Michael McGrath (Cork South Central, Fianna Fail) | Oireachtas source

I welcome the Minister of State's opening statement on the Bill. Fianna Fáil will support this legislation but I want to lay down a marker that I am dissatisfied with section 2 and what the Minister of State is proposing, that any future changes to the Greek loan facility will not require primary legislation to be put before this House and will instead be approved by way of Dáil resolution.

Not only have we given approximately €350 million to Greece as part of its bailout arrangement, but it is also an important benchmark for Ireland in terms of any changes to its agreement with our European partners. I believe that any such changes should require a full debate in this House and the best way to do that is, as we are doing at present, by having a full legislative debate in respect of any change to the Greek loan facility.

It was very much in Ireland's interests that a successful conclusion to the recent round of Greek talks was reached. A disorderly default in Greece would have dire consequences for all eurozone countries and the contagion effect would certainly have caused a sharp rise in Irish bond yields. It is the case that there has been a general fall in bond yields among peripheral nations, not least in Ireland, and this has been beneficial for Europe as a whole. However, despite the more benign backdrop in recent times, my party does not believe in any sense that the eurozone crisis is resolved. Last year Citibank rated the prospects of Greece leaving the euro at 90%. Following the actions of the new ECB president, Mr. Mario Draghi, and his pledge to do whatever is necessary to preserve the eurozone, together with the measures agreed in November for Greece, Citibank now estimates the likelihood of a Greek exit to be approximately 60%.

The measures that are being provided for Greece, namely an extension of its loans from the European financial stability facility, EFSF, a ten-year deferral of interest and an extension of the maturity on both the Greek loan facility and the EFSF loans, will help it to some extent. Greece will benefit from having almost €53 billion of its debt at a lower interest rate and to be repaid over a much longer period of time. However, it is far from certain whether Greece will be able to stabilise its debt by 2020 as is intended.

The Greek economy is still experiencing negative growth and further painful fiscal adjustment lies ahead for the country and its people. In fact, it is still the case that their situation can still be described as little short of desperate. By 2014, their economy will be approximately one quarter smaller than it was in 2007. This represents a significant decline in living standards and is unleashing considerable hardship on its citizens. I welcome the fact that Greece's deficit is coming down, albeit slowly. It is expected to be approximately 7% in 2012. It will still be a considerable task to get it to the 3% Maastricht target. It is welcome that the Greek Government expects to run a primary surplus in 2013 which means the easing of the interest burden will be particularly helpful to it. However, the scale of the crisis facing Greece can be seen from its unemployment levels. The unemployment rate in Greece was 26.8% in October 2012, four times what it was in 2008. It is the youth unemployment figures in Greece that are truly frightening. The number aged between 15 and 24 out of work rose to 57% in October last, compared with 22% in the same month four years ago.

Questions must still be asked as to whether Greece has the capacity to deliver consistently on its pledges, particularly tax increases, improved tax collection, spending cuts, privatisation targets, structural reforms to the economy, public sector redundancies, and wage and pension cuts. I have heard it argued that European policymakers are setting dangerous precedents by granting further assistance to countries which fail to deliver on their programme commitments. However, the threat to the eurozone is so grave that cutting Greece adrift at this stage was not a viable option.

Apart from tourism, Greece has few sources of foreign earnings. It has a tiny export sector and few multinationals. The country was to a large extent closed to the outside world until its relatively recent return to democracy. Undoubtedly, the reputational damage it has inflicted on itself has put off some overseas investors. When we debated the Euro Area Loan Facility (Amendment) Bill last year, I argued that Greece needed more than merely more loans and cheap loans over extended periods. Its situation was reaching the point where it needed something akin to the Marshall aid plan which the United States extended to Europe after the Second World War. It is worth remembering that Ireland itself got investment under this plan of approximately $130 million. If Greece is not assisted to develop a sustainable industrial base capable of generating foreign earnings for itself then there is every reason to believe that in time we will be back debating a fourth, fifth or even sixth amendment to the terms of its loans. My view is that the European Investment Bank, EIB, should have a much expanded role to play in this regard.

In addition, Greece must tackle its woefully inadequate tax collection mechanism if it is to make a long-term recovery. In 2012, only 88 major taxpayers, including corporations, were the subject of full-scope audits, well below a target of 300. In addition, only 467 audits of high-wealth individuals were completed, compared with a goal of 1,300. In the run-up to our own budget, I was sharply critical of cuts to resources within Revenue. I pointed out that this was self-defeating and counterproductive, but none the less we are fortunate that Revenue has a strong record in identifying and tackling tax evasion. By contrast, a report for the troika concluded that in Greece necessary "changes have not yet been reflected in results in terms of improved tax inspection and collection". The report went on to state that the failure to pursue tax evaders aggressively is deepening social tensions. Interestingly, it suggested that, in terms of a crackdown on tax evasion, doctors and lawyers are a good place to start.

As is often said, Ireland is not Greece. In Ireland, a banking crisis precipitated a crisis in the public finances. This was made worse by a collapse in the employment intensive construction industry. Unfortunately, we now know that for years, in the case of Greece, public spending was deliberately understated. The basis on which it entered monetary union was highly questionable. In hindsight, it should probably never have joined the single currency at all as it was unprepared for the disciplines which inevitably come with being part of a single currency area.

While this sticking plaster will buy some time for Greece, we still need to confront the fact that the EU is embroiled in the most serious crisis since the launch of the project in the 1950s. In fact, while this week France and Germany celebrate the 50th anniversary of the Elysée treaty, the agreement that became the basis for their close co-operation on building an integrated European Union, it is very much the case that the crisis remains existential.

Four years on, Europe still has not put in place an agreed framework for winding down bust banks and ensuring all costs do not fall on the taxpayer. It is inexplicable that it has taken so long for European institutions to recognise that design flaws in the original eurozone project precipitated a banking crisis which in several countries, including our own, turned into a fully fledged fiscal crisis.

It is my view that the eurozone project now needs two sets of policy actions. The first is a redesign of monetary union taking account of the original design flaws and prescribing remedial action. The second is decisive action to assist economic recovery in the economically distressed countries, including both Greece and Ireland. In terms of the first requirement, a Europe-wide bank rescue fund is a necessary part of the solution. However, bank bondholders must bear the risk of loss also. Since the Minister for Finance's trip to Washington in summer 2011, that is effectively off the agenda for the few remaining unsecured unguaranteed bondholders in IBRC, but it should not be the case in the future. It is also my view that to mitigate the risk of further financial upheaval, bank deposits in all eurozone countries must be seen as equally secure. This means putting in place a Europe-wide deposit insurance scheme. I do not believe progress has been made to date in this regard.

A number of other items also need to be put in place, for instance, the formalising of the ECB's role in supervising banks. This needs to be a hands-on rather than a hands-off arrangement. In addition, its role as a lender of last resort should be formalised. While Mr. Mario Draghi has stated the EU will do everything necessary to preserve the euro, the exact range of measures the ECB has at its disposal need to be formally prescribed. Finally, the risk associated with emergency lending must be shared among all member states. This is not currently the case.

In addition to all these measures, to ensure the architecture of the currency union is fit for purpose we cannot separate this from the need for a comprehensive response to the difficulties of the bailout countries of Greece, Ireland, Portugal and, more recently, Cyprus. It is timely, therefore, that we are having this debate today, given the developments overnight in respect of Ireland's and Portugal's loans from the EFSF and the European financial stabilisation mechanism, EFSM.

We need to ask the question could and should Ireland get a similar deal and if it would be enough?

The June 2012 summit committed the EU to "examine the situation of the Irish financial sector with the view of further improving the sustainability of the well-performing adjustment programme". There were essentially three ways in which this could be done: changes to the terms of the promissory notes; relief in respect of the continuing banks by means of the ESM taking stakes in the Irish banks; and changing the terms of the EU-IMF programme in a manner similar to the November 2012 Greek deal. By no stretch of the imagination could last night's discussions be considered a comprehensive solution or even a significant part of one. In fact all we got was a very small step in the right direction. However, it will only make a modest difference to our debt profile and the apparent absence of any interest deferral element means there is no immediate cash-flow benefit to the State. The torturous negotiations in respect of the promissory note need to be concluded in an expeditious manner and there is still no meaningful progress on a deal on the ESM taking a stake in the pillar banks.

From the very beginning of Ireland's programme, the IMF has been more flexible and innovative in proposing solutions to increase the chances of the Irish programme succeeding. We need to pay close attention the words of its most recent report that it will be difficult for Ireland to be able to borrow in the markets on a sustainable basis without further help from its EU partners. The report stated: "Given Ireland's high public and private debt levels and uncertain growth prospects, inadequate or delayed delivery on these commitments poses a significant risk that recently started market access could be curtailed, potentially hindering an exit from official financing at end 2013".

Consideration also needs to be given to the €3 billion to €5 billion in profits on which the ECB is sitting in respect of its holdings of Irish Government bonds. In the case of Greece, the ECB committed to repatriating these profits to the country and we should make a similar case now. The public want to see a real benefit to them from any measures that are agreed. Last night's tentative agreement will not change the reality of property tax, and cuts to child benefit and respite care, introduced in the recent budget.

A real game changer would be a deal that frees up resources for investment in job-supporting initiatives. To date that has not been forthcoming and the Government urgently needs to press the case for it. The time has passed whereby sticking plasters whether it be for Greece or Ireland will suffice. There have been more than 20 crisis summits since 2008 yet most countries will remain mired in an economic slump this year. One aspect of the solution has to be for Germany to examine its own economic strategy.

Last week the Spanish Prime Minister, Mr. Mariano Rajoy, made some prescient comments to the Financial Times. He was sharply critical of the one-size-fits-all fiscal policies which are leading to contraction in the eurozone overall. This is making it particularly difficult for countries such as Spain and indeed Ireland to bring about an export-led recovery while at the same time bringing down their deficits. Despite weak growth, Germany was still able to run a modest budget surplus last year. Incredibly further austerity measures are in the pipeline for Germany this year.

The domestic challenge of private and public sector deleveraging has meant that domestic demand continues to be weak. In these circumstances the only way for GDP to grow is from net exports. Ireland has been successful in this regard but the whole process would be made considerably easier if different policies were adopted in economies such as Germany. When we talk about game changers we need to keep in mind that rather than just tinkering with our bailout terms a much more comprehensive response to the crisis on a pan-European level is needed.

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