Duncan Smith (Dublin Fingal, Labour) | Oireachtas source

Once again, the EU is faced with a major crisis. This crisis has the potential to make or break the Union. The test this time is whether the EU can demonstrate solidarity among its member states based on shared democratic values or just wants to be a marketplace. One of the reasons the UK was never fully integrated into the EU was it only wanted a single market and not a political community. The Labour Party's view, however, is that the EU can be successful only if it is built on solidarity and mutual assistance among its member states.

We welcome the EU's decision to use €540 billion from the ESM to assist member states without many of the onerous rules that usually come with its loans. We particularly welcome the recent action by the EU to host donations to developing countries to assist them in their response to the epidemic. The target of €7.5 billion, set on 4 May, was essentially reached within 24 hours. This was a testament to the surge of global solidarity brought about by the Covid-19 epidemic.

My main focus, however, is on the idea of a European recovery fund. My colleagues from the Party of European Socialists proposed a €1.5 trillion recovery fund to help all our countries to rebuild after this crisis. I am glad EU leaders recently agreed to create a new fund of at least €1 trillion euro, which is a great step forward, but a lot hinges on the model of financing used to underpin it and decisions on how it will operate. In short, we need a fund that distributes grants as well as loans and that targets more assistance to the worst-affected countries on the basis of solidarity, not their proportion of the EU's population. We also need the fund to be financed at EU level, not by piling unsustainable debt onto member states' already overstretched national debts.

The recovery fund proposal is important so I would like to speak about it in more detail. The first point is fairly self-evident. When countries and major employers are already overstretched, they cannot afford to take on too much additional debt. Many viable enterprises throughout Europe will only remain viable if they are given grant aid, not loans. Likewise, there are countries that will have the capacity to quickly get their public finances in order but only if they are given grants, not loans. The choice is between being pragmatic about what will work and being ideologically opposed to grants. Unfortunately, a number of governments across the EU are ideologically opposed to the idea of giving grants to other member states. The irony is that this ideological position will make the EU's recovery slower and more painful, just like after the 2008 banking crisis, when the same ideology dominated EU thinking. We must not make the same mistake twice. Other parts of the world came out of the 2008 crash faster because they were not prisoners of this ideology. Across Europe, people must not be asked to endure another set of austerity years. People will not tolerate more austerity. We have already seen the rise of Eurosceptic and far-right politics in response to these ruinous policies.

This time around the EU has to give grants in addition to loans if economic recovery is to be faster and more sustainable.

The second point is that the European recovery fund must be focused on the areas of greatest need regardless of geography. In normal times the EU carefully allocates funds based on the population size of member states and their contribution to the EU budget, but we are not living in normal times and those rules cannot apply. A European recovery fund needs to allocate money to where it is most needed to boost recovery and to rescue as many viable jobs as possible in the aftermath of this crisis.

It is also an opportunity to direct funds towards environmentally sustainable activity and to speed up the EU's transition to a low-carbon economy. Again, this is a choice between being pragmatic about what actions will help economic recovery versus being ideologically opposed to any kind of fiscal transfer. Unfortunately, a similar set of governments is blocking this idea because it fears a domestic political backlash if it is seen to use its own tax revenue to fund the recovery of other countries. However, the model for a European recovery of the Party of European Socialists took that concern into account. There is no need for member states to fund other member states directly as long as the EU borrows money at EU level and repays that money from its own resources. As such, there should be no objection to channelling money to where it is most needed, and that will benefit the whole of the EU in the long term. We will all be worse off if regions of Europe are left behind in the recovery; hence, the recovery fund must be targeted where it is most needed.

The third point about the recovery fund is that it should be raised at EU level and paid for at EU level. In this context I am pleased to see that the Government has backed the proposal for eurobonds to fund the recovery. The logic of raising debt at EU level to create the recovery fund is fairly straightforward. Many EU member states have relatively high public debts following the disaster of 2008. Some of us would find it difficult to borrow money to raise those debts further, even though in Ireland we are still fortunately able to borrow at very low rates. The EU exists as a separate international entity with the capacity to borrow, but it currently has no debt compared to the United States where debt is carried at both federal level as well as at state level. To use the analogy of bank accounts, many member states have already reached their overdraft limit on their personal accounts but we have a shared account with our partners with no overdraft at all. It makes much more sense to collectively use our shared account to finance the recovery fund rather than to individually pay more to extend our already large overdrafts. This is where some member states fear being asked to directly finance others, but that is not what is being proposed. If we borrow at EU level we should also repay the debt at EU level. Currently, the EU has modest revenue-raising capacity, mostly from custom duties and sugar levies, but these could be expanded, for example, with the proposal for a financial transaction tax at EU level. Also, the original proposal for a €1.5 trillion fund envisaged perpetual or very long-life bonds, which have a surprisingly low annual cost in comparison to the €1.5 trillion capital figure. It could be financed for about €5 billion in interest payments per annum and as a perpetual bond the capital could very well not come up for repayment. The EU has the capacity to service such a debt. Over time, inflation would erode the capital cost to a much lower level, which means that it could be paid off decades later just as some post-Second World War bonds have only recently been paid off.

I hope that the idea of a European recovery fund will be agreed sooner rather than later as the future of the EU depends on a successful economic and social recovery after Covid-19. I seek clarity from the Government about whether or not it supports a European recovery fund along the lines I have described. I would appreciate a detailed response on what the Government agrees with or disagrees with regarding any recovery fund.

Regarding bond buying by the European Central Bank, which is currently keeping national borrowing rates low and keeping inflation down, there has been a major challenge to the ECB's quantitative easing approach by the German constitutional court. It has made a ruling that will potentially halt participation by the German Bundesbank or the German Government in this policy, which would have major knock-on effects and could jeopardise the stability of national debts in numerous member states. All of this stems from a legal case taken by an independent group of business people and academics who are ideologically opposed to any burden sharing across EU member states and who oppose the €2.7 trillion programme. While this ruling excludes the €750 billion pandemic emergency purchase programme, there is now expected to be a further legal challenge to its legality. What is the Government's understanding of the German court decision and what actions are being taken to ensure that the ECB's bond-buying programme can continue, including the actions to ensure that the pandemic emergency programme is legally robust? What is the Government's understanding of how this ruling at national level challenges the authority of the European Court of Justice and the ECB?

Key to all of this is solidarity: solidarity among EU members and solidarity between the EU and the rest of the world. I believe Europe has a responsibility to be a leader not only in its own recovery but in the global recovery.

We need to stand strong in solidarity with those who need it within our own borders and throughout the world.

In mid-March, 52 doctors and nurses from Cuba arrived in the region of Lombardy in Italy on a day when Italy's death toll from Covid-19 reached 800. That was an incredible act of global solidarity. The EU must be seen to reciprocate and work to assist countries such as Cuba which are impeded by tightening US embargoes when accessing medical equipment that is much needed to combat the pandemic. We should use Covid-19 as an opportunity to break traditional enmities and hostilities. I support call of the UN Secretary General, António Guterres, for sanctions to be waived to the tackle the crisis. He said this was a time for solidarity, not exclusion. We are all bound by our common humanity and we all need to defeat this virus. The EU should be moral leaders on this.

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