Simon Harris (Wicklow, Fine Gael) | Oireachtas source

I thank all Deputies from all sides of the House for their constructive contributions to this discussion. We have had a broad range of views expressed and I acknowledge that we have received support for the Bill from Members on all sides of the House, although not all Members, given the opposition of Deputy Peter Mathews.

The purpose of the legislation is to make provision for the inclusion by the ESM board of governors, in accordance with Article 19 of the ESM treaty, of the ESM direct recapitalisation instrument as one of the financial instruments envisaged under Articles 14 to 18, inclusive, of the treaty. This includes provision for the creation of subsidiary bodies that will implement the direct recapitalisation instrument. It also incorporates the ESM treaty, as adapted, following the accession of Latvia to the ESM on 13 March 2014, into the European Stability Mechanism Act 2012. It is important to recognise that the Bill represents the outcome of significant negotiation reconciling the views of countries such as Ireland, convinced of the need for such a measure, and other countries that had to be convinced that there was such a requirement. While we can argue about the amount of any fund, it is important to realise that the very existence of direct recapitalisation was certainly not a foregone conclusion and had to be achieved by successful negotiation. Ireland was to the forefront in that regard. This is the way with all European policy and applies to this measure also. Once the instrument is in place, it can be adapted, as required. The addition of this instrument to the ESM treaty that took effect in 2012 shows this.

The draft guideline agreed on 10 June 2014 includes a specific provision on the retroactive application of the instrument. Therefore, the agreement that we were active in negotiating keeps open the possibility of applying the European stability mechanism for retrospective recapitalisation. The draft guideline states the potential retroactive application of the instrument should be decided by the ESM board of governors on a case-by-case basis and by mutual agreement. It also states the detailed modalities for retroactive recapitalisation should be established in the relevant decision of the ESM board of governors, that is, the euro area Finance Ministers.

I wish to address a number of issues raised by Deputies during the debate on Second Stage. I refer to the timing of an application for the retrospective recapitalisation in accordance with Article 14. I will repeat what the Minister, Deputy Noonan, has said on a number of occasions, that there is an agreement that the instrument required to give effect to direct recapitalisation, including in its retroactive form, shall be put in place in November 2014, subject to its ratification by member states. The Minister for Finance has stated also on a number of occasions that it was not possible to make a formal application to the ESM for retrospective recapitalisation before the instrument is in place as expected in November. It would, therefore, be premature to make any submission in advance of that. I have heard some criticism from some people that the Government had not made an application. As the Minister for Finance has clearly outlined we cannot make an application until the mechanism is in place and this legislation is part of the process. If all member states have ratified the instrument by November 2014 the instrument will then come into effect. We can then consider how to go about the application and the application will, therefore, not be made before November and the issue of timing after the instrument is in place will be kept under review by the Government.

With regard to the criteria to be applied, I reiterate that the text of Article 14 provides for a decision on a case-by-case basis. The Minister has outlined to the House in his opening address today that the instrument is part of a broader EU response, including the single supervisory mechanism, the single resolution mechanism and the single resolution fund. The size of the fund must be seen in that context as another tool in that array of tools.

I clarify that this Bill provides for approval of the ESM direct recapitalisation instrument; it does not provide for the broader banking union measures. While it is to be expected that people would raise broader banking measures it is important to point this out. To the extent that they are referenced they apply only in so far as an application is made for the ESM's direct recapitalisation instrument.

I also wish to clarify a number of issues in respect of the ESM. The ESM is governed by the board of governors who are euro area Finance Ministers. All the decisions of substance are made by the board of governors on the basis of mutual agreement, in accordance with Article 5(6) of the treaty. These decisions include decisions on the lending capacity, capital calls and the amount of capital stock. It is not the case that the ESM can, of its own volition, unilaterally call unlimited amounts from member states. The ESM Act 2012 sets a ceiling on Ireland's capital contribution and any change to the amount in that Act would need to be approved by amending legislation. This is an important point because Deputies raised legitimate and genuine concerns in that regard. In addition, its borrowing and lending capacities are fixed by decision of the board of governors and must similarly be changed by their decision. The ESM cannot do so unilaterally.

The ESM's direct recapitalisation instrument represents a core element of a much broader EU approach to the issue of breaking the bank and sovereign link, as was committed to by the euro area leaders in June 2012. This includes the establishment of the single supervisory mechanism, the bank recovery and resolution directive, the single resolution mechanism and the single resolution fund.

I would hate to be responsible for Deputy Catherine Murphy choking on her rashers and sausages or cornflakes or whatever else she chooses to eat on a Sunday morning but when I appeared on the "This Week" programme I made reference to the fact that our refinancing needs over the next ten years have been reduced and I outlined how they have been reduced by the extending maturities on the ESF and the EFSM loans, the interest rate reduction and the solution of the pro-note arrangement. Deputy Murphy has articulated strong views but the point I made on that programme and which I reiterate is that the promissory note deal brought us to a situation where a Minister for Finance did not have to find €3 billion up-front, each year and as we approach a budget in just two weeks-----

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