Michael Noonan (Limerick City, Fine Gael)

I welcome this opportunity to update the House on recent developments in the eurozone. I participated in the Eurogroup and ECOFIN ministerial meetings in Luxembourg earlier this week. Just over two weeks ago, I attended the annual meetings of the IMF and the World Bank in Washington, where developments in the eurozone were high on everyone's agenda. The Taoiseach, the Tánaiste, other ministerial colleagues and our officials and diplomats have maintained an intense programme of contacts and meetings to ensure Ireland's voice is heard as things evolve. I am happy to report that at the recent meetings in Washington and Luxembourg, Ireland came in for much praise for the progress it is making as it returns to sustainable growth and economic stability.

It goes without saying that there is no basis on which to become complacent about what we are doing. Equally, the extent of our recovery and growth depends on what happens beyond our shores. I will speak about these meetings and how I see matters evolving, but it would also be useful to inform the House about the important steps we and our European colleagues have taken in recent months. Too often, perhaps, there is a focus on finding an immediate fix to the latest fluctuation in the markets or the situation of one or more member states. Putting in place the right framework for economic sustainability in the longer term is just as necessary. We are making genuine and good progress in that regard.

It is clear that the outlook for the wider euro area and the EU economy deteriorated over the summer months. A key factor weighing on activity is the dramatic change in market sentiment towards the euro area. Tensions in euro area sovereign debt markets have intensified, with spill-over effects to some non-programme countries. At the same time, the markets have become increasingly concerned about the exposure of some European banks to sovereign debt. The weakening economic outlook is exacerbating the situation. There is a great deal of uncertainty and nervousness.

The situation regarding Greece remains fluid. My Eurogroup colleagues and I discussed the latest developments on Monday night. In recent weeks, the Greek authorities have announced additional measures to address the situation. Significant measures are planned on the revenue and expenditure sides. The Troika is assessing whether they are sufficient to close the fiscal gap. We are awaiting the Troika assessment.

Although there are significant difficulties, as I have set out, it is important to stress that it is not all doom and gloom. It is often overlooked, but it is fair to mention, that the policy response at EU level since the crisis began three years ago has been impressive. A new and improved economic governance structure is being put in place, for example. A European semester involving ex ante guidance on national economic and fiscal policies has been introduced. Crisis resolution mechanisms - the EFSF and EFSM - have been established. Significant progress has been made in terms of financial sector repair at EU level.

Recent months have been difficult for the eurozone and its financial sector. The initiatives relating to the EFSF that were pursued following the eurozone meeting on 21 July last are to be welcomed. I am pleased to say that since early July, Irish banks have had success in securing term wholesale funding from international banks, with some €4.5 billion funded to date in a very difficult environment. This shows the progress the banking sector has made. The exposure of Irish banks to some of the peripheral sovereigns is very limited and manageable within the context of their capital, which was confirmed through the European Banking Authority stress tests as being well in excess of requirements.

Deputies are aware that the heads of state and government committed in July to improve the terms at which financial support is available, to increase the scope of the EFSF and EFSM and to consider proposals on how to improve working methods and crisis management in the euro area. As the Taoiseach said to the House last month when he reported on the 21 July meeting, significant and important enhancements are to be made to the EFSF. The Government had actively been seeking the increased flexibility that has been provided for. Member states are engaged in the process of legislative change that is needed to bring the arrangements that were agreed in July into force. For our part, the necessary legislation was passed in September and has been signed into law by the President.

The decisions made mean the EFSF will lend to Ireland at a significantly reduced rate. This will apply not only to moneys that are yet to be drawn down, but to future interest payments on existing loans. This will involve a saving of several billion euros over the term of the loans. In this regard, we welcome the decision of the European Commission to propose that loans under the EFSM will come with zero margin. I hope a decision in this respect can be approved as soon as possible. The July meeting recognised Ireland's resolve to press ahead with the implementation of our programme and expressed its strong commitment to our success. I have repeatedly said that Europe needs a win. That message has resonated with my EU colleagues.

With regard to corporation tax, there was no new language agreed at the July meeting. We agreed to engage in what is expected to be a complex debate on the Commission's common consolidated corporate tax base proposal, and more generally in the structured discussions on tax policy issues that are provided for within the framework of the euro plus pact. There was nothing new in this. The Government's position on the substance of the matter has not changed in any respect. A proposal has been published by the European Commission for a financial transactions tax. The draft directive will be subject to detailed discussions at EU level. As always, we will participate constructively in those discussions.

There is no consensus among European member states about whether a financial transactions tax should be introduced, or what precise form it should take. It is important that any proposal does not have the effect of encouraging relocation of activity or damaging the EU's competitiveness in financial services. It is for this reason that there is an emerging view that the EU and other international groupings, such as the IMF and the G20, should move in tandem to avoid the danger of financial sector business gravitating to jurisdictions where taxes are not levied on financial transactions.

There has been much discussion of the concept of Euro bonds. I have spoken about them on both sides of this House in the past. President Barroso has indicated that he will make proposals in the coming weeks for what he calls "stability bonds". I am sure Deputies will agree it is prudent to withhold judgment until we see the details of the actual proposals.

On wider economic management issues, I have already mentioned that one of the more welcome policy responses has involved putting a new and improved economic governance structure in place. The Government's view is that every appropriate step should be taken to avoid a recurrence of the economic shocks that hit us in recent years. We believe we should bring Ireland's experience of recent years to the table as the new governance structure is discussed in the coming weeks.

A series of significant measures are already in place. I have mentioned the European semester, which is already proving its worth in terms of ensuring a co-ordinated, flexible and effective system of economic planning at member state and EU level. A series of legislative reforms with four broad goals, known as the "six pack", has been agreed. The six pack will toughen the rules of the Stability and Growth Pact, which was designed to limit budget deficits and government debts, by introducing a much greater degree of surveillance at an earlier stage and making it easier to initiate the excessive deficit procedure. The rules will give a greater importance to debt - and not only deficit - reduction and sustainable growth. The six pack introduces new controls on macroeconomic imbalances across the EU, such as housing bubbles and growing divergences in competitiveness between member states. It sets standards to ensure the correct and independent compilation of statistics. This data is crucial to sound budgetary policy-making and monitoring of budgets. In addition, it strengthens the transparency of the decision-making processes and the accountability of decision-makers.

I am pleased to note that ECOFIN formally adopted the six pack measures yesterday, 4 October 2011. This means that work can begin immediately on implementing the new legislation and that member states can begin to work towards the 31 December 2013 deadline for having the provisions of the directive transposed into national legislation. Ireland already has some of the directive's provisions in place, and a significant number of those outstanding will be transposed through the upcoming fiscal responsibility Bill which will be debated by the Oireachtas.

These are real and substantial changes in EU economic governance and are perhaps not appreciated enough yet in terms of their long-term value. The work does not end here. The Heads of State and Government tasked the President of the European Council, in close consultation with the President of the Commission and the President of the Eurogroup, to make concrete proposals by October on how to improve working methods and enhance crisis management in the euro area. This work is being advanced, including through bilateral consultations at official level. Officials from my Department, the Department of the Taoiseach and the Department of Foreign Affairs and Trade met President Van Rompuy's team on the subject last week.

In all we do on governance and all such issues - and we have taken many tough decisions at EU level and at home in our capitals - we should keep our focus on growth and on job creation. This will guide this Government as we approach the next steps in the governance debate.

I will conclude with some of the points I made to ministerial colleagues and to members of the global financial community when I was in Washington for the IMF and World Bank meetings last month. I told them that the global economy is in a major crisis and that the euro is being buffeted by this crisis. I see the euro as the centrepiece of European integration, which has been good for Ireland and for our partners. Throughout the current crisis, many of the strengths and advantages of the euro have been overlooked. It should be remembered that, since its introduction, the euro has increased trade by 50%, controlled inflation and allowed for the deepening of a successful internal market across the EU.

This financial crisis will be solved but it will take time. The credit bubble that caused the crisis must be reduced, which means everyone must, in effect, de-leverage their balance sheets. This de-leveraging must be done in as speedy a manner as possible without putting at risk the all-important return to economic growth which will create the jobs that our citizens seek. Developments in the eurozone and the wider world are a major concern to us but we will continue to take decisions on the economic and financial matters that are within our control here at home. Ireland is in the process of re-establishing financial and fiscal credibility. Against this background, we will play our full part in ensuring that the eurozone's current crisis is brought to a resolution.

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