Micheál Martin (Cork South Central, Fianna Fail)

The idea of leveraging the funding provided by member states through the ECB remains the only one which could be both large enough and contain risk. The absolute refusal to do this may mark the final and most grave mistake which leaders have made this year. The argument of the guardians of ECB orthodoxy claim that such a leveraged fund would betray the founding principles of the bank. In this they are right but what they ignore is that these founding principles have been exposed time and again as being completely flawed. The mandate and orthodoxies of the ECB have been at the core of the cause and worsening of the crisis. It has acted with none of the creativity and effectiveness of other central banks. It has taken a hectoring and destructive approach to many issues and has presented as exceptional support measures which should be seen actually as core functions. The very last thing which the leaders of Europe should be doing is trying to protect the current legal basis of the ECB. It has done nothing to merit this respect and it continues to be one of the chief obstacles in the way of a sustainable solution to this crisis.

From its interest rate policies to its failure to provide security about its bond policies, the ECB has damaged everyone from home owners to those dependent on State services. The jerry-rigged amalgam of a new IMF special bailout fund and the use of the EFSF funds to provide bond insurance is almost designed to fail. It may take months to put in place and the number of areas in which it could unexpectedly fail or fall, is huge. Europe needs a fund large enough to directly help countries who cannot afford market rates. If lenders know there is a secure safety net then rates will fall and stay down. It has to be simple and clear. The risk of default is gone because the money is there. It can be argued that what is to be agreed is the most that can be agreed but we should not fool ourselves that it is what Europe needs from its leaders. If Greece were not a member of the eurozone, it would certainly have devalued its currency and it would probably have defaulted on sovereign debt. It has operated under serious constraints and Prime Minister Papandreou's government has done an immense amount to address the core issue of the Greek state spending far more than it raises in taxes. It appears the need to write down substantial amounts of its debt is being addressed. It should not have taken more than a year of the bailout programme before this was acknowledged and the failure to do so clearly added to the escalation of the crisis this year. Whatever is agreed about Greece in the coming days should reflect the reality of the market expectation for a high write-off rather than the negotiating positions of the private sector interests.

Some voices have been raised saying that the approximately €100 billion of recapitalisation funding which will be agreed may not be sufficient and that the structure of funding may be too inflexible. More detail needs to be provided before we can tell if this is so. What is certain is that the higher capital provisions which will be required are essential. This recapitalisation process is the event which the ECB and other member states worked to avoid over the past three years. The previous Government was continually pushed to avoid any action which might pose a risk of contagion to banks in other countries. It is a matter of public record, confirmed by figures in many countries, that we sought to write down substantial amounts of bank-related debt. This was blocked because honouring the debt was presented as a condition of financing support for both public services and the functioning of the banking system. Unilateral action was not taken because unilateral action was not possible but the recapitalisation of banks elsewhere, the argument against burning bondholders, is no longer valid in any way. The honouring of these debts is not required to protect the European financial system and it is not required to protect our ability to borrow. The Taoiseach and the Minister for Finance have used a dozen ways of refusing to answer the question of whether burning bondholders is a demand which they have placed on the table. They have refused to state exactly what we have sought and what our arguments have been. Most of the members of the Cabinet think it is a great laugh when they are challenged about their own references to, "not a red cent more for the banks". Given that Sunday's meeting was the third summit in a row where the Taoiseach held no meetings or discussions in advance, his claim of yesterday to be negotiating appears barely credible. If matters continue as they are, we will see a re-run of July where the only contribution our leaders made to the outcome was to wait on the sidelines to claim credit for decisions entirely driven by others.

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