Joe Costello (Dublin Central, Labour)

I welcome the fact that we are having this debate in the House. It is an extremely welcome development and I hope it is the precursor to similar debates in this fashion.

I commend the work of the Chairman and the committee regarding the scrutiny conducted on this particular item. It has been very close scrutiny involving the large number of stakeholders, including the Department of Finance, the Financial Regulator, the Central Bank, the financial services sector, the Irish Banking Federation and the Irish Stock Exchange. Unfortunately, the Irish Congress of Trade Unions was not included, but it gave a written submission and had some interesting proposals as well.

What is significant about this matter being discussed in the Dáil Chamber is something the Minister of State referred to in the course of his contribution, namely, the fact that normally these matters are debated in committee, scrutinised there, referred perhaps to the relevant line Department for suggestions and witnesses brought in. All this is done at a relatively early stage and it is then sent back to the Commission and is not seen again until it appears as a statutory instrument or is to be transposed into domestic law. Literally years can go by so something very important may well be overlooked and we have to deal with it at a later date, but perhaps not adequately.

In this particular case the situation is even worse. We are now at the point of dealing with this very important package of proposals, but they will not come back to us when they leave this House today. That is the end of it; there will be no statutory instrument or transposition. These will implemented directly in domestic law by regulation from the European Union. They are going to the European Parliament and Council, and amendments will be made in tandem with discussions with the Commission, and that is the end of the matter. We all agree that we have an important package of proposals before us, in the shape of the draft legislative reform of the EU's financial supervisory and regulatory framework, so it is important that we have good scrutiny and a good debate so that we know what we will end up with ultimately.

The background to this particular package is the one we have been dealing with for the past 18 months, namely, the global financial crisis and the fall-out from the light-touch regulatory system that was in operation right across the board in member states, including the Office of the Financial Regulator and the Central Bank in Ireland. Of course, the Irish financial institutions were singing merrily along, dishing out money without any respect for the guidelines. The situation was similar throughout the European Union and, indeed, the globe. If I have one crib with the European Union it is that, to some extent, the EU and its institutions - the Commission in particular - should have been more proactive because the Common Market existed even prior to Ireland joining the EEC. The Single European Act created the Single Market. The areas we are now discussing could have been dealt with in greater depth by the various EU institutions to provide an overarching framework that might have prevented some of these occurrences had matters been dealt with adequately ten years ago.

At this stage, the economies of so many countries have been damaged, ours more than most, by light-touch regulation and the absence of a proper supervisory and regulatory framework within Irish financial institutions, with nobody outside looking in to ensure that we behaved properly. This is where these proposals come from and, as the Minister of State has indicated, it is largely the report of the committee chaired by Mr. Jacques de Larosière de Champfeu, a former managing director of the International Monetary Fund that is the backbone of the proposals we are examining. We proposed amendments arising from the intense discussions we had, but essentially the bipartite proposals remain the same, operating on macro and the micro levels.

First, there is the idea that we put in place the European systemic risk board, ESRB, which would have macro-prudential oversight of the financial system, comprising the heads of national central banks and the heads of the new bodies that are about to be set up. That overarching body would represent the European Union and its institutions as well as having representation from the member states.

The second body would involve more micro-prudential supervision, comprising a network of the member states with the three new supervisory authorities, the European banking authority, the European securities and markets authority and the European insurance and occupational pensions authority. That body would look at more micro-level operations within the member states. The two levels would be very valuable in ensuring that a proper framework is in place to conduct the business. The role of the three new European supervisory authorities, ESAs, would be doing most of the work on the ground regarding rule making, enforcement, emergency powers, dispute resolution, peer review, market analysis and information, and would be accountable and transparent before the European Parliament and the European Council.

As the Minister of State indicated, it is important in all of this that the principle of subsidiarity is not interfered with. While the ESAs have binding powers, if they are seen to be an unwarranted charge on the Exchequer, then Ireland, or whatever government is charged with carrying out a particular act, may avoid doing it. Thus, the principle of subsidiarity is not undermined and the whole area of fiscal responsibility remains with the Minister for Finance and the Government.

There are, however, powers to issue warnings and make recommendations right across the board, both at the micro and systemic levels, and all that is extremely important. There is a suggestion to the effect that we have a fairly cumbersome procedure in place and nobody really knows how it will work in practice. To my mind, while the logic is impeccable and the theory fine, what about the practice?

I believe the system will require regular review and I refer to a suggestion members made on foot of a discussion regarding another eminently logical proposal, namely, that there would be much merit in having a single European financial supervisory authority in place that would be headed by the European Central Bank. However, although such an authority would be logical, functional and operational, the Minister has pointed out that it might interfere with the principle of subsidiarity by giving too many powers that are not appropriate to the European Union, which might give rise to a charge that something akin to a federal state was being created. Nevertheless, this proposal should be examined with a view to its introduction, were this possible. A simple system certainly would be the most desirable system.

One proposal made by the Irish Congress of Trade Unions that has much merit is to consider the introduction of the Tobin tax, which is a proposal that has been talked about for many years. I note that much time has been spent discussing what happened in the banking system and why. However one central factor is that the financial systems globally, in the European Union and in Ireland let us down and abused their powers. Some recompense and redress should be made to taxpayers, whose money is being thrown out like confetti at present as though a crock of gold was available to bail out this, bolster that and guarantee the other. Why should a system not be put in place in respect of finance whereby the polluter pays? The Tobin tax enables the imposition of a tax on each foreign financial transaction. The world is full of such transactions every day given all the speculative transactions that take place, most of which are completely unnecessary but which are part and parcel of that complex arena of activity that takes place within the financial sector.

The ICTU document suggests that even were the current number of global transactions to fall by two thirds, in a single year the revenue accruing globally against the polluters would be approximately €423 billion. This money could be put forward to address the damage that has been done by the irresponsibility of the banking and financial systems and could be useful for all sorts of desirable social projects. This proposal should be considered by the global community. While the participation of groups such as the G20 and the United States probably would be required, the European Union should take the lead in this regard because there is no sanction at present. The bankers will go straight back to their old ways unless the regulatory framework is put in place with great care.

The other side of the coin is that much time has been spent in Ireland on activities such as bailing out, stabilising and guaranteeing the banks, as well as establishing NAMA to take up the toxic debts. However, the same attention has not been given to the regulation of the banks. I refer to institutions such as the Financial Regulator, the Central Bank, the banks themselves and their dysfunctional boardrooms. Moreover, not enough thought has been given to what is taking place within the Irish Financial Services Centre. A great number of transactions take place there and it is highly important for the country's economy. This issue has been left to the European Union to do and it is doing so. Consequently, this framework forms a major part of the patchwork quilt that must be put in place. In addition, Ireland must reform its own internal institutions in the context of the principles laid out in this framework.

As for the banking inquiry that has been announced, I am unsure whether it will deal with its business in the manner suggested by the Government. However, we must get to the root of what happened, why and how it happened and why it was allowed to happen. This must be done to ensure that the structures that are being put in place are meaningful and will prevent crises, the undermining of our economy, the destruction of jobs and of society in many ways, as well as the damage caused to the lives of many citizens. These are serious issues and I hope the matter under discussion today will be one of the more desirable packages of proposals that will ensure a proper regulatory and supervisory framework with which to move forward in Ireland, the other member states and the European Union as a whole.

See this speech in context