Enda Kenny (Mayo, Fine Gael) | Oireachtas source

I welcome the opportunity to report back to the House on the December European Council which took place shortly before Christmas. It was a significant Council, with a notably lengthy agenda. It covered the Common Security and Defence Policy, CSDP; economic and social policy; Economic and Monetary Union; migration; enlargement and energy issues. We also addressed some of the main foreign policy issues, including the situation in Syria and the Central African Republic, the eastern partnership and the WTO. Overall, the conclusions of the European Council ran to 50 paragraphs and provided strategic orientations on current positions and thinking. It is fair to say our focus related to banking union, the completion of EMU and the Common Security and Defence Policy. Discussion on many of the other important issues was, on this occasion, relatively straightforward, as there were no major decisions to be taken.

Under the agenda item on Economic and Monetary Union we considered banking union, partnerships for growth, jobs and competitiveness and the social dimension. Deputies will not be surprised that banking union was a top priority for Ireland. The Minister for Finance and his ministerial colleagues in Europe had been working very intensively on the outstanding issues in recent weeks and, as Deputies will be aware, succeeded in reaching an agreement on 18 December which was then endorsed by the European Council. This included final agreement on the deposit guarantee scheme directive and the bank recovery and resolution directive, both of which significantly strengthened financial stability within the European banking system. Agreement was also reached on a Council general approach for the single resolution mechanism, which will create a single body to apply the bank recovery and resolution tool kit to euro area banks and the banks of participating non-euro area member states.

On this basis the Greek Presidency has now been given a mandate to reach an overall agreement on the single resolution mechanism with the European Parliament. Negotiations have commenced.

The single resolution mechanism, once in place, will allow for the establishment of a pan-European resolution authority which will be called the single resolution board, with the power to restructure and wind down failing banks. The board will have access to a single resolution fund, the principle for which is established in the regulation. The fund will be paid for by contributions from the EU banking sector and has a target level of approximately €55 billion to €60 billion. The rules for the use of and contributions to the fund are also set out in the regulation. In order to allow for the gradual mutualisation of funds at national level into the single resolution fund, member states committed to negotiating an intergovernmental agreement by 1 March. Negotiations commenced at a meeting on 9 January. Finance Ministers, on 18 December, also adopted a statement on the design of a backstop to the single resolution fund. A sufficient common backstop, both in the transition phase and in the steady phase, is essential for the single resolution mechanism to be credible. This will be the subject of further negotiations.

Overall, the general approach reached on the single resolution mechanism was an important step in completing the banking union project. Although the deal is not perfect, an accommodation was reached and this is progress. The important point for me is that the agreement reached will protect taxpayers in cases where banks need to be resolved. This is in welcome contrast to what happened in Ireland where taxpayers were required to shoulder the costs of failed banks. The fundamental objective remains to break the link between the sovereign and the banking sector as agreed by heads of state and governments of the euro area in June 2012.

I also welcome the fact that the European Council fulfilled its objective of securing political agreement on the single resolution mechanism by the end of the year. This was important for confidence, including from a markets perspective. There is more work ahead, but the agreement shows that when we put our minds to it, European leaders can find compromises and deliver on promises, and some on time. We will now work constructively with the European Parliament to ensure agreement is reached before parliamentarians switch their focus to the European elections later this year.

I also point out at this stage that the agreement reached at the Eurogroup meeting of 20 June 2013 on the main features of the ESM's direct bank recapitalisation instrument has not changed. From an Irish perspective, it was important that this agreement noted that, "The potential retroactive application of the instrument should be decided on a case-by-case basis and by mutual agreement". It is clear that there is still a lot of negotiation to be done on this aspect of the facility but the agreement now in place keeps the possibility to apply to the ESM for a retrospective direct recapitalisation of the Irish banks open for us should we wish to avail of it.

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