We do not tell the court what to audit. The court itself, to a certain degree, decides what to audit. As my colleague has pointed out, it is a new instrument so there is a high likelihood that the Court of Auditors might be interested in it but at this point, it is not possible to tell the committee whether it is going to look into this.
Mairéad Farrell (Galway West, Sinn Fein)
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What level of oversight will there be on the spending?
Mairéad Farrell (Galway West, Sinn Fein)
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No, I mean from yourselves. What guaranteed oversight will there be on the spend?
Mairéad Farrell (Galway West, Sinn Fein)
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No, from the Commission. You have just told me that the European Court of Auditors is independent and will make a decision by itself. Is there another mechanism whereby there will be oversight, perhaps from the Commission?
Mr. Jannik Knauer:
Yes, I tried to make this point earlier in my interventions. In the loan agreements there are very specific conditions set out on how to spend this money and there are mechanisms for the Commission to verify that those member states that spend the loans do so in the way that is spelled out in the loan agreements. There are reporting obligations from those member states to the Commission. We are going to oversee the spending.
Mairéad Farrell (Galway West, Sinn Fein)
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My next question is for Dr. Condon. There was a question earlier relating to the Cohesion Fund and the social aspect of it. Dr. Condon mentioned the multi-annual financial framework but we do not know the exact details going forward. Am I correct in saying that the military will now be part of that and getting money from those funds?
Dr. Andrew Condon:
If we look at the SAFE regulation and changes in cohesion in the current round, that is the 2021 to 2027 programme, these two instruments - the SAFE instrument and the mid-term review of cohesion policy - injected the possibility of expenditure on a range of new priorities into the cohesion funds. Social and affordable housing, energy, water, water infrastructure, decarbonisation, defence and competitiveness were all injected in as new priorities upon which cohesion money could be spent. As I made clear, in Ireland we are focusing on sustainable and affordable housing and decarbonisation-----
Mairéad Farrell (Galway West, Sinn Fein)
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I accept that but the impact will be that some of that funding will not go into social developments but into military-----
Mairéad Farrell (Galway West, Sinn Fein)
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I am not talking about us. I mean at a European level.
Mairéad Farrell (Galway West, Sinn Fein)
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Yes, but it can happen.
Mairéad Farrell (Galway West, Sinn Fein)
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We had the Conflict and Environment Observatory before us previously to discuss the environmental aspects of this. They spoke about the climate impacts of rearming Europe. They said that the climate impact of rearming Europe, taken together with NATO spending increases, will create up to $264 billion of climate damage per year. It seems to be counterintuitive to have environmental spending and military spending coming from the same funds.
Mairéad Farrell (Galway West, Sinn Fein)
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They are only proposals but this is very much the route going forward, at an EU level, given everything we have discussed here today. The analysis that the Conflict and Environment Observatory gave us at that meeting suggests that spending money to address the environmental impact of climate change while at the same time putting money into areas which have directly negative consequences for the environment just does not add up.
Has an analysis been done of the cost of climate change in future years and of the impact of this increase in militarisation on climate change or have they been earmarked for future budgets?
Ms Fiona Ralph:
I can come in on the new MFF in general. As Mr. Condon mentioned, while it is still at an early read-through stage and is a Commission proposal that will no doubt be massively amended by the member states and the European Parliament before the end, the Commission foresees significant proportions of funding to climate, the clean transition and this kind of area. The trade-offs mentioned by the Cathaoirleach in terms of the purposes of different kinds of expenditure and the effects they can have on one another comprise a very important issue, one that we and all other member states will need to be playing close attention to.
Mairéad Farrell (Galway West, Sinn Fein)
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As there are no members indicating, I will close the meeting. Go raibh míle maith agaibh. I thank the witnesses for taking part, especially as we were unsure in relation to timing. I hope I did not have too much of an impact on their days.