Mick Wallace (Wexford, Independent)

I agree with many of the points raised by Deputy Pearse Doherty. All of the summits have adhered to a trend whereby we get a great sense of optimism in the lead-up followed immediately afterwards by a degree of rallying on the markets before sober reality kicks in some days later and any gains are lost. Europe has proved unsuccessful to date in solving the main problems it faces. The Minister claimed in a radio interview last week that the euro now looks secure, that Europe will return to growth and that the threat of a recession emanating from Europe has been removed. Those claims are surely somewhat optimistic.

Several major questions emerged from last week's summit, namely, whether it would make Greece viable; whether the banks would be able to increase their capital ratios without causing another credit crunch; where would the money come from for the EFSF; would it take the heat off Italy; and, what are the chances of improving Europe's growth prospects. The notion that Greece will be able to reduce its debt to 120% of GDP by 2020 is grossly optimistic. That target is calculated on the basis that the country will have an average annual growth rate of 2% in the next nine years. Given that it is currently at minus 5.5%, such a positive prediction is stretching credibility. Moreover, the markets have indicated that Greece will need to reduce its debt to approximately 80% of GDP before they will resume lending to it. Developments in recent days bear out the reality that Greece is far from out of the woods.

In regard to banking, European banks have been quite open in their indications that in order to deleverage they will either refuse to extend credit or else call in loans which they would not otherwise have called in so quickly. We all know how difficult it is to secure credit in the current environment. If the European banks become as closed as their Irish counterparts, it does not bode well for Europe's growth prospects.

On the EFSF, we will have to adopt a wait and see approach. The facility seems to have been divided into two sections: first, a special-purpose investment vehicle which there is a reliance on the Chinese to fund; and, second, an insurance fund which will indemnify investors against the first 20% of any losses on sovereign bond purchases. Given that we are already at 50% in the case of the Greek debt, it is difficult to see how the EFSF will be Europe's saviour. Moreover, it will not function as a lender of last resort; that is not the German plan.

With regard to growth, I remain to be convinced that the austerity measures being promoted by European leaders will stimulate growth. Rather, Europe will likely be obliged to do a U-turn on this issue. Krugman and Stiglitz have been shouting from the rooftops for several years that austerity will not bring about the growth we are seeking.

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