Seán Fleming (Laois-Offaly, Fianna Fail) | Oireachtas source

I welcome the opportunity to speak on the Fiscal Responsibility Bill 2012. The background and context to the discussion is that the Irish people recently voted in a referendum, by a majority of 60% to 40%, to pass what was generally described at the time as the fiscal compact agreement. Essentially, this legislation is to give effect to the budget and debt rules which are part of the agreement. The legislation also gives the Irish Fiscal Advisory Council legal status. It is currently operating on an administrative basis and it does not have legal status. I look forward to its being granted legal status, at which time I hope it will be taken more seriously. Up to now its comments have been generally ignored if the Government of the day does not like what it says. I hope that situation does not continue. However, I remind the members of the fiscal council, after a hiccup or two in the original figures when it issued its first report, that the nation is composed of people and not just figures.

I understand some members of Fine Gael said we should close the deficit more quickly. We would all love that, but to do it would have consequences. Recently, the IMF has begun to recognise that one can over-cut and over-tax, which can be counterproductive. One must strike a balance. It is a reasonable timescale, whether we do it over a four-year or a five-year period. The speed and success of the process will depend on growth levels. We all wish the country success in getting back to a higher level of employment and less emigration of young people than in previous years. What we are doing is to ensure the country has a strong, viable future for the next generation. The current generation is paying dearly for the difficulties following the property boom which led to the banking crisis and ultimately caused major problems in terms of adding to our sovereign debt, resulting in the need for the arrival of the IMF to lend us money in the short term until we are in a position to borrow again on the international financial markets.

Sometimes economists take a simple view, such as that cutting expenditure by X billion and increasing taxes by X billion will close the deficit. They fail to factor in what happens as a result of such an approach. I learnt about the multiplier effect when I studied economics in college. If one gives a person €100 and he or she spends it in the local shop, the shop then has €100 and it allows the owner to pay the wholesaler who supplied it, who then has €100 to pay the person who made the product. When that individual gets his €100 he can buy raw materials and, in turn, the person who provided the raw materials can purchase something from a supplier. A small amount of money has a big ripple effect on the economy. In its projections the IMF did not fully appreciate that. It just assumed that if €100 million, for example, were taken out of the economy, that would be the end of it, but one could be making double or treble the cut in terms of knock-on effects. There is a story, which I will recount in its polite form, in which a person came into a hotel in a town in a particular country. He said he wanted to book a room and put a deposit on it. He said he wanted to look at the room but that he would come back in half an hour to confirm the booking.

He handed over €100. The proprietor of the hotel used the €100 to go to the local butcher's shop to pay the bill for the meat he had bought the previous week for the hotel, whereupon the butcher immediately took the note to the farmer from whom he had bought cattle the week prior to that, and paid him. The cattle owner eventually came back and paid the €100 to the shop in the town where he had bought groceries. The man in the grocery shop came to the hotel and paid for a function room he had hired the previous week. Five minutes later the original man returned and said he would not be taking the room after all. The hotelier handed back the deposit of €100 he had held for half an hour, which had done five or six rounds of the town. The €100 was gone but all the debts were paid. My point is that money goes around. If a cut is made the circle is stopped. That is one of the issues we must take into account and I do not believe the Irish Fiscal Advisory Council fully understands that, although one would have expected it to be expert in the matter. In an IMF publication recently uncovered by a journalist, that organisation acknowledged it had understated the effect of a cut. Money gets spent over and again so it is important to keep it in circulation.

All these new agreements are wonderful and great and we all support them in theory but they all depend on effective political leadership at EU level to ensure they are actually enforced. One of the reasons there was a "No" vote of 40% in the recent referendum is that people saw Germany, France and other big countries dictating to the rest of us how they saw their vision of Europe. We must ensure there is no dominance on the part of some of the major economic powerhouses in Europe and that we are a European Union of equals. That is the most important goal to achieve in years to come, to ensure our citizens buy into these processes.

Originally there was the Stability and Growth Pact, which makes my point. It was a collection of rules in place many years ago. I remember a referendum, although I am not sure which, in which we voted for measures such as keeping public deficits under 3% and reducing the debt-to-GDP ratio to 60%. We achieved that during the good times but the Council of Ministers failed to apply sanctions to France and Germany when those countries breached the rules years ago. Ireland got a ticking off when something went wrong here but the big countries did not get a similar ticking off and people saw an unfairness in that situation. The targets were correct but there was no enforcement or power behind the rules. That was missing during this period.

The fiscal compact will give some enhancement in this area, although it is not perfect. It will not solve our problems but is one part of the process through which we must go to help to solve our economic problems, both at Irish and EU levels. Nobody suggests for one minute this is the panacea for all our ills but it is part of the step we have to take. I have no doubt that in some years' time we will be back for another European referendum, to tighten up banking or currency rules or some such thing. That will be a fact of life in Ireland as long as we have a written Constitution, which we certainly wish to keep. Every few years we will have a referendum and it is good to have that actual engagement with our citizens. Sadly, this is not the case in every other country.

I refer to some issues in the legislation. There is an automatic corrective mechanism if countries do not achieve the specified targets. We signed up to that years ago but this measure is about enforcing targets already in place from a previous regime. The incomplete currency union remains a problem. There are 27 countries in the EU but only 17 are in the euro area, which in itself is odd. I see no immediate change coming in that regard. The euro is not strong enough to include some of the new countries but it must be a long-term aim that if a country is in the EU it must sign up to the currency. That might be a problem for our nearest neighbour but somewhere along the line this must be dealt with.

The currency was poorly designed in the first place, in that proper banking supervision and rules were not in place across the EU. It is also important to acknowledge that neither this legislation nor the referendum will solve that problem. Had this treaty been passed five years ago and been in place it would not have prevented AIB, Anglo Irish Bank and Irish Nationwide from getting into trouble. I reiterate that this legislation is only part of the process. In its own right it will not solve issues such as banking debt. During the referendum debates some people asked what was the point of the referendum if some of what was going wrong would not have been prevented had the legislation been in place. That is a valid point and one that I, too, make. This legislation and this referendum are only part of what was needed; they do not make up the full picture. Time and again we will have to revisit those areas.

The legislation is intended to make provision for the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union to take effect in the law of the State in accordance with paragraph (2) of the Article in question. It goes on to deal with some specifics. I do not wish to deal overmuch with the fiscal council because I have covered that issue at length, as have other Members. During Committee Stage and other Stages there will be detailed amendments on some of these issues. The legislation is intended to ensure that Ireland endeavours to comply with fiscal rules and this is happening in all the associated countries. It is not that Europe is telling us to pass the legislation; we are telling every other country to pass similar legislation. I am sure this measure has been passed by the Greek, Spanish, Italian, French, Belgian and Dutch Parliaments and every Parliament throughout Europe, although I do not know the timescale for its completion by all EU countries. Some have already signed up, more are in the process of doing so. This will apply to other countries just as it does to Ireland.

I refer to the budgetary rule on structural deficit, which is complicated. I still do not know what it means although I have some concept of it. Most people in the House have such an idea. There might be ten economists speaking on a programme on RTE tonight who would have ten different definitions of the structural deficit and there would be a slightly different definition if one went to the European Commission. I worry about the wiggle room involved. Perhaps that is a good thing and will allow for local circumstances but it would be good to have a clearer picture. During the referendum campaign there was a lack of ability to define what some of the terms in the legislation meant, which became an issue. Nevertheless, the people accepted in good faith that we needed to enact it because we were part of the eurozone. There is no other game in town as far as Ireland is concerned. We are part of Europe and that is the beginning and end of it. People know that and even if there are odd bits around the edge that cannot be precisely defined it is better to be part of the euro than the reverse. It is important that we enact this treaty. It deals with structural balances in a way we look forward to being defined as time goes on.

The debt rule is where I have my biggest reservation. It provides that the ratio of general Government debt to GDP should be above 60%. The ratio will be reduced in accordance with the relevant EU regulation under the Stability and Growth Pact. In general that is not a problem for countries that have a national debt in the order of 70% or 80%; for them, bringing the debt down to 60% is not too big a task. However, for a country such as Ireland that has a debt-to-GDP ratio in the order of 120%, bringing it down is not so easy. We are being asked to do more in the reduction of our debt than any other country in the world. The only country in the world to have achieved a similar reduction in its national debt was Ireland - on paper - during the Celtic tiger era. We now know some of those figures were a mirage. We cleared the debt by borrowing on a credit card and we are now beginning to pay again for that. That will remain a major difficulty for Ireland for years to come.

There are special arrangements in place for programme countries - those in EU-IMF-ECB, or troika, programmes. This measure does not apply to countries in the programmes but when they emerge and return to borrowing in the international market there will be a transitional period. Again, there is no exact definition of how long the transition period will be. As for a country that goes into a second programme, my understanding is that the rules would not apply for some time after the transition period. I do not say we will go into a second programme but if we were to the rules would not apply to Ireland for some time. This means the cost of the national debt will always be a particular difficulty. These are the issues that emerged. Reducing our debt will place a bigger burden on Ireland in comparison to other EU countries.

The legislation also contains a corrective mechanism. It is probably right that this is being included, but there are those who may say that what is being done is somewhat harsh in Ireland's case. If, however, the corresponding legislation that is going through the Italian, Spanish and Greek parliaments contains similar mechanisms, I will be satisfied. As a member of the eurozone, Ireland is obliged to make a small contribution when other countries are given bailouts. In such circumstances, we want to know that rules will be put in place in the countries to which I refer in order to ensure that they will deal with matters in a proper fashion. I hope that the corrective mechanism to which I refer will never have to be used in Ireland's case. However, the European Commission is entitled to address warnings to particular countries under certain EU regulations if it considers that there has been a failure to comply with the budgetary rules. That is very important. The legislation requires that the Government shall - the words "may", "might" or "if" are not used - within two months "prepare and lay before Dáil Éireann a plan specifying what is required to be done for securing compliance with the budgetary rule". This is a strong correction mechanism and, essentially, it is what was missing from the original Stability and Growth Pact. If the Government is informed by the European Commission that Ireland is not meeting its targets, it will be obliged to specify, within two months, how much time - for example, a period of two years - it is going to take for it to set matters right. The Government will also be required to specify the nature of the revenue and expenditure mechanisms that will be used in order to bring the budget back into line. Furthermore, it will be obliged to outline the differences in the various sub-sectors within general Government expenditure. This mechanism may seem harsh but if we are in compliance and if the country is enjoying economic growth, there will not be a problem. We all hope that the latter will be the case.

I referred earlier to the banking crisis and highlighted the fact that there is nothing in the Bill which would have assisted in averting that crisis. Ireland was one of the first countries that was obliged to deal with the banking crisis. I am concerned that there is a question at European level - this has not yet been clarified - in the context of legacy issues relating to financial institutions that have gone bankrupt. There must be a proper mechanism in respect of bank supervision across the EU. It is no good just to deal with the top 100 banks in this regard because the banks in this country which caused us the most problems might not - depending on their scale of operations, branch networks, impact on local economies, etc. - be among the ranks of the former. I am of the view that there should be one strong European Central Bank and a correspondingly strong banking regulation system across the entire EU. The Central Bank of Ireland, which incorporates the Financial Regulator, has two main banks and many other issues with which to deal. I intend no disrespect but the staff at the Central Bank of Ireland are not competent to deal with the complexities of what is happening with the banks. I am of the view, therefore, that it would be far better if a European model of supervision obtained. I would have no difficulty with the staff of the Central Bank of Ireland working under the watchful eye of a supervisory body appointed by the European Central Bank. People would be happier if there were European supervision of the Irish banking system. It has been stated that what occurred here in recent years could never happen again. However, one can never say never. We did not have proper supervision in Ireland in the past and who is to say that in ten or 20 years there might not be a recurrence of our recent problems? Neither I nor anyone else is in a position to say that those problems will not arise again. In my opinion, the people of Ireland and their counterparts throughout the EU would rest far easier if the matters to which I refer were regulated at European level.

If a bank operates in a fraudulent manner and goes bankrupt, or if it engages in bad business practices, then it must be allowed, as is the case for any other business interest, to go bust. If banks here were allowed to go bust, investors, creditors and others would get 20 cent in the euro in respect of their investments, moneys they were owed, etc. There is a need to revisit the European concept of socialising the debts of banks or, as is being done now, putting in place a fund through the ESM. If a bank, a local business, a church, a city or a state in the US goes bust, then it goes bust and those who are owed money are not repaid. The position is the same in every business sector in Ireland with the exception of the banking sector. As a result, the banks are being provided with an artificial security blanket and this may give them the excuse to return to their lazy ways in the future. Making an exception in respect of this one sector is a particularly European approach. There are companies in other sectors which employ large numbers of people and which would like to be bailed out if their enterprises went bust. However, that avenue is not open to them.

Governments have the opportunity to do a great deal within the scope of the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union. In July, the Irish Government announced a stimulus package. I discussed this matter with the Minister for Public Expenditure and Reform, Deputy Howlin, on Question Time earlier today. It is my view that the stimulus package has to date been somewhat vague in nature. I accept that €2.5 billion will be invested in it during the next seven years but none of that money will be forthcoming this year or probably next year. It is at the PPP design and tendering stage and perhaps in 2014 the package to which I refer might result in real action. I welcome the package but no stone should be left unturned in ensuring that what is envisaged in respect of it is translated into actual jobs in 2013. I became concerned earlier when the Minister, Deputy Howlin, revealed how long the process in this regard is taking. The stimulus package to which I refer does not go even halfway towards meeting the cut in the capital expenditure programme. I am of the view that this matter must be revisited and that there is a need to ramp up our actions in respect of the package.

The people of Ireland voted in favour of the treaty and the Oireachtas has no moral choice but to accept their democratic wishes. Those who opposed the treaty during the referendum campaign were entitled to do so. However, the matter has been decided by the people and it would ill behove anyone in this House to oppose the Bill at this point. The people have spoken and no party or individual in the Dáil should try to go against the will of the people.

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