Peter Fitzpatrick (Louth, Fine Gael) | Oireachtas source

I welcome the opportunity to discuss the Euro Area Loan Facility (Amendment) Bill 2013. The purpose of the legislation is to enable Ireland to confirm acceptance of the third amendment to the Greek loan facility as part of the proposed new programme of assistance for Greece. It is to facilitate in the public interest the financial stability of the European Union and the safeguarding of the financial stability of the euro area as a whole. These changes were agreed by Greece and the EU-IMF in December 2012. The original loan agreement in 2010 has been revised a number of times as the economic situation in Greece has deteriorated.

The Greek economic and fiscal situation has deteriorated dramatically since the first economic adjustment programme for Greece was agreed in 2010. This meant Greece could not meet its headline fiscal targets under the agreement in terms of the budget deficit and the debt to GDP ratio. Even after making the adjustment contained in the agreement, it was clear that Greek Government debt was unsustainable.

The key changes in the current Bill are that the interest rate for the loan is reduced to 0.5 percentage points from the previous 1.5 percentage points agreed in the spring of 2012 and that the original three or four percentage points and the terms of the loan are extended to up to 30 years from up to 15 years in the spring 2012 agreement. In addition, the Bill allows for further adjustments to the agreement to be made by a motion of the Dáil rather than by primary legislation. It should be noted the interest rate charge will not apply to loans to Greece by other countries in an adjustment programme until after they leave their programme.

The original loan facility agreement was for a facility of up to €80 billion. A total of €50.9 billion was drawn down at different intervals between May 2010 and December 2011. The IMF lent a further €20.1 billion to Greece under the first loan agreement. The terms of the agreement included significant economic and fiscal adjustment measures, including cuts to public sector wages and to pensions, tax increases and reforms, reforms of public administration and reforms of labour markets, other public expenditure cuts, the sale or privatisation of some State owned assets or companies and some market reforms, especially in the service sector. In addition, a number of reforms and initiatives were to be taken in the banking sector.

In the second programme it was clear by the end of 2011 that the first Greek adjustment programme had not stabilised the economic and fiscal situation in the country. Economic growth fell significantly in 2010 and 2011 and the forecasts for 2012 and beyond were revised down significantly. The second programme envisaged a bank recapitalisation programme of in the region of €40.5 billion, mainly provided by EU funds. The second programme also included the continuation and strengthening of reforms already underway, further cuts to public sector pay, further cuts to and reform of pensions, the continuation of the privatisation plan, health care reforms, including mandatory use of genetic drugs and other cuts to public expenditure across a wide-range of areas including social welfare and defence.

In early 2012 there seemed to be a real possibility of Greece leaving the eurozone. These fears were eased when the second programme was agreed and the result of the Greek general election meant a government could be formed that would implement the new programme. Ireland has lent Greece approximately €345 million as part of the Greek loan facility. This money will now be repaid later than anticipated. Once Ireland leaves its own economic adjustment programme, it will receive a low interest rate on its loan to Greece. Greece will benefit from having almost €53 billion of its debt at a lower interest rate to be repaid over a much longer period. The Greek economy, however, is still in a difficult position with negative growth.

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