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

I welcome the opportunity to contribute to this Private Members' debate and thank Deputy Thomas Pringle and his colleagues in the Technical Group for tabling the motion.

The first point we need to recognise is that the sentiments expressed in the motion put down by Deputy Pringle and his colleagues are shared by many Irish people. That is a statement of fact. I believe that the Irish people are fundamentally pro-Europe but I recognise that loyalty is being tested. The longer this economic crisis goes on throughout the eurozone and the longer people see a failure in political leadership to deal comprehensively with this crisis the more that loyalty will be tested. That is why it is important that resolute action be taken. That is where I disagree with the Minister for Foreign Affairs and Trade when he says that in response to the crisis Europe has acted resolutely and in concert. I do not understand how any senior political figure can arrive at such a conclusion when one considers the evidence of Europe's actual response to this crisis since 2008.

Only the most naive of commentators would conclude that the euro has been an unqualified success since its inception. We were told at one time that the euro would add 1% per annum to economic growth in perpetuity; such hopes are now sadly a distant memory. While the motion does a reasonable job of identifying some of the defects in the European Union and the monetary union project, I have to disagree with the prescription as to the action that is now needed. Currency union is not a passing economic phase but a permanent, irrevocable commitment. What the proposers of the motion seem to want to do is to recreate the kind of exchange rate mechanism which collapsed in the 1990s, a kind of opt in or opt out arrangement. This is not the path we should pursue.

When deficiencies in the euro design are identified they must be tackled by robust action from the ECB, the Commission and importantly, the Council of Ministers. Our amendment recognises that countries cannot have an each way bet on the euro. Every country must be equally committed to making it work, not just for themselves but for all member states. This applies just as much to Germany as it does to Greece, though one could be forgiven for thinking otherwise when one looks at the evidence.

Simply throwing up our hands and calling for an exit mechanism for individual member states might be superficially attractive but it would lead to far greater problems for us and the wider eurozone down the line. I do not consider it possible to construct an orderly means of allowing a country to leave the euro. For those who advocate it I would advise them to be careful what they wish for. Despite our current difficulties, life for Ireland or any other member state outside of the eurozone would be considerably worse than that we are experiencing although I recognise there are many eminent economists who would disagree and put forward a different thesis. We need only look at the turmoil that was unleashed in Cyprus when a reckless economic gamble was pursued to see the potentially catastrophic effects of letting the genie of that country's exit from the eurozone out of the bottle.

The challenge is not to scrap the entire project or undermine it in such a way as to render it fatally damaged but to design and implement the changes that are needed. If people are to be honest about it there is a general consensus as to what needs to be done to put this right. Despite the improvement in sentiment under the current ECB leadership of Mario Draghi, the EU remains embroiled in its most serious crisis since the project's launch in the 1950s. Every quarter brings new and gloomier news on the economic front. Eurozone unemployment stood at 12.1% in March of this year, higher than the 10.9% recorded for the wider European Union. These figures are a shocking indictment of a failed policy of clinging rigidly to policies that target low inflation and balanced budgets without taking account of the consequences of those policies on growth and employment.

It will be of little consolation to the millions of unemployed people throughout Europe who feel let down by the EU that official data shows eurozone consumer price inflation at just 1.2% in April, considerably below the 2% threshold by which the ECB is bound. Low inflation is not a sign of success on the part of the ECB, the Commission or Council of Ministers. If anything it is a sign of failure. Low inflation has not been achieved by some economic miracle. It has been achieved by suppressing demand. In simple terms, it is easy to keep the grass cut short in winter and the unemployed are paying the price for the ECB's inflation obsession. That is an issue that will have to be addressed. The mandate of the ECB will have to be broadened and I agree with Deputy Joan Collins' views in that regard because it is quite evident that the German obsession with keeping inflation low for obvious historical reasons is impeding the recovery of the European Union. A widening of the mandate of the ECB is an essential element in the recovery of the European economy.

The unemployed will not be impressed to see that Germany, the supposed powerhouse of the European economy, recorded a general government surplus last year. The EU talks about the need to support growth and yet does little about providing such supports. The "Compact for Growth" announced last year has been a flop. The prospects for Ireland's recovery, or that of any of the European states mired in an economic slump, have to be seen in a broader European context. The eurozone fell into a double dip recession in 2012. Many parts of the eurozone are suffering from slow growth, very high unemployment and falling living standards. There is an urgent need for a co-ordinated eurozone response. The countries that have stabilised their debt ratios should avoid further austerity measures. Germany, which has achieved a balanced budget, could allow its budget deficit to rise temporarily while keeping its debt to GDP ratio constant. Similarly, other countries such as Belgium, the Netherlands, Finland and Austria could avoid further expenditure cuts and tax increases without worsening their debt to GDP burden. If one considers the impact of all of the countries in the eurozone engaging at the same time in fiscal consolidation, trying to reduce their budget deficits, reducing government spending and imposing higher taxes on their citizens the consequence of that is obvious for all to see. The countries that have the scope fiscally to invest in their economies and not to be proceeding blindly down the road of further fiscal consolidation, which is unnecessary in some cases, should pursue an alternative path. When we consider that Ireland exports between 80% and 90% of the goods and services we produce the bottom line is that if there is no external demand in Europe or the wider world for our goods and services we are not going to have the export-led recovery for which this Government is aiming.

When it came to agreeing an EU budget earlier in the year, however, what we got was an was an act of economic madness. In February it was decided to cut €34.4 billion over the next seven years after the EU budget following talks that were likened to 'a bazaar'. The last thing that Europe needs now is a deflationary package. The only effect that this will have is to risk further delay to recovery and keep unemployment at unacceptably high levels. There is a strong case to be made for addressing excessive bureaucracy in Brussels, but there is no reason that could not be achieved while maintaining investment levels. The decision to cut EU wide infrastructure projects like Connecting Europe is crazy and completely counterproductive. This decision, with wide-ranging effects across Europe, is being made in order to placate British domestic political concerns. Europe should not be sacrificing growth in response to British Conservative Party politics. David Cameron might have thought talking tough at European level would shoot the UKIP fox for him but if anything such weakness has only emboldened his enemies to ask for even greater concessions.

Ironically, the British Prime Minister has spoken often about the threat Europe faces from the aggressive growth of the BRICS countries, Brazil, Russia, India, China and South Africa. The decision to cut EU spending and growth will play directly into the hands of the BRICS economies.

It was not always this way in the European Union. Those of us who are supporters of our membership of both the European Union and the eurozone should not be afraid to point out that for nearly 50 years from its foundation the Union had a very positive effect on living standards, particularly in peripheral countries, including our own. Through a combination of trade and regional aid, the living standards of poorer member states rapidly converged with richer ones. In our case, they exceeded the average. Now it appears that the euro has operated as a convergence machine in reverse. Greece, Spain, Portugal and Ireland have all experienced their own economic turmoil. It is clear to all that a currency union not accompanied by a banking union is inherently unstable.

Giving practical effect to banking union is taking an inordinate length of time to achieve. The crisis, having begun in summer 2008, is now in its sixth year. On paper, the tool-kit Europe's authorities will have at their disposal has expanded considerably in that time. These include a single bank supervisory mechanism, common deposit insurance, a single rulebook for bank bail-ins, direct ESM, European Stability Mechanism, injections into failing banks, outright monetary transactions to reduce peripheral bond yields, co-ordination of fiscal policies and fiscal stimulus measures. However, in reality this list is progressing at a snail's pace. Earlier today during finance parliamentary questions I debated the topic with the Minister for Finance. There is no doubt that ECOFIN is adept at producing grandiose statements on what is going to be done. Does anyone seriously believe, however, that all of the measures I have listed will be completed in the next 12 months? To date, the only action that has had a real impact is the declaration by Mario Draghi that the European Central Bank will do whatever it takes to preserve the euro. From his point of view, the intervention was a success. Nine months later and peripheral bond yields have fallen dramatically, while stock markets are at record levels. Mr. Draghi has achieved what he wanted without firing a shot in anger. However, the core problem of low growth, high unemployment and falling living standards remain unsolved. The recurring feature in the past five years has been for European leaders to fall back into complacency once any lull in the crisis is achieved. Should a fully fledged banking crisis arise again in any member state, with the inevitable spillover effect on sovereign finances, the European authorities may regret their tardiness in actually putting in place the solutions they have spent so long designing.

A debate is necessary on Ireland’s future in the European Union and the European Union’s overall direction. The changes that have happened so far have been incremental, piecemeal and conducted in the absence of any overall vision as to where the European Union is going. We know Germany and other member states want it to become a complete political and fiscal union. What does the Government want to see in the evolution of the European Union and the eurozone? It is not good enough for it to take every issue as it arises. We have to work to an overall vision of where we would like to see the European Union in the next ten, 20 and 30 years, as well as Ireland’s place in it.

See this speech in context