Paul Murphy (Dublin South West, Anti-Austerity Alliance) | Oireachtas source

Let us start with the very grand declaration on banking union by European Single Market Commissioner, Michel Barnier. He said it was "a momentous day for banking union" and "a memorable day for Europe's financial sector". I would say that was the case. He also said he was "introducing revolutionary changes to Europe's financial sector ... so that taxpayers no longer foot the bill when banks make mistakes ... ending the era of massive bailouts". That was the way banking union was announced.

It is a strange way to go about ending the era of massive bailouts when Members have legislation before them that is about facilitating the transfer of at least €1.815 billion of public money from Ireland to a fund for bank bailouts. Obviously, Members are told we will get the money back and are sort of promised this amount of money will not increase. However, it perhaps illustrates that the banking union is not all it is cracked up to be.

On some level, one must be impressed by how the banks have managed to turn this crisis. When the crisis emerged, people clearly identified the big banks in particular as a key part of the problem. There were demands to break up the big banks, to separate out different functions of banking and, in particular, to end the process of bank bailouts. Through a process of lobbying, and European banks have more than 1,000 lobbyists in Brussels and spend €120 million per year on lobbying, they have managed to transform that narrative, having been helped significantly by the fact the European Commission is in their favour and the European Central Bank acts in their interests. They have managed to transform completely the process for banking union into a process that is driving the further liberalisation of banking across Europe in the interests of achieving a single market in banking. Effectively, it establishes a union in the interests of the banks, written partly by the big banks themselves. It transfers even more power to the European Central Bank as the regulator of the banks, which is somewhat like putting the fox in charge of chickens. Moreover, it does little to stop the possibility of further bank bailouts, paid for by public money. For all these reasons, the Anti-Austerity Alliance opposes this legislation. It will propose amendments on Committee Stage but will oppose it on Second Stage.

To start with the details, an important question has been raised about the amount being discussed in this Bill. While it refers to an amount of €1.815 billion, it then states this is subject to any changes made in accordance with Clause 24, the review clause, which clearly appears to suggest that figure can be increased. I will be interested in the response of the Minister of State to this point. The other point I wish to make in opening is that Members should remember where this came from. The origins of this Bill can be dated back to that infamous summit of June 2012 at which two clear commitments were made. The first was that it was imperative to break the vicious circle between banks and sovereigns, with which this Bill is meant to be dealing. The other commitment made was "to examine the situation of the Irish financial sector with a view to further enhancing the sustainability of the well-performing adjustment programme". That, translated into the language of Irish politics through the mouths of the Taoiseach, Deputy Enda Kenny, and Eamon Gilmore, became a game-changer, a seismic shift and a promise that retrospective recapitalisation of the Irish banks could and would take place and that we would get back some of the 42% of the total cost of the crisis to the European banking system that we took on. Moreover, the media in general bought it with very few exceptions. Not only has this not happened and will not happen, the Government even tried to state this somehow is a success and to claim it is a victory that Ireland is not obliged to seek that money back, that massive bank bailout for which people in this country are still paying.

As for banking union itself, a key point is that it will not work. It does not break up or do anything to break up the big banks. While the big banks are covered by the fund, all the small banks, which encompass a quite significant portion of the European banking sector, are not. Most significantly, the fund simply is not big enough. A very good article by Wolfgang Munchau was published in the Financial Times a couple of years ago. While some of the details have changed since, it essentially gets to the point, which is that the aggregate balance of the European financial sector, excluding the central banks, is more than €33 trillion. He wrote:

The bank resolution fund for this new banking union will be built up over 10 years [that is now eight years] ... At the end of that period it will have reached €55bn – a mere 0.2 per cent of the asset base. Most of these banks have assets of more than €30bn. In a systemic crisis, in which banks can suddenly collapse, the whole European resolution fund could easily be swallowed by a single moderately sized bank.

In those circumstances, it then fundamentally will be back onto member states and public money through the European Stability Mechanism. Consequently, bailouts have not gone away. The scale of a possible banking crisis, particularly if one considers events in China and so on as well as the weaknesses of the European banking system, means we could be back to the question of bank bailouts.

My second point pertains to the undemocratic way in which this has happened. The model of the intergovernmental agreement is a bad precedent to set. It means evading the limited checks that exist, for example, through the European Parliament such that the manner in which this is being processed is extremely undemocratic even by European Union standards. Most important, however, this gives even more power to what arguably is the most powerful undemocratic and unelected institution in the entire world, which is the European Central Bank. The European Central Bank is being put in place as the regulator of the banks in the knowledge that this is the same institution that in 2011 intervened actively to remove elected governments - whatever one might think about them - in Greece and Italy and to replace them with governments pretty much explicitly of bankers for bankers with a mandate to deliver for the banks and to deliver the maximum amount of money back to the banks. This is the institution that has been put in charge of regulating the financial system, which is extremely problematic.

Another point I will make is this plays a useful role from the perspective of the banks of shaping a narrative about the crisis that longer is about the banks or about the nature of the banking system. Instead, it becomes a technical question about supervision and who supervises them. It does not deal with any of the fundamental problems and the point is that if one wishes to avoid massive banking crises in the future and the implication of significant bailouts of public money, one then must break up the big banks. For example, it is estimated that Deutsche Bank is made up of approximately 2,000 entities and on the scale of some of the massive megabanks in the United States. There are other megabanks within Europe that are immensely politically and economically powerful and they must be broken up.

In addition, fundamentally we need a different sort of banking system. It has been exposed clearly in recent years that societies have been run in the interests of profit maximisation of the banks. This fundamentally is a problem and it is necessary to rethink and reimagine what banks are for. Banks must be in public ownership and must be run as democratic public utilities to provide for society, that is, to facilitate society and the economy as a whole in respect of ordinary people having jobs, creating wealth and getting access to credit. While that is what banks should be, unfortunately it is the opposite of what banks are at present, namely, functioning as a parasite on the economy as a whole and on society at large. Unfortunately, the banking union and this Bill, which entails Ireland giving €1.8 billion, does nothing to resolve the situation regarding the banking system. It enables the banks to pretend that something significant has happened. It has not and the situation continues as it has been. The European Union functions in the interests of the banking system, unfortunately, and there are no proposals here fundamentally to change this. Public money will still be used to bail out private banks with the European Central Bank having been further empowered.

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