Dáil debates

Tuesday, 30 November 2010

EU-IMF Programme for Ireland and National Recovery Plan 2011-14: Statements

 

5:00 am

Photo of Eamon GilmoreEamon Gilmore (Dún Laoghaire, Labour)

The subject of this debate is the agreement the Government has concluded with the EU and the IMF. I consider it to be a sell-out for the country, a failure of negotiation, a failure of diplomacy and a failure of nerve. I expected the Taoiseach to come here to explain the deal and set out its terms for us. Instead, he came here to give us a lecture. He started by telling us all to be responsible. He then said that rather than engaging in a political debate, we should conduct it as a debate that goes above politics and electoral considerations. Instead of providing an explanation for the agreement, the Taoiseach makes what is in effect his first election speech of this election campaign and it is a blunderbuss approach to the Opposition in general. He fires a few missiles in the direction of the Labour Party and does not explain the deal to us. He takes issue with a couple of comments made by Opposition spokespersons over the weekend and suggests that somehow, these are the cause of the damage to Ireland's reputation abroad. The cause of the damage to Ireland's reputation abroad is the way in which he and his Government have mismanaged the Irish economy. He calls on us to articulate the alternative yet repeatedly over the past two to three years, when the alternative was put to him, he rubbished and rejected it. He was wrong about the bank guarantee; he told us that the bank guarantee would cost the taxpayer nothing and now we know. I remember on the day of the bank guarantee, we asked him specifically if he would remove the people who were in charge of the Irish banks but instead he left them in place and he did not begin to remove them until the skeletons started to hop out of the cupboards of Mr. FitzPatrick and others.

When we suggested to the Taoiseach different ways of reorganising and restructuring the Irish banks, such as the establishment of a banking commission, he rubbished that suggestion in the early stages of the banking crisis. We suggested to him a different approach to dealing with the bad debts of the banks rather than going down the NAMA route. We suggested taking the banks into temporary public ownership and dealing with the restructuring of the banks at that stage. He said he could not do so because the banks could not be taken into public ownership but they are now being taken into public ownership by a far more scenic and far more expensive route.

The Taoiseach has given us all of these political assaults or comebacks which perhaps makes for a good election speech but it does not tell us very much about the deal that he has just concluded with the EU and the IMF. I understand there are three sets of documents that have to be agreed and that a memorandum of financial and economic policy has to be concluded with the IMF, with the EU and with the ECB. He has told us nothing about what is to be contained in it and what he has agreed with regard to it. I understand there is to be a memorandum of understanding to be concluded with the European institutions in respect of the European portion of the funds to be made available. I understand further that this memorandum of understanding is to be quite detailed in respect of the measures and conditions attached to the money being provided. He has told us absolutely nothing about that and he has not told us about what way it will relate to the four-year plan. On top of that I understand there are to be some operational agreements dealing with, for example, the way in which the moneys are to be reviewed. It is reported in the public press that there is to be a quarterly review carried out with regard to drawing down the money and the attached conditions and the Taoiseach has told us nothing about those arrangements. The reason he has not told us anything is that he is ashamed of the agreement he has concluded. He has done nothing here this evening either to defend it, to explain it, to provide the rationale for it or to provide the House with any additional information.

This is a deal done by a broken Government with no friends left in Europe. It is a deal that hangs the Irish people out to dry. The deal is an agreement by the Irish Government to accept a loan from the IMF and the European Union to bail out the European banking system and to ensure that the Irish taxpayer picks up the tab. It is a deal to ensure that European banks, who contributed to the property bubble in Ireland by lending to our banks, will not pay a penalty for their folly. That burden will be borne by this country for decades to come. It is also a deal to provide funding to the Irish State to fund its deficit, provided that an enormous fiscal hit is first inflicted on the Irish economy. It is a deal to borrow money from our European neighbours at a higher rate than is being offered by the IMF. It is not a good deal for Ireland but rather it is a lousy deal for Ireland. While the first responsibility for it lies with the Government, we have been let down by our partners in Europe also. Because for all that they may want to punish the Taoiseach and Fianna Fáil, it is the Irish people who are paying the price. The Irish people did not create this problem; Fianna Fáil and the banks did.

Saying this is a bad deal does not mean this is not an Irish problem because it clearly is. However, it is an Irish problem set in the context of a broader European problem. Ireland has duties as a member of the eurozone, but European solidarity is a two-way street. The Irish people feel very let down by the European Union, in particular by the Commission. The attitude taken has been unduly punitive and does not fit with the founding principles of the European Union.

We must be clear about what has happened. The Taoiseach and the Minister for Finance are fond of telling us that their policies have been fully endorsed by their European partners, going back to the night of the blanket guarantee. I wish to nail that nonsense here and now. The policies of this Government have caused significant annoyance and frustration in Europe. The blanket guarantee, in particular, caused outrage in several European capitals, precisely because of its blanket nature and because it forced other European countries to follow. They did not emulate it - as Fianna Fáil like to claim - they were forced to follow it although none were as stupid as our Government. The diplomatic fallout for Ireland has been enormous.

Throughout this crisis, Fianna Fáil has over-promised and under-delivered insofar as our European partners are concerned. The losses in the banking system have mounted and just as it has over-promised to the Irish people, Fianna Fáil has over-promised to Europe. With market confidence plummeting and when it came to framing the budget for 2011, Fianna Fáil had no cards left to play. It is pretty obvious that the highest budget adjustment that the Department of Finance thought possible was in the region of €4.5 billion. The Department's figures, as supplied to the Labour Party, show that the Department was arguing that going above €4.5 billion would be essentially self-defeating.

The scenarios presented to us were intended to show that front-loading beyond €4.5 billion actually made the problem worse, but the Government caved in. In the last frantic attempt to convince the bond market to lend money to Ireland, the Government capitulated to the Commission and shifted the amount up to €6 billion. Then, when that gambit failed, it was forced to call in the IMF and to apply to the stabilisation fund. Having announced €6 billion, the Government and the Commission would lose face if the amount were any less. It is striking that the EU Commission and Commissioner Rehn, while trenchantly demanding a €6 billion adjustment, have taken the precaution of lowering their growth forecast for Irish GDP growth in 2011 to 0.9%. Having come to Dublin only three weeks ago to endorse the budget strategy and the Government's forecast, they have now changed their tune. It is an admission, if admission were needed, that they do not regard growth in the Irish economy as a priority. They are content to allow activity and employment in Ireland to stagnate, provided that their €6 billion adjustment is implemented. They have also taken the precaution of moving the target for achieving the 3% deficit target from 2014 to 2015. In doing so, they are effectively endorsing the Labour Party's view that €6 billion is too much and that it risks doing damage to the fabric of the Irish economy. It is confirmation that they do not believe in the confidence fairy either.

Today's debate is a farce. It is one further ignominy that the Irish Parliament should be reduced to talking about a deal that has not yet been published and on which no vote is to be permitted. It is little more than a set of press releases, setting out the outlines of a deal. There is a lot of information we do not have, particularly with regard to the banking system. We know the Irish Government must pump €10 billion into the banks, but we do not know how it will be used. We know that we will have to liquidate much of the National Pensions Reserve Fund as a contingency for the banks, but we still do not know what kind of banking system will result. We do not know how the extra capital will be used and whether it will guarantee a flow of credit to Irish business to help the Irish economy grow.

It is deeply ironic that Fianna Fáil, which argued that we could not take money out of the NPRF to capitalise a strategic investment bank, now says we can take most of what is left to underwrite losses in existing banks, with no guarantee of credit flow to the domestic economy. The Labour Party's proposal for a strategic investment bank was designed to ensure precisely this objective - that when the downsizing and restructuring was completed, Ireland would still have an indigenous banking capacity that understood the strategic needs of the Irish economy. Yet we do not know whether this objective will even form part of the strategy being followed as a result of this deal.

As we watch the NPRF being cleared out for the banks, it is more than a little ironic to remember the hysterical reaction of Fianna Fáil - repeated again today by the Taoiseach - when Labour first suggested it could be used to support investment in Ireland. Where are the people who screamed about raiding the pension fund now? What we do know is that our limited national treasure is being handed over to the banks and senior bondholders are to be left unscathed. This, we are told, is to avoid contagion - which is another way of saying that profits are private but losses are public.

If the European Commission and the ECB want to insist on this point, where is their contribution to this end of the problem? Yes, they are offering a line of credit, but at what interest rate? An average of 5.8%, with the IMF money being the cheapest. In what sense is that a contribution to solving the problem, rather than shifting the problem back to the Irish taxpayer? It is symptomatic of an ostrich-like approach to the whole crisis. It stands in contrast to the approach taken by other partners that have come forward with bilateral loans. The loans from the UK, Sweden and Denmark, which are not members of the eurozone, are primarily a recognition by those countries of mutual interdependence and solidarity.

For the Irish people, the interest rate being charged is the clearest indication of the unwillingness of the Commission to approach this issue in anything other than a punitive way. In doing so, they are threatening core principles of the European Union in a manner that will be noted not just in Ireland but also in other small European member states. Yesterday, Deputy Rabbitte, on behalf of the Labour Party, called on the Government to clarify the exact status of the proposed bailout deal in Irish and international law. He said that uncertainty about the status of the agreement would give rise to challenges in the courts and lead to further instability.

Let us be clear on what we are talking about here. There is to be external provision of €67.5 billion of financial support to Ireland, from four sources, namely, the European financial stabilisation mechanism, the European Financial Stability Facility, the International Monetary Fund, and bilateral loans from the UK, Sweden and Denmark. Contrary to the impression given yesterday by the Minister of State, Deputy Barry Andrews, just the first of these - the stability mechanism - derives from regulations made by the Council of Ministers under the EU treaties. The stability mechanism is a short-term response for cases in which a member state is seriously threatened with severe difficulties caused by natural disasters or exceptional occurrences beyond its control. The funds available to meet all contingencies throughout the Union are limited to just €60 billion. The only short-term disaster beyond this country's control is that we still have a Fianna Fáil Government, which has outstayed its welcome by more than two years and is propped up by a partner that knows they both should go but cannot find the courage to leave.

The Minister must know that the legality of the stability mechanism has been questioned, most notably in a case pending in the German Federal Constitutional Court. It has been argued that the sovereign debt crisis cannot be dealt with under a natural-disaster-type provision of the treaties. It is also argued that, because the stability mechanism involves all member states' being party to a guarantee for the full amount loaned, if one state defaults, the other states must step in to cover its responsibilities, and that this is a breach Article 125 of the Lisbon treaty, which states that a member state, "shall not be liable for or assume the commitments of central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of another Member State".

The second proposed source of funds is the EFSF. This is also the name of the special purpose vehicle, a limited company set up in Luxembourg, managed by Klaus Regling and owned by the eurozone states, to make loans to one of their own up to an amount of €440 billion. Unlike the stability mechanism, the EFSF was not set up by Council regulation or under any article of the treaties. It was set up by just the 16 eurozone countries and, although the Commission acts as agent for the members, it is not an EU institution or governed by the treaties. It is clear that the EFSF was set up pursuant to an international agreement between some member states of the EU. It is also clear that the international agreement was never laid before the Dáil and that Dáil approval for its terms was never sought. Exactly the same can be said of the framework agreement, negotiated between the same states, that governs the working of the EFSF. Yet the Government still insists that the original EFSF agreement and the proposed bailout, to be finalised next week, are not international agreements. Of course, it is also entirely silent about the three bilateral international agreements, with the UK, Sweden and Denmark, none of which, apparently, is to be laid before the Dáil. This argument suits a Government in retreat, which will do all in its power to avoid a debate and vote on its actions and which, in particular, will not submit this shameful bailout to a Dáil vote.

Ours is not the only Government in retreat from Parliament. Some will unite in their efforts to prevent the European Parliament from debating and voting on the Irish bailout. However, if no aspect of the bailout and the accompanying agreements amount to an international agreement, then it is either an ordinary contract or simply a statement of future policy, having much the same status in law as an election manifesto or a programme for government. As we pointed out yesterday, the problem here is that the courts have severely restricted the ability of a Government to enter into a binding contract which deprives it and its successors of the sovereign right to alter policies in the future.

Of course the Government can borrow money on behalf of the State and negotiate terms and conditions for repayment, but it is not entitled to contract away, on its own behalf and that of its successors, the discretion to shape future policies differently. Nor does it have complete freedom to take away by contract the sovereign rights of the Oireachtas to legislate on future taxes, future expenditure and future laws on a raft of disparate issues including, for example, advertising by GPs. As the Supreme Court has made clear, it is not within the competence of the Government to fetter its future executive action, which must necessarily be determined by the needs of the community when they arise. It cannot by contract hamper its freedom of action in matters that concern the welfare of the State. That was the reasoning that led to the Supreme Court judgment in the Crotty case in 1987. Mr Justice Walsh held that the freedom of action conferred on the Government to decide issues of policy does not carry with it the power to abdicate that freedom, or to enter into binding agreements with other states to exercise powers in a particular way, and so to bind the State in its freedom of action. To do that, a referendum to amend the Constitution would be needed.

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