Peter Mathews (Dublin South, Fine Gael)

I, too, welcome the opportunity to speak to the European Stability Mechanism Bill 2012. There have been several legal challenges to the ESM. Deputy Thomas Pringle in Ireland has challenged its legality on constitutional grounds, arguing that it should be subject to a referendum.

In Germany, the challenge was brought by a former justice Minister on the grounds that it violates the budget control rights of the German Parliament. The Estonian challenge is based on the case of qualified majority voting in the European Stability Mechanism, ESM, decision-making processes, as it is argued that it violates the rights of smaller member states. There are three areas of challenge from three different countries, all dealing with the quasi-constitutional aspects of passing this.

The ESM is a fund that is behind the reality of what has occurred. Politicians will naturally tend to discuss and debate the areas where they have inputs on expenditures and revenue collection. For the past number of years, since the collapse of Lehman Brothers in America and the consequences through the financial system, they did not understand the imperative of considering all the various banks in the eurozone and the European Union, as well as the interconnection with America. As long as 15 months ago there was a credit freeze between the payments systems in the dollar currency and the euro. The United States Federal Reserve made arrangements with the ECB to provide hundreds of billions of dollars liquidity to enable payment flows between European and American banks, as well as European and American suppliers and exporters across the globe. This was a symptom of the total credit contraction that began as a result of the super credit expansion through the banking system, starting in the 1990s.

The size of the banking liabilities in the eurozone is massive; recent estimates are that there is over €60 trillion of liabilities in eurozone banks, which is about the size of world GDP. Those liabilities are matched by assets and the collectability and recoverability of those assets is now becoming increasingly doubtful. That is the problem. Investment banks, advisers in the creation of all this credit and inventors of derivatives in a world that became increasingly deregulated, had a free hand in a financial jungle. The impairment and collapse of certain banks has caused the problems for the sovereigns.

The scale of the problem emerging is huge. There are well informed and articulate commentators who have analysed the construction of the financial world over the past 20 years or more who are increasingly alarmed at the issue going out of control. As recently as yesterday, Mr. Martin Wolf was quoted as stating:

Before now, I had never really understood how the 1930s could happen. Now I do. All one needs are fragile economies, a rigid monetary regime, intense debate over what must be done, widespread belief that suffering is good, myopic politicians, an inability to co-operate and failure to stay ahead of events. Perhaps the panic will vanish but investors who are buying bonds at current rates are indicating a deep aversion to the downside risks. Policy makers must eliminate this panic, not stoke it.

The politicians coming from the larger countries in the eurozone have been far too timid and ineffective while wringing their hands. That applies to their thoughts and actions. I have already noted how Mr. Helmut Kohl five months ago spoke about how the dark spirits of the past were not entirely dead. That is the individualisation that was mentioned by Deputy Durkan, with the attitude of competitive nationalism within the so-called community. Mr. Kohl argued that the ineffective behaviour of politicians in Europe could fail the 500 million European people, which is suffering varying degrees of youth unemployment across different countries.

If a small country like us has the ability to diagnose the disease, describe it, give a prognosis and bring about a method of financial management, we should stand up and not wait for reactions to bilateral conversations. Where there are fora, we should do what Khrushchev did many years ago and take off a shoe to bang the table and make the points. Otherwise, it will be like Korean Air, which had a higher than average rate of accidents because the culture demanded that pilots in training should defer to their seniors. When mistakes were being made in the cockpit, an assistant pilot would have been too scared - because of a deferential culture - to say that a senior pilot had made a mistake. The airline changed the culture so that assistant pilots could stand up with courage when a mistake was made by a superior, and the accident rate declined. We need politicians in the smaller countries not to be afraid and deferential to so-called senior people. We must step up to the microphone and make the points.

We had four visitors from the Bundestag recently before the finance committee. They were members of the German Parliament, and one was a former Minister responsible for the economy and technology. They made a presentation and took questions but I found it predictable and boring. They congratulated us on the result of last Thursday and indicated that we have shown a good example to the remaining countries which must ratify the treaty. They argued that there was a firm platform for moving forward and that Ireland was making great progress. They did not see much of our hardship, such as the increasing mortgage distress from the mortgage book implosion. They did not note the lack of questions to figure out what went on in the banking audits from the five years leading to the crash. These are tough but straightforward questions.

These visitors did not realise that €75 billion as a proportion of our GDP - the amount of private bank sector losses going on to our citizens - would equate to €1.2 trillion or €1.3 trillion going on the shoulders of German citizens. They did not understand that sovereign debt is not our problem but rather household and non-financial corporate debt. When those three components are added and compared with national income, which is more relevant to us, it is the highest rate in the world. They did not see that we are only at the start of a marathon of recovery. They did not know because we have not really got the message across.

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