Brian Lenihan Jnr (Dublin West, Fianna Fail)

I move: "That the Bill be now read a Second Time."

The Bill before Members today will enable Ireland to play its part along with all other euro area countries in providing financial support to Greece. Our assistance, in the form of repayable loans, will be channelled centrally through the European Commission as part of an agreed euro area package, together with the International Monetary Fund. It is important to emphasise that this assistance comes with strong conditionality attached. This multilateral loan facility represents just part of a series of decisive measures designed to restore financial market confidence and to project a resolute signal that governments will take all the necessary measures to protect the integrity of both the euro area economy and the euro currency. This support is designed to safeguard the fundamental financial stability of the single currency area. Only in this context can our economic recovery be secured. In common with the position in other euro area member states, people in Ireland can be relied upon and indeed have a vested interest in showing solidarity with our partners in these challenging times.

The reason this debate is taking place today is because, in essence, our Greek partners can no longer borrow at sustainable rates on the international bond markets. The authorities there have requested support from other euro area member states and the IMF. As the financial position of Greece deteriorated in recent months, the heads of state and Governments of the euro area reaffirmed their willingness to take determined and co-ordinated action, if needed, to safeguard financial stability in the euro area as a whole. On foot of these commitments the euro area Finance Ministers agreed on 11 April the terms of financial support to be given to Greece. This was to be implemented through bilateral loans centrally pooled by the European Commission as part of an agreed euro area package, with co-financing from the IMF.

On 14 April the Government approved Ireland's participation in the Greek financial support programme and agreed to the preparation of the necessary legislation to permit the provision of assistance. On 23 April 2010, Greece formally applied for the activation of the euro area support mechanism. At our subsequent meeting on 2 May 2010, eurogroup Ministers concurred with the European Commission and the ECB's assessment that Greece's ability to access funding on bond markets was insufficient and that a loan was needed to safeguard the financial stability of the euro area. The eurogroup Ministers unanimously agreed to activate stability support to Greece through bilateral loans to be centrally pooled by the European Commission. This will comprise an overall aid package of €110 billion over a three-year period, of which €30 billion will be funded by the IMF. This financial support will effectively mean Greece will not need to rely upon the sovereign debt markets for its funding needs a period of time.

On 7 May the Taoiseach attended a meeting of the heads of state and Governments of the euro area which endorsed the loan facility for Greece. The Taoiseach confirmed, subject to enactment of our legislation, Ireland's participation in this joint loan facility. Also, on the same day, I signed the intercreditor agreement which will govern our contribution to the euro area response. All these steps are, of course, subject to the enactment of our domestic legislation.

On 8 May, the European Commission signed, on behalf of euro area member states, the loan facility agreement - to which I will return later - which sets out the key terms and conditions of the agreement with Greece. While the first disbursement under this facility was released today, Ireland will contribute to later tranches once all of our national procedures are completed. Today is an important step in this regard.

Since the beginning of the year, the Greek Government has shown its determination to address its fiscal challenges. The Greek Prime Minister has reiterated the total commitment of his Government to the full implementation of these vital reforms. As part of the proposed support package and loan agreements, Greece has entered into stringent commitments to undertake fiscal consolidation measures, implement structural reforms and apply financial stability measures. The main pillar of the Greek authorities programme will be public expenditure adjustments with the aim of reducing the deficit to below 3% of GDP by 2014. In nominal terms this represents public spending cuts of €30 billion over this period. Furthermore, to reduce its debt-to-GDP ratio, Greece will have to maintain a primary surplus on their budget of at least 5% for the next decade.

To assess progress towards achieving these commitments and as a condition of further loan disbursements, Greece will be the subject of continuous appraisal by the European Commission, the IMF and the ECB. Make no mistake, there are no easy outcomes when it comes to restoring sustainability to the public finances, either here or elsewhere.

What are the financial implications of this Bill for Ireland? Our financial support package is in the form of loans which will be repaid as the economic position in Greece improves. Central to the overall support package is the commitment that member states' funding costs are to be met in full. In other words, we will not be financially disadvantaged by these arrangements. Furthermore, while our debt level will rise as a result of this additional borrowing, the financial assistance we provide will not impact upon our general government deficit, as it is classified as a financial transaction. A further safeguard underpinning the entire process is that if any euro area member state should encounter higher funding costs than those charged to Greece, there are provisions for these additional funding costs to be recouped. In present circumstances that is most unlikely for Ireland. The NTMA had a successful bond issue this morning of €1.5 billion and it was oversubscribed more than three times.

EU Commissioner Rehn has provided a further reassurance on these important elements of the financial support programme. He has confirmed that there will be no loss to eurozone taxpayers arising from the provision of these loans. In addition, from a budgetary perspective, these arrangements will be taken into account by the Commission in its fiscal surveillance procedures.

Based on the euro area contribution of €80 billion, Ireland's share, which is based on the ECB paid capital, will be just less than 1.64%. Payments will be made on a phased basis and, as such, there is a likelihood that there might be some "frontloading" of our overall contribution. That said, our overall contribution is anticipated to be about €1.3 billion. To allow scope for internal rebalancing within the loan facility, the text of the Bill provides for a precautionary upper limit of up to €1.5 billion.

The overall financial support agreement allows for a loan facility to Greece for the next three years while the component loans cannot exceed a term of five years. When all the funds have been paid back to the participating member states, the mechanism will cease to exist.

The main proposals contained in the Euro Area Loan Facility Bill, are intended to provide for Ireland's participation in the euro area loan facility to Greece subject to the terms of the loan documentation; payments to be made from the central fund in respect of Ireland's share of the euro area funding and that such payments be based on our ECB paid capital key of 1.64% and subject to an overall limit of €1.5 billion; the receipt into the Exchequer of interest payments and repayment of principal amounts of the loan funding and any related receipts; and annual reports on expenditure and receipts to Ireland under the loan facility to be laid before Dáil Éireann.

In legislative terms this is a relatively straightforward Bill containing half a dozen sections. Section 1 provides detail on the definition of the various technical terms contained within the Bill. Section 2 provides for payments from the central fund subject to the terms of the inter-creditor and loan facility agreements. These agreements are appended in Schedules 1 and 2. Section 3 provides for the crediting the Exchequer with moneys received on behalf of the State in connection with the loan facility. Section 4 provides for annual reports on payments made and received to be laid before Dáil Éireann. Sections 5 and 6 cover expenses incurred in the administration of the Act and its short title respectively.

I wish to turn briefly to the agreements and the related memorandum of understanding, which, while not part of this Bill has been laid before the House. Schedule 1 is the inter-creditor agreement which I signed on behalf of the State on 7 of May. It provides that the European Commission will act on behalf of the euro area member states in the management and administration of the pooled bilateral loans for Greece, with the ECB acting as paying agent. It comes into effect once the European Commission receives a commitment confirmation from a critical mass of at least five member states and two thirds of the total commitment amount.

Schedule 2 is the loan facility agreement between the euro area member states and Greece which sets out all of the key details relating to the terms and conditions. The European Commission has been entrusted by the member states to coordinate and manage the pooled bilateral loans to Greece.

The memorandum of understanding sets out the policy considerations required of Greece. It has been laid before the Houses. Briefly, it contains three elements: The memorandum of understanding on specific economic policy conditionality specifies detailed economic policy measures that will serve as benchmarks for assessing policy performance in the context of the quarterly reviews under the assistance programme. The memorandum of economic and financial policies outlines the economic and financial policies that the Greek Government and the Bank of Greece will implement during the remainder of 2010 and in the period 2011-14 to strengthen market confidence in Greece's fiscal and financial position. The technical memorandum of understanding sets out the definitions surrounding the performance criteria and various target indicators. It also describes the methods to be used in assessing programme performance and the various information requirements to ensure adequate monitoring of the targets. Ongoing compliance by Greece with the terms of the memorandum of understanding will be a prerequisite for the drawdown of the loan facility.

In the context of a perceived background risk of contagion from Greece to other member states, the Ecofin Ministers decided to establish a comprehensive package of measures including the establishment of a European financial stabilisation mechanism. This is based on Article 122.2 of the treaty which provides for financial support to member states in difficulties caused by exceptional circumstances.

Under this mechanism, an initial €60 billion from the overall EU budget can be mobilised very rapidly if required. Complementing this, it is proposed that euro area member states, including Ireland, will make up an additional €440 billion in loan guarantees through a special purpose vehicle in accordance with our ECB capital participation. The IMF will also participate in the overall financing arrangements and is expected to provide in the region of up to €250 billion. Separately, the ECB will make appropriate interventions in the debt securities markets if necessary. The governance arrangements of this stabilisation mechanism, in particular relating to a possible activation of support, have yet to be determined but they will be similar to those in the Greek case. It is likely that this mechanism will also require legislation, and in my view it will require legislation. As I indicated, the ECB can make appropriate interventions in the debt securities markets if necessary, and has made such interventions. ECOFIN Ministers also reiterated their commitment to ensure fiscal sustainability and enhanced economic growth in all members states. It was agreed that where warranted, plans for fiscal consolidation and structural reforms will be accelerated across the full eurozone.

To advance this objective, last week the European Commission brought forward various reform proposals to reinforce economic co-ordination and to ensure that the budgetary policies of member states do not undermine the economic and financial stability of the euro area. These will form the basis for further discussion by the task force, chaired by EU President Van Rompuy. I will attend the first meeting of this task force which is scheduled for this Friday. These proposals mark the beginning of discussions on these issues. Like most Commission documents, it is designed to float ideas and stimulate debate. Any policy proposals arising from it will have to be ultimately agreed by the member states. However, to suggest, as some did last week, that these proposals represent a dilution of our sovereignty over taxation matters is, at best, mischievous.

The enhanced co-ordination recommended by the Commission is designed to assist the member states to be better prepared for any future crises. We have all seen over recent weeks how a speculative attack on one member state has reverberations for the economies of all member states in the eurozone. For that reason, we all have a shared interest in increased co-ordination throughout the zone.

Other initiatives decided upon by the Council, relate to regulatory and supervisory reform of financial markets, including the derivative markets and looking at the role of ratings agencies. Work is continuing on other proposals including the possible introduction of a stability fee which will ensure that the financial sector will, in future, pay its share in the event of another financial sector crisis.

I wish to discuss our economic prospects, particularly as we are committed under this Bill to borrow an additional €1.3 billion. We are well aware of the enormous challenges that a small economy can face during difficult and turbulent economic times. However, there are welcome indications that we are beginning to turn the corner. Recent economic data and a range of other indicators show that the economy is stabilising. Consumer sentiment is strengthening and we see clear evidence of increased activity in the motor trade and retail sales sectors. Government policy measures in the most recent budget have helped restore confidence. In addition, industrial production data and other leading business indicators are also showing signs of improvement. My prediction in December's budget that the economy would bottom-out by mid-year and that positive growth would resume in the second half of this year is being borne out. Most economic commentators now share my Department's forecast. In fact, many are more sanguine about our economic prospects.

A number of key elements underpin the Government's approach to addressing our economic challenges, namely, the restoration of stability to the public finances, the repair of the banking system and regaining our economic competitiveness. We have demonstrated our resolve to restore sustainability to the public finances. We have shown our ability to manage our budgetary and economic affairs in a prudent, credible manner. We will continue to implement our plan to bring the public spending deficit below the 3% required by the GDP stability and growth pact threshold by the end of 2014.

The most recent set of Exchequer returns covering the period to the end of April were in line with expectations and show that the action taken by the Government in managing the public finances is working. The €3 billion adjustment for next year's budget will challenge us but we will achieve it because we must, because it is the right thing for our country. Our focus now is to continue to engender confidence in households, in the domestic business sector and in the international investment community by adhering to our stated plan and showing that we can look after our own affairs.

Recent developments such as those which gave rise to the Bill before us today highlight the need for us to stick with our plan. The difficult measures the Government has taken in the past two years have been vindicated. If we had not taken this tough action we would now be in the unenviable position of having to take even harder measures to stabilise our economy than those now being put in place by Greece.

I have outlined for the House the background to this Bill. The action it proposes is based on the principles of solidarity and responsibility which lie at the core of monetary union membership. The support the euro area members are prepared to give to Greece will be of benefit to us all. What is at issue here is the financial stability of the euro area and the principle of European solidarity. I hope we can have an informed and constructive debate on this Bill and I commend it to the House.

See this speech in context