Michael Noonan (Limerick City, Fine Gael)

I am. When I moved the suspension of the House, I was talking about the possibility of renegotiating. I made the point that we were renegotiating in phases and that the next phase was to renegotiate the burden of debt. That gives continuity with what I was saying before the previous debate was adjourned. I believe this is the most appropriate course of action, and this is what we are trying to do. The strategy is beginning to pay dividends. The economy is growing once again, the public finances are on track, and deposits are returning to Irish banks. As the Taoiseach pointed out this morning, our ambition was to be the first eurozone country to emerge successfully from a bailout. I refer back to the comprehensive strategy to address the euro area crisis as part of which leaders pledged to increase the effective capacity of the stability fund, the European Financial Stability Facility, to limit the contagion effects. Two main options to boost its firepower have been identified. The first involves an insurance-type arrangement that will be available to member states whose debt issuance is under pressure. In this way, a relatively small number of guarantees can generate a large amount of investment. The second option will bundle resources from private and public financial institutions and investors, via a special purpose vehicle, to increase the amount of funds available to provide stability support. In terms of the actual impact, it will depend on market conditions but it could be up to four or five times the size of the remaining capacity of the EFSF, in other words, approximately €1 trillion.

What does this mean for Ireland? Ireland conducts limited business with Greece and financial links with Greece are limited. For us, the decision to erect sizeable and robust firewalls is important because there is a risk of contagion from the Greek crisis. This will help to reduce the risk of derailing the recent substantial progress we have made and as such it is welcome.

The third element of the strategy involved leaders of all EU countries endorsing a package of measures to restore market confidence in European banks. The package, designed by the European Banking Authority and based on a mark-to-market treatment of banks' holdings of sovereign debt, has several aspects to it. The first part involves a co-ordinated scheme of bank recapitalisation throughout Europe. In practical terms, banks will be required to create exceptional and temporary capital buffers to address current market concerns about sovereign risk, resulting in the need to reach a core, tier 1 ratio of 9% by the middle of next year with mark-to-market in addition. The objective is to reassure markets about the ability of European banks to withstand a range of shocks. It has been agreed that to finance the capital increase, banks should use private sources of capital first, including through the restructuring and conversion of debt-to-equity instruments. If necessary, national governments should provide support and, if this is not possible, recapitalisation can be funded via a loan from the EFSF in the case of euro area countries.

The second aspect relates to EU co-ordinated public guarantees on bank liabilities to support banks' access to medium-term funding, which has become increasingly difficult recently. Such guarantees will help banks continue their lending next year and avoid forced de-leveraging, which would have negative implications for the European economy. The outcome of the European Banking Authority exercise shows that Irish banks do not require additional capital under the higher standard now required. This outcome underlines the robust and conservative nature of our own prudential capital assessment review, PCAR, conducted in March this year. As Deputies are aware, a final €24 billion recapitalisation of the banking sector took place in July this year following the PCAR process and earlier steps taken by the State during 2009 and 2010. Given the additional PCAR capital, Irish banks are now among the best capitalised banks anywhere in the world. In other words, additional capital is not now needed. Approximately one third of this capital was generated from private sector investment and liability management exercises. This is a clear vote of confidence in the Irish banking system and in the future of the Irish economy. Some €15 billion of revenue was secured from what is colloquially described as "burning subordinated bondholders" but €15 billion is a great deal of money.

The fourth element of the strategy involves a strengthening of economic and fiscal co-ordination in the euro area. A set of measures that go beyond recently adopted reforms will be put in place, reflecting the need for greater co-ordination within a monetary union. In general terms, the surveillance of national budgets in the euro area will be tightened. Specifically, among other things, euro area member states will be required to adopt fiscal rules into national legislation and to consult with other member states before adopting any policies with potential spillover effects. More rigorous oversight is envisaged for member states in excessive deficit, in other words, where deficits or debt is too high. Heads of State also agreed that a pragmatic co-ordination of other policies would be implemented.

What does this mean for Ireland? First and foremost, we in Ireland recognise that in a currency union economic and budgetary policies in one country can have spillover effects on other countries. One of the greatest problems during the first decade of monetary union was the failure of many countries to take the euro area dimension sufficiently into account in their budgetary policies. Measures have been agreed to help address this issue which will be of benefit to all euro area member states, including Ireland. Ireland is already moving in the direction of improved fiscal rules, the latest example being the forthcoming fiscal responsibility Bill which will, of course, be debated by the Oireachtas. The Bill will put the Irish Fiscal Advisory Council, which has been established already, on a statutory basis. As the Taoiseach has outlined previously, Ireland will engage constructively on the Commission's proposal for a common consolidated corporate tax base. With regard to the Commission's recent proposals for a financial transactions tax, I have made clear that such a tax, in whatever final form it might take, should apply on as wide an international basis as possible. Such an approach would avoid the danger of activities gravitating to jurisdictions where such a tax is not levied on financial transactions. Furthermore, as I and others have previously stated, if a global agreement is not possible, it is important that any such tax would apply on an EU-wide basis to prevent any distortion of activity within the Union. Others have a different view about whether it should apply to a smaller grouping in the EU. We must see what proposals emerge and how they evolve but much work remains to be done in this area.

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