Micheál Martin (Cork South Central, Fianna Fail) | Oireachtas source

By contrast the Minister for Finance, Deputy Michael Noonan, has stated this on a number of occasions, including last week in The Irish Times, although it has received little or no notice. Time and again independent experts have stated European policies, or rather their failures, were directly linked with Ireland needing a bailout in 2010. The ESM and the policies of Mario Draghi at the European Central Bank have changed a lot. The large spike in bond yields which followed comments of President Sarkozy and Chancellor Merkel was predicated on the idea that no backstop was available. While the new funds and policies are incomplete, they have greatly reduced any risk in investing in euro area sovereign bonds.

The scale of the crisis in the eurozone, in large part, stems from the failure to have a common system of financial regulation. This has lead to uncertainty and contagion, with countries such as Ireland obliged to act in the interests of the entire eurozone, with a sharing of the costs. A strong banking union is not only important, it is also essential if the eurozone is to have a strong financial system which supports rather than destroys growth. There are three core elements to a genuine strong banking union. They include a common supervisory mechanism, which means that all financial institutions operate subject to uniform and effective oversight.

The second is a common resolution mechanism, which means that individual institutions can be wound down without a risk of contagion, including certainty about who will be burned, and the third is a common deposit guarantee fund, which ensures no individual part of the financial system can be swamped by limited bank failures. With most of the political agreements in place, we know that we will have a system called "banking union" but we will not have banking union. Anyone who cares about the future of the eurozone and wants it to be stable and prosperous must be concerned by what will be formally agreed at this week's summit. National interests have prevailed on nearly every key decision. The core principle of sharing risk so that risk is minimised has been ignored.

There are elements of progress but nothing on the scale of what should have been agreed. The key parts of the new so-called banking union will cover 128 banks in total. Many banks that have the capacity to cause systemic problems will not be covered. The proposed single supervisory mechanism has the most potential to grow into a strong and effective policy. It will initially be more about co-ordination than common supervision but it is likely that the ECB will push it towards a more active stance. The effort to retain national influence has been successful for the moment. Over time Ireland should join the ECB in calling for the removal of any possibility of governments interfering in oversight matters. That should be independent.

The summit will formally sign off on an agreed method for winding down banks and paying off residual debts. The objective for this was set by the Taoiseach and others as being to break the toxic link between sovereign and banking debt. Even the most partisan commentators must admit that this link has clearly not been broken. To break the link between them, there must be no expectation that the state has an implicit guarantee to fund banks in trouble. This requires the availability of a large backstop of funds and this will not be available. The bank resolution fund the Taoiseach will agree over dinner tomorrow night will take ten years to build up its holding. After a decade, it will have €55 billion available to it. This has been estimated at only 0.2% of the total asset base of the covered banks. The fund could realistically cover no more than one or two mid-size banks. Breaking the link between sovereign and banking debt needs something else such as an ECB guarantee to underpin the system but this is not available in part because of splits in the bank but also because some countries, in particular Germany, have threatened to take the bank to court if it provides the required guarantee.

An evaluation of the banking agreements to be finalised this week published in Monday's Financial Timesstated:

Without a backstop, there is no point. It is not a banking union and should be rejected.

I would not go this far but I believe Ireland should not agree this as a final deal. At a minimum, we should put on the table the need for a formal commitment that the funds available for safeguarding the banking system of the euro should be greater than 0.2% of its asset base.

In the two years that a banking union has been debated, the Government has refused to say publicly what it wants from the process. There is no public record of any statement by the Taoiseach setting out what would be required "to break the toxic link between banking and sovereign debt". This enables him to hail anything that emerges as a great victory, something which has become a standard tactic for him in Europe. Is he happy with this deal? Does he believe it represents the banking union we were promised originally? He has been notably silent on the statement of the Minister of Finance that he has effectively given up on retrospective bank recapitalisation and he is not worried about it. This is a complete reversal of the policy of the past three years and it is not good enough that this has been allowed to be buried under the weight of the Government's ongoing media campaign.

A commentator recently described the Minister as "a master of misdirection in his handling of the media". The tactic is now being deployed by the entire Government. In case the Taoiseach has forgotten, in June last year, the Ministers for Finance and Public Expenditure and Reform held a press conference during which they giddily outlined how they had just achieved a breakthrough on financing banks. The agreement of the European Council potentially to recapitalise banks directly with EU funding, something Ireland had neither put on the agenda nor lobbied for, was they claimed "a great victory for Ireland worth potentially up to €60 billion".

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