Michael Noonan (Limerick City, Fine Gael)

Last week's announcement following the euro area summit in Brussels represents a major shift in European policy in terms of breaking the link between recapitalising the banks and the sovereign, a policy change for which I have repeatedly pressed at European Union meetings. This message has been echoed by the Taoiseach, Tánaiste and other Ministers in meetings with their EU colleagues. The specific mention of Ireland in the statement issued following the summit is a welcome development and the result of intensive discussions over the past year. It shows there is widespread recognition for the measures this country has implemented and the significant sacrifices Irish people have taken to bring our public finances under control.

This is an agreement in principle which provides an opportunity for the issue of bank debt to be addressed at an EU level. As the details have yet to be worked out, it is too early to state at this time the precise implications of the announcement. There will be further discussions at the euro group meeting on 9 July. Preliminary discussions on how to separate banking from sovereign debt are under way but I do not want to prejudice them by commenting on the likely contents of any agreement at this time. Given their complexity, the discussions are likely to take some time. Our shared objective, agreed with our European colleagues, is to break the link between banks and sovereigns, and we are open to discussing any method of doing this.

On the memorandum of understanding, the current position is that a budgetary consolidation package of some €3.5 billion in 2013 is set out as that required to reduce the general Government deficit to 7.5% of GDP next year.

Ideally, I would like to see a resolution of the banking debt issue by the end of October but it is unlikely the agreement reached last week will affect our plans for budget 2013, which will be announced in early December. This announcement is undoubtedly a positive development for Ireland. However, we cannot lose sight of the fact that, notwithstanding the considerable negative effect State support for the banking system has had on the public finances, including the debt level, there remains a large gap between day-to-day spending and revenues. This gap needs to be closed to enhance further the long-term sustainability of our public finances.

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