Catherine Murphy (Kildare North, Social Democrats) | Oireachtas source

This is the second time in just over a decade that we face an economic crisis. This one is obviously very different because life and health are centre stage and the economic fallout is as a consequence of Covid-19. While I welcome the belated response to limit the spread, the investment in the development of medicines, and the research which is under way, and they are important, there is lesson to learned in particular from the late response in Italy and how that played out.

The response to the previous economic crisis meant that some countries were forced to cut back on spending on areas such as health, which made them less able to deal with this crisis. The response to this crisis cannot impact on member states' ability to mitigate predictable crises in public services or climate mitigation measures in the future - things that we know we have to respond to. There has to be an appreciation of the scale of the problem by all member states, and there also to be an appreciation that the response to that has to be large enough, that not all member states were impacted the same way, and that not all of them have the ability to respond equally. For example, we have a huge national debt imposed partly as a result of how the EU dealt with the previous crisis. We are not alone in this, however. Countries such as Italy simply cannot take on further debt. If they are required to do so, and I am hearing the loan and grant scenario, that will be catastrophic, not just for Italy but for the eurozone as a whole. We have very fresh memories of the last crash. It was not, as we were told, a Union of equals. It was dominated by intergovernmentalism, with Germany and France at the axis. They really called the shots. There are signs of the same kind of thinking - perhaps slightly less, which we should be very concerned about.

This crisis was not caused by individual member states. It must be viewed the same way as a natural disaster, with all member states impacted, some more so than others. There simply must be a common response, with European solidarity driving the solutions. We must recognise this is a once in 100 years occurrence, which must be a factor in how it is responded to. It cannot depend on member states taking on more debt. If it does, it will elongate the problem and it may well lead to a break-up of the European Union.

Last week in the Dáil, my colleague Deputy Shortall raised the issue of corona bonds, and in response the Taoiseach stated: "We expect the European Commission to come to us next week with proposals on how we can use the multi-annual financial framework, MFF, the seven-year budget for the EU, and borrowing perhaps by the Commission as a means to do something similar." This approach seems to be the one favoured by the northern European states. While it would mean that there was a larger fund available within an increased EU budget, it relies on private actors investing in EU countries.

The riskiest tranche of their investment would, however, be guaranteed by the Commission. The big problem with this approach is that it still means taking on extra debt.

We all agree that a major stimulus programme is needed for countries throughout Europe, including Ireland, if this crisis is to be temporary. The French proposal to establish a Covid-19 recovery fund financed through joint debt insurance has definite merits. It has a downside in that it would take several months to establish, and these are months that we simply do not have. It would also be resisted by countries like Germany, Netherlands and Austria. The more ambitious Spanish proposal of a €1.5 trillion recovery fund underpinned by perpetual bonds rather than loans or grants would mean avoiding adding to national debts. The Spanish proposal could obviously be modified but it allows for funds to be granted on the basis of the proportion of citizens impacted upon by the pandemic in each country. That would seem like a logical approach. As a review of the Spanish proposal in the Financial Timesput it, the plan is, on its merits, the best of the many ideas that have surfaced. Above all it takes seriously the scale of the challenge. It involves real resources, unlike the EU's usual financial conjuring tricks of leveraging private finance. At some 10% of the EU's collective annual national income, its size is similar to the likely hit to the bloc's growth and the likely worsening of public sector deficits. Anything less than something on this scale would be an inadequate financial response to the Covid-19 recession. A Project Syndicatearticle highlights the advantage of perpetual bonds as follows: "... because perpetual bonds never have to be repaid, they would impose a surprisingly light fiscal burden on the EU, despite the considerable financial firepower they would mobilize." The article goes on to state:

The disruption caused by the pandemic should be temporary, but only if Europe's leaders take the extraordinary measures needed to avoid long-term damage to the EU. That is why the EU Recovery Fund is so desperately needed. Financing it with perpetual bonds is the easiest, fastest, and least costly way to establish it.

If the EU were to take on Spain's proposal, a €1.5 trillion bond with an annual coupon of 0.5%, it would cost €7.5 billion across the eurozone. The EU Commissioner with responsibility for a green deal is Frans Timmermans. He offered his view of the Spanish proposal. He is an important player in all of this because there will need to be major investment in the green deal. He stated that the figure of €1.5 trillion has already been mentioned by the European Commission. That number does not seem far from the scale of investment that would be necessary. I am of the view that the proposal of the Spanish Government has a double merit. On one hand, it recognises the magnitude of the challenge, something not everyone accepts. I am concerned about the lack of acceptance of the scale of the problem throughout the eurozone. Mr. Timmermans also referred to how the Spanish plan represents a proposal of solidarity at European level.

Is the Spanish proposal on or off the table? Is it receiving serious consideration? What happened at European level on the last occasion really set the scene for the subsequent decade. It was a decade of austerity, a time when we needed to invest here in housing, sustainable forms of transport, retrofitting and modernisation of our infrastructure. In our case, such investment would have future-proofed us from other problems. Like other member states, our ability to invest was inhibited.

Europe will not get a second chance. This is really make or break. If Italy does not survive this, for example, there will be catastrophic consequences for the European Union. This really is a time for Marshall plan thinking and for that kind of solidarity. Can the Taoiseach let us know whether he favours a relaxation or suspension of the fiscal rules into the future so as long-term investment can continue?

The general escape clause is temporary. It is very difficult to conceptualise how it would work on the other side of this, particularly if very large debt has to be taken on. The Taoiseach might address the approach. Is the approach he outlined earlier of the mixture of grants and loans really where it is fixed at this stage? Is there room? What are we doing to try to create space with other countries to try to look for a different approach?

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