Seán Ó Fearghaíl (Kildare South, Fianna Fail)

-----but we can all be quite satisfied with the nature of the campaign.

We all accept that last Thursday's decisive vote in favour of the stability treaty was a significant step along a long and winding path towards tackling the euro crisis for this country and Europe as a whole. The past four years of the crisis have placed the Union and the eurozone in particular under unprecedented stress. Fiscal imbalances, the threat of financial contagion and a profound disequilibrium between eurozone economies on a scale unimaginable to the signatories and creators of the Maastricht treaty dominate the EU agenda. The stability treaty establishes a fiscal framework as one part of a larger, complex puzzle of measures that are needed to stave off the collapse of the euro and the ensuing disastrous economic consequences. It is a step towards confronting the euro crisis.

The European Stability Mechanism, ESM, which replaces the temporary European Financial Stability Facility, EFSF, and European Financial Stabilisation Mechanism, EFSM, with a €700 billion financial bazooka, is the next step along the road to confronting the immense challenge that the euro faces. Despite threats from opponents of the stability treaty who continue to fail to outline where they will get the money from, the ESM represents a back-stop and a source of reliable funding at sustainable borrowing rates if Ireland requires it post 2013.

This Bill is the first step in a two-stage process in passing the ESM, which is the latest piece in the puzzle of addressing the euro crisis. While the technical details of the ESM will be fully fleshed out when Second Stage of its passage is debated tomorrow, this evening is an opportunity to look at the broader necessity of the ESM. I will outline the context of the crisis and its origins before speaking about the necessity of the ESM and its role in the broader, complex and arduous task of addressing the profound structural problems in the euro.

Examining the origins of the current crisis gives us some perspective on this important Bill and the need for the creation of the ESM as well as a sense of what future action will be required. The Maastricht treaty created a revamped European Union and a common currency that had two aims, those being economic and political. The economic aim was to provide financial stability and integration away from the endemic fluctuations and pressures of floating exchange rates. The political aim was to strengthen the "ever closer Union" following the dramatic shifts in the political topography of Europe after the end of the Cold War.

Since 1970 and the creation of the Werner plan for monetary and fiscal union, the proponents of deeper European integration and the economic stability and growth that they hoped it would bring envisaged a currency union as a positive European force. Currency conflicts such as the infamous battle of the franc in 1992, when the French central bank desperately attempted to retain some parity with the ever strengthening Deutschmark, underlined the damage that fluctuations in exchange rates could inflict upon a common market. The limits of efforts such as the currency snake to provide stability had been ruthlessly exposed by the divergent strengths of European economies. Black Wednesday in Britain, when sterling dropped out of the exchange rate mechanism, ERM, thereby tarnishing the economic reputation of the Conservative Party, is testament to the difficulties of exchange rates and the pressures under which they place governments. Furthermore, the dramatic political backdrop of the fall of the Berlin Wall, the re-unification of Germany and the end of the Cold War was a tectonic geopolitical shift on a scale not seen since the defeat of the Axis powers in 1945.

The creators of the single currency were operating on terra nova, a changed Europe. The original raison d'être of the EEC had been underpinned by the omnipresent spectre of the USSR, which helped to unify the rest of free Europe. The loss of this unifying force and the re-unification of Germany re-ignited old fears among a generation of leaders still shaped by the Second World War about the prospect of overbearing German dominance across the Continent. Under the guidance of Jacques Delors in the Commission and the leadership of French President François Mitterrand and German Chancellor Helmut Kohl, the EEC sought to forge a new union and common currency that would allay such fears and ensure a European Germany rather than a German Europe.

It is against this backdrop of strategic political demands and objectives that the Maastricht treaty took shape and established a common currency to achieve both its economic and political aims.

The common currency ultimately expanded across 17 of the 27 EU member states. A successful transition from national currencies, buoyant economic growth across the Continent and the convergence of bond yields for participant countries near the historically low Deutsche bond levels masked profound problems with the design framework of the euro. Behind the reality, however, disequilibrium between eurozone countries occurred where large current account deficits and surpluses accumulated, as countries did not have the usual economic indicator of an exchange rate. This allowed for a sharp economic divergence to develop, particularly between northern and southern eurozone countries. The accumulated trade surpluses in certain countries were recycled by their banks fuelling asset bubbles and consumption in other countries. The euro both facilitated and masked the problems at hand. The inability of countries to use the traditional currency devaluation lever to adjust and compete with other countries placed greater pressure on internal devaluation and the recessionary impact that can have.

Behind the initial success lay structural problems that were utterly exposed in the aftermath of the fallout from the sub-prime mortgage crisis that emerged in the USA. The collapse of Lehman Brothers was a cataclysmic event that starved the markets of funding and exposed the weaknesses of certain eurozone countries. The limits of the eurozone structures were completely laid bare by the pressures that countries blocked out from the bond market and struggling with banking debt were coming under. Ireland had adhered to the criteria under the Stability and Growth Pact that aimed to stabilise fiscal policy across the eurozone, unlike France and Germany which were the first to break the pact. Yet the deeper problems in the euro, the problems we are now seeking to address, ultimately generated the grave challenges we face as a country today.

Since 2008, Europe has in effect being playing catch up. The scale of the problems have become increasingly apparent and the scope of the solutions, many of them politically inconceivable at the start of the crisis, are coming to the fore. The initial creation of the European financial stability facility, EFSF, and the European financial stabilisation mechanism, EFSM, as funds for supporting countries that were unable to access funding on the bond markets, was an ad hoc response to an escalating situation. The fiscal treaty was another step towards addressing some of the underlying problems of the eurozone. The evolution of the European Central Bank, which has purchased bonds on the secondary market and launched a multi-billion euro LTRO, long-term re-financing operation, to finance banks and avoid the banking system from freezing over is also another milestone in adapting to the crisis. The European Stability Mechanism, ESM, represents a permanent funding mechanism to support countries on a level and scale inconceivable even three years ago.

In light of the weariness of creditor countries to lend money and the EU restrictions on financial support, the creation of the ESM marks a significant shift in eurozone policy and a transformation of pre-existing thinking on the crisis. While Europe has stalled on several issues and the pressing need for change is all too clear the creation of the ESM, the evolving role of the ECB and the passage of the stability treaty all represent significant steps forward for a Union often derided by the term "euro sclerosis".

This Bill is the first step in the two stage passage of the ESM, which is a crucial part of the EU response to the euro crisis, providing a permanent bailout mechanism and a financial backstop for eurozone countries. Vetoing the ESM, as some opponents advocate, will simply generate uncertainty and deny Ireland access to a reliable source of money at sustainable borrowing rates if necessary after the bailout funds finish. It amends Article 136 of the Treaty on the Functioning of the European Union, the Lisbon treaty, to allow for the establishment of a permanent financial support mechanism, the ESM for the eurozone. Ireland's membership of the ESM involves two steps - ratifying the treaty and the Dáil passing an amendment to Article 136 of the EU treaties.

The stability mechanism will provide the necessary tool for dealing with such cases of risk to the financial stability of the euro area as a whole as experienced in 2010 and, hence, help preserve the economic and financial stability of the Union itself. The finer technical details of the ESM will be dealt with in the ESM Bill which comes before the Dáil on Thursday under the auspices of the Department of Finance.

The question was raised during the stability treaty campaign as to why Ireland is not holding a referendum on the ESM. The Independent Member for Donegal South-West, Deputy Thomas Pringle, has brought a High Court challenge that encompasses the ESM and Article 136. He wants the court to examine the legality of an amendment to an existing treaty which, he says, will also be pushed through without a vote if the 31 May referendum were passed, as it has been. Deputy Pringle has asked the court to look at this amendment before any further action is taken by the Government to approve it. However, legal advice to the Government indicates the changes to Article 136 do not come under the scope of the 1987 Crotty judgment which places a legal obligation on the Government to hold referenda on issues that significantly affect sovereignty. I will not comment further on an ongoing court case except to provide the context to our own discussion on the ESM.

During the referendum debate Sinn Féin and other opponents of the recently passed fiscal compact treaty advocated that we veto the ESM using the Article 136 amendment mechanism to re-negotiate the terms of its loans. However, this ignores two critical issues. It is far from clear that the Article 136 amendment is really necessary to set up the ESM. The European Court of Justice has never said so. The only court to have pronounced on this issue - the German Federal Constitutional Court - produced a highly ambiguous ruling on this point last October. Indeed, the ESM's temporary predecessor, the EFSF, was successfully set up on the basis of another treaty article. In other words, it is unclear that Ireland actually has a veto on the setting up of the ESM. Opponents may be overplaying their hand in threatening a veto.

More importantly, Ireland does not benefit from vetoing the ESM. Why would we want to block a source of reliable funds at sustainable borrowing rates? Threatening to veto an institution as vital as the ESM would be an utterly bizarre strategy for a country in Ireland's weak position. It would achieve nothing other than infuriate those states upon which we are reliant for funding. The ESM provides a reliable source of funding from 2013 if Ireland needs a second bailout, a matter which opponents of the fiscal compact have failed to point out. Furthermore, it provides a backstop which will assure potential investors in Irish bonds that they will be re-paid if the State runs into future financial difficulty, thus lowering Ireland's borrowing costs. If Ireland vetoes the ESM, where will we get money from after the bailout finishes in 2013?

As I outlined earlier the problems with the eurozone are manifold and require real commitment and leadership from across the Continent to overcome effectively. Fianna Fáil has consistently argued that, in addition to the progress made with the fiscal compact treaty and the establishment of the ESM, much more fundamental work remains to be done to save the eurozone. Monetary union needs to be complemented with a higher level of fiscal and political union with EU institutions such as the ECB reformed to suit a new role. We advocate an overhaul of the role of the ECB to allow it purchase the bonds of countries in financial difficulties and adapt a goal of economic growth as well as its current objective of price stability. A pan-European banking resolution and regulation authority which guarantees deposits across the Union should also be established. Debt should be mutualised across the eurozone with the launch of eurobonds which can be used to help stimulate growth. The disequilibrium between member states' economies in terms of government spending, labour unit costs and inflation needs to be recognised and addressed when shaping broader monetary and fiscal policy. The fiscal compact treaty and ESM are small steps towards addressing the broader profound problems that the eurozone faces. The design flaws of the euro need to be tackled if it is to survive in the long run.

The European Stability Mechanism, ESM, is one part of a bigger puzzle and its implementation will be beneficial to both Ireland and Europe. It is one more step for us to take along the road to recovery, and it is important that this House passes this legislation as quickly as possible. I commend the Bill to the House.

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