Michael Noonan (Limerick East, Fine Gael)

The Greek crisis has exposed a flaw in the euro system. The problem concerns what is to be done when the economic fundamentals of a eurozone state become so weak that they signal imminent insolvency. What happens when a state can no longer borrow at affordable interest rates or, indeed, at all? What is the result when an economy becomes so uncompetitive that the very strength of the euro militates against its recovery? What can be done by other eurozone states to develop a solution when the treaties forbid state bailouts?

This Bill and the parallel legislation being introduced in other Parliaments of the eurozone provide a temporary, albeit welcome, answer. The measures being introduced will enable Greece to continue to operate without borrowing in the markets for the next two years. However, if the eurozone is to survive and prosper, the flaw which has been exposed must be given a credible and permanent fix.

The device of providing loans through member states circumvents the no-bailout clause in the European treaties. Even on a loan basis, these payments to Greece are a credible substitute for the direct interstate monetary transfers that take place in more integrated currency unions. Two years ago, California was the Greece of the United States. Why would it have been total nonsense to suggest that California could no longer remain part of the dollar zone? The reason is simply because the United States is an integrated political, economic and fiscal union which allows transfers to take place between states. Automatic stabilisers allow transfers to be made and the currency problems we face to not arise because of fiscal union.

Collectively, Europe is still the world's greatest economic power. In trade terms it remains a giant but its ambition to be a major global power that rivals the United States and China and a euro that acts as a leading world reserve currency is now a distant dream.

The flaw in the euro machine must, however, be fixed and the lack of fiscal integration must be addressed. The proposals for strict implementation of the Stability and Growth Pact with oversight by Brussels of budgetary targets represent attempts at a fiscal solution but they create their own difficulties. A more credible long-term fiscal solution is necessary. Europe also needs its own equivalent of the IMF. While I cannot see how this could be achieved without amending the treaties, the resourceful eurocrats who developed the Bill before us may find a legal means to circumvent these difficulties.

The speculation that Germany or France may withdraw from the euro is not credible. If a new super euro was created by the original six members of the Union, minus Italy, the result would be devaluations by all other member states. The hard won competitive advantages enjoyed by the Benelux countries, France and, especially, Germany, would be lost.

The idea that Greece would drop out of the eurozone has also been canvassed. This has superficial attractions because Greece would enjoy a competitive devaluation and could default on its debt without consequences for the euro. However, the attractions of this course of action are more apparent than real.

The true fear of Europe is that contagion will spread from Greece to Portugal, Spain, Ireland and Italy, with stark consequences. There is nothing attractive in sovereign default, especially when German banks are liable for one third of Greek debt and French banks are liable for 40%. German and Austrian banks are also lending heavily to eastern Europe and if the contagion spreads and expands to include sovereign defaults, God only knows where we will end up. We have seen from the United States that when problems start in a bank it is hard to know how they will develop because there are always unforeseen consequences.

Europe needs a growth strategy. What is called the Stability and Growth Pact has given us neither stability nor growth. Now that stability is to be achieved through fiscal retrenchment under the guidance of Brussels, it is time to address the jobs issue. One cannot cut one's way out of a recession but one can grow out of it.

We must find a way forward. The Government has made a good attempt at fiscal correction. It has also brought in a new architecture for the banking system. Whether we agree or disagree with that, it is now in play and I hope it works.

However, the Government has utterly failed in addressing the recession. The recession is not a subset of the fiscal or the banking problem; it is an issue in its own right and it requires its own solutions. The Government's latest attempt is to talk up the economy, aware that there are savings in every bank account in the country and that if people could be encouraged to spend there might be a domestic boost in demand which would help us out of recession. However, it is not possible in the current circumstances to talk our way out of recession. The Government must implement a series of supply-side measures - because we cannot afford demand-side measures of a major stimulus nature - to get us out of recession, encourage growth and create jobs.

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