Enda Kenny (Mayo, Fine Gael)

Last week's meeting of the European Council was a significant one. Important steps were taken in regard to both budgetary discipline and firewalls - issues of great importance to this country - and progress was made towards taking Europe beyond the current crisis.

Of course, much remains to be done in the period ahead both to put shape on the new arrangements and to ensure that the necessary firewalls are in place. As I stated when I addressed the House last week, it is important that the decisions taken be, and be seen to be, implemented. While it will not be the last word in the matter, last week's outcome was a good one for Ireland and for the future stability of the euro, and it should be welcomed by the House.

In advance of the meeting, I spoke and wrote to President Van Rompuy setting out Ireland's key priorities, which include decisions to stabilise the eurozone through stronger firewalls and new rules; the need for the removal of the PSI provision from the ESM treaty; and to signal the Government's intention to pursue the application to Ireland of the new financial instruments that did not exist at the time of the initial recapitalisation of the Irish banks. I am satisfied progress was made on each of these issues.

Our meeting began on Thursday evening over dinner, when President Van Rompuy set out the results of the work he has undertaken on foot of the mandate we gave him in October to identify steps to strengthen economic union. In taking this task forward, he worked closely with the president of the euro group and the President of the Commission. He also consulted all member states on the best way forward. His report and the measures it proposed were well balanced and widely welcomed. They formed the basis of the substance that was agreed.

On strengthened economic policy co-ordination, we agreed what has been called "a new fiscal compact". Essentially, this is a set of reinforced budgetary rules for countries within the euro area. Specifically, we agreed that government budgets should be balanced or in surplus. Looking at where Europe is now, this is an entirely sensible proposition. We agreed that this rule shall be deemed to have been respected if, as a rule, the annual structural deficit does not exceed 0.5% of GDP. There is no doubt that this is a challenging ambition, but we agreed that it is necessary if we are to send a strong signal that we are serious about what we are doing. We will work carefully through the country-specific implications for Ireland once negotiations are under way.

It is, of now, a political agreement. Given the nature of what is involved, there are some very detailed technical and legal considerations that will need to be teased out carefully or analysed by experts before any legal text is adopted. This is an important process in which Ireland will be fully and actively involved.

To underscore our seriousness of purpose, member states will carry over this commitment into national law at constitutional or equivalent level, and the European Court of Justice will have a role in ensuring this is done properly. We are examining this requirement carefully, particularly in regard to how it dovetails with the fiscal responsibility Bill now being prepared.

We agreed that euro area member states that are in breach of the existing rules on excessive deficits will be obliged to work with the Commission and the Council in an economic partnership programme detailing the structural reforms required to get back on track in a sustainable way. The implementation of this programme and annual budgetary plans will be monitored by the Commission and the Council. This does not mean allowing the Commission or another entity to draft the budget for countries, which of course is their democratic responsibility. We also agreed that the rules for the excessive deficit programme should be tighter for member states in the euro area. Specifically, there will be automatic consequences for a member state that exceeds the 3% ceiling unless a majority in the Council decides not to adopt a Commission recommendation in this regard.

On 23 November the Commission brought forward two important new proposals on monitoring and assessment of draft budgetary plans and on strengthening economic and budgetary surveillance of member states experiencing or threatened with serious difficulties. Last week, we agreed these important measures should be examined swiftly so that they can be in force for the next budgetary cycle. Under this new legal framework, the Commission will examine the key parameters of draft budgetary plans and, if necessary, adopt an opinion on them. Where a plan is seriously non-compliant with Stability and Growth Pact requirements, the Commission will be able to request a revised one.

If we have learned anything from the current crisis, it is that while we share a currency and are deeply affected by the fiscal approaches of other member states, we do not yet have the rules necessary to match that interdependence. Last week's meeting, therefore, agreed that we should deepen our co-ordination to better reflect our closer connections. The President of the European Council has been asked to report on this in March 2012. The new arrangements will mean more co-ordination of the fiscal plans of member states. This is not something that should be a concern to Ireland because we are already in the process of preparing a fiscal responsibility law that will ensure the mistakes of the past Government and reckless lending which led us to our current position will not be repeated in the future. Ensuring that other member states toe a similarly disciplined line is something we should welcome. It is, of course, necessary to ensure that we advance on the basis of sound reasoning and careful analysis and with proper regard to the requirement for democratic legitimacy and political accountability. These are not desirable add-ons; they are central requirements.

In addition to the aforementioned elements of the fiscal compact, last week's meeting also moved to strengthen the stabilisation tools or firewalls. This is part of a programme of immediate action to answer current pressures in the markets. Again, this is welcome from an Irish point of view and I pressed the issue strongly in the lead up to the meeting. We agreed to accelerate the entry into force of the European Stability Mechanism, the permanent replacement for the EFSF, with the objective that it be in place in July 2012, a year early. This is important because the ESM has several advantages over the EFSF, including a more streamlined operation due to the fact that the ESM does not rely on guarantees in the same way. We agreed that the EFSF should remain active until mid-2013, as previously planned, and that it will continue to ensure the financing of ongoing programmes as needed.

Importantly, we agreed that the requirement for private sector involvement, PSI, should be removed from the ESM treaty and that we would strictly adhere to established IMF principles and practices in this regard. I have long argued that this should be done, including in my meetings with Chancellor Merkel and my discussions with President Van Rompuy, President Barroso and Prime Minister Cameron. PSI is a serious impediment to those member states, including Ireland, which seek to regain market access in the future. I am glad that partners listened carefully and responded positively.

We also indicated that we would reassess the adequacy of the overall ceiling of the EFSF and ESM of €500 billion in March 2012 and that we stand ready to accelerate payments of capital into the ESM if needed to maintain the required ratio between paid-in capital and loans and to ensure a combined effective lending capacity of €500 billion. To further underpin our firewalls, member states will consider providing up to €200 billion in the form of bilateral loans to the IMF to ensure that it has adequate resources to deal with the crisis. This does not have consequences for Ireland because we are in a programme and would not be expected to contribute but we will monitor progress with keen interest, including whether parallel contributions are forthcoming from the international community.

Having reached agreement on the substance of what is involved, our meeting turned to the steps needed to put it in place. We agreed there was considerable scope for making progress through secondary legislation where this was possible within the framework of the existing treaties but it was also clear that some of the steps we agreed to take require primary legislation. President Van Rompuy sought to proceed with the support of all 27 member states but when this did not prove possible for reasons that have been aired extensively in the subsequent period, we agreed to proceed by way of an international agreement involving all the euro area member states and any other member states which wished to come with us.

A number of my colleagues have now entered into a process of consulting government partners and parliaments and it appears likely that 26 member states will agree to participate. The obvious exception is the United Kingdom, which felt that it was not in a position to agree. This is a disappointing development, although it is clearly for the UK Prime Minister to decide how best to advance and defend the UK's interests. In approaching the meeting I hoped that we could find a way forward for all 27 member states as a strong signal of complete unity and common purpose at European level. I am also conscious that the UK is our closest neighbour and is often our staunchest ally at the European table. It brings a unique perspective that will now be missing from these important debates. We will, of course, continue to work as closely with the UK as we have done in the past. Our relationship is deep and wide, based on important common interests across a range of EU policy matters. We share an especially strong commitment to the Single Market. I will continue to work with the Prime Minister, with whom I spoke yesterday evening, to ensure nothing is done to damage that most important achievement of the Union. I expect to speak to him again in the coming weeks. What has happened is disappointing but I do not wish to exaggerate its import. The UK has decided not to participate in the specific arrangements we agreed at last week's meeting. It has not in any way turned its back on the European Union, as the Prime Minister made clear in his speech to the House of Commons this week.

Part of President Van Rompuy's report in March will pertain to relations between the EU and the euro area, which may help us to make progress on this important discussion. In the absence of agreement among all 27 member states, we agreed to proceed by way of international agreement. Last week, we reached a political agreement which now needs to be given technical and legal effect. Work is now under way on the part of the legal services of the Commission and the Council and once an initial text has been prepared, it will be shared with experts from member states. I appreciate there is great interest in this House in what the adoption of the agreement will mean for Ireland, including whether a referendum will be required to ensure that we are in a position to ratify what has been agreed. The simple fact is that until we have a legal text to consider, it is not possible to say. Important issues must be considered in detail and the Attorney General will want to fully study the texts before offering advice. This is not something that should be rushed but I reiterate my commitment to do whatever is necessary once this scrutiny has been completed. If a referendum is found to be necessary, that is what will happen.

I wrote to President Van Rompuy ahead of the last week's meeting to alert him to the points I would be making. I told him plainly that the Irish people expect our actions to restore the stability of the eurozone and reinforce Ireland's prospects of regaining our economic sovereignty. In my letter and my presentation to colleagues at the meeting, I explained the cost to Ireland of capitalising banks in a manner that protected European as well as Irish citizens. I stated that the cost, at €63 billion or 50% of GNP, has been uniquely onerous. I indicated that I would be seeking access for Ireland to new European financial instruments which were not available to us at the time and that I would be doing so in the interest of equity and of making our burden of debt more sustainable. For example, in October the European Council agreed measures to ensure adequate capitalisation of Europe's banks, including a role for the EFSF.

I told colleagues that such facilities should be applied in Ireland's case as if they had been available at the time the Irish Government put money into the Irish banks. In making that case, I underscored the fact that we will continue to meet, on time and in full, all the obligations of our programme. We are simply seeking to re-engineer our debt burden through the possibilities now available to others.

Last week's meeting was focused on the big picture of how to stabilise the euro and deal with the eurozone crisis. It was not an occasion at which national issues were on the table for decision. However, I set out our case strongly and gave colleagues a clear understanding of the scale of our predicament and challenge. I told them that, together with the Minister for Finance and other Ministers, I will pursue the matter further in the period ahead. I am confident that in due course we will be able to make positive progress in a way that makes a real difference for Ireland and for our people. I intend to leave no stone unturned in that regard.

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