Lucinda Creighton (Dublin South East, Independent) | Oireachtas source

I thank the Acting Chairman for facilitating me and welcome the opportunity to speak on this legislation. I welcome the Bill which has been designed to facilitate direct recapitalisation of banks by the ESM, but I am sure the Minister of State will agree that while it is welcome, it in no way goes to achieving the separation of banking and sovereign debt we are all working towards and which at this stage is long-awaited. As other speakers stated, €60 billion is a drop in the ocean in terms of the potential capital losses banks faced during the crisis. Therefore, there will be a requirement for a much greater capital injection in due course. Otherwise, the European banking system will continue to remain exposed.

Leaving aside the actual size of the bailout fund, the absence of a clearly defined role where elected governments can bring greater democratic accountability to the European Central Bank is a major concern. It is something that has been of huge concern to me for many years. The lack of transparency in the European Central Bank is an issue I highlighted when I was a Minister of State and I will continue to highlight it. It is something that is deeply uncomfortable for some member states, but Ireland should have a very clear position on it, something the Government does not yet have. If it requires treaty change, it is something we should be courageous enough to pursue because transparency and openness within the ECB and for member states are critical.

If a bank faces a liquidity crisis, which we know was the original issue in Anglo Irish Bank and the Bank of Cyprus, the European Central Bank has a facility to allow domestic central banks, essentially, to print money to ensure the bank has enough cash to meet its liabilities. This does not improve the capital position of the bank and is supposed to be a short-term measure. The old maxim that owing the bank €100 makes it your problem, while owing the bank €100 million makes its problem needs to be extended, with an additional line that if it owes the European Central Bank €1,000 million, it is your country's problem. With the right hand, the European Central Bank has the crucial and powerful capacity to prevent a liquidity crisis, but, with the left hand, by threatening to withdraw that wall of liquidity, it can cause a capital crisis for the bank and, by extension, the member state concerned.

The charade of the European Central Bank operating independently of governments must come to an end because that is what it is. If this requires an EU treaty to change it, so be it. The people have a right to know what backroom deals are being done and what outside pressures are being applied by the most powerful unelected entity on the Continent. A perfect example of this is a story in The Irish Timesthis week that the Central Bank had begun the process for an accelerated sale of the Irish Government bonds it holds as a result of the promissory note deal negotiated by the Minister. The newspaper presented this as remarkably good news story because of the immediate capital gains the Central Bank stood to make from selling bonds into a market where Irish bonds had become so highly valued. The article made little mention of the fact that the interest rate the Exchequer, or the taxpayer, was paying annually on these bonds, for as long as they were held on the Central Bank's balance sheet, was coming back in a circular motion to the coffers of the State. Once sold, the burden on the Exchequer increases.

I find it too much of a coincidence that this story comes out only weeks after Mr. Mario Draghi expressed a view that early repayment of the IMF bonds could be conditional on an accelerated sale of the promissory note Government bonds. This IMF deal was heralded as saving the taxpayer €400 million a year. What we do not know yet is how much more taxpayers will have to pay in debt servicing because the ECB forced the Central Bank into an accelerated sale of its Government bonds. We do not even know if this was a condition of the IMF agreement because so much of the negotiations between the Government and the European Central Bank are conducted in utter secrecy and not underpinned by legislation and a clear treaty framework. Precisely the same scenario applies to the tool created by this legislation in terms of direct recapitalisation. All of these laws will not be worth the paper they are written on as long as the European Central Bank remains unaccountable in all scenarios to elected governments but, in practice, operates secretive negotiations and enormous leverage over all countries large and small.

In a disclosure during an election debate on television former President Nicolas Sarkozy told the French people live on television that he and Chancellor Merkel had essentially put pressure on Mr. Mario Draghi to announce a programme of long-term lending to eurozone banks. For at least for one year, probably longer, this stabilised the eurozone and prevented Spain and Italy from being forced into a bailout programme. Political intervention can have positive effects, but we need to know about this and it should be transparent. As it stands, it is not.

Similarly, when Mr. Draghi made his famous statement that he would do whatever it took to preserve the euro, which has provided for long-term stability in the eurozone up to today, we now know that months of private negotiations had been taking place between the ECB, Berlin and Paris. It was completely secretive, with other member states excluded, particularly those most affected by it. That is completely undemocratic and unaccountable. Small countries have the least power over the ECB, virtually none, and if their banks go bust, as we learned to great expense in this country, the sovereign takes the hit. Unfortunately, this legislation will do nothing to alter that reality. If the banks of a larger country are facing the wall, the ECB will step in to help them without great conditionality. This is realpolitikand the power and influence of the ECB. Unless the treaties reflect this reality, small countries will continue to bear the brunt and suffer now and in the future.

I will support the Bill because it is in Europe's interests and those of this country that we create a coherent European structure to bail out financial institutions that have a realistic chance of survival. We desperately need that capacity. Equally, in a single currency system, risks should be shared and mutualised, irrespective of size or the relative economic power of the country concerned. In a monetary union it is crucial that there be such burden sharing. I am not quite sure where the Government stands in that respect, but the Minister for Finance, Deputy Michael Noonan, made some utterances in that regard 18 months ago. I have not heard a whole lot since. My fear is that, in the absence of binding structures to define the relationship between the European Central Bank and EU member states and binding structures in treaty format, during the type of crisis scenario Ireland has experienced the little country will be the loser. As a country held in good standing across the European Union, we have a moral obligation to the people, other small member states and vulnerable and peripheral member states to fight for transparency in the ECB. I would dearly love to see someone within the Government articulate and argue that case with conviction on behalf of the people.

See this speech in context