Seán Fleming (Laois-Offaly, Fianna Fail) | Oireachtas source

I thank the Ceann Comhairle and I appreciate that. There is much heavy detail in this Bill. It is about ratification of a treaty between the Eurogroup members within the EU. It is not specifically an EU treaty or an agreement. It involves the Eurogroup within the EU. There is a treaty in place. When people read the legislation they will note it is very short but it contains very long Schedules because it relates to a treaty. All the appendices in respect of the treaty and content are written in both Irish and in English in the Bill as presented. It appears a voluminous Bill but much of the content is due to the appendices being very large.

The purpose of this legislation is to seek the approval of the Oireachtas to ratify two amending agreements agreed between the Eurogroup last November, with the objective of strengthening the crisis resolution capabilities of the euro area. I stress I am referring to the banking sector for the information of people listening in to this debate. In summary, the two amending agreements provided for the reform of the European Stability Mechanism, ESM, as well as the introduction of the common backstop to the Single Resolution Fund, SRF, from January 2022, two years ahead of schedule. I will provide more detail on the content of the amending agreements, as well as the Bill, during the course of my opening statement. This agreement represents a significant political development following protracted political discussions and is a substantial milestone in the development of economic and monetary union.

The two amending agreements in question, the ESM treaty and the Single Resolution Fund intergovernmental agreement, IGA, were signed by the 19 members of the euro area, including Ireland, in January of this year and are subject to ratification. I acknowledge the tremendous work of the Minister for Finance, Deputy Donohoe, who, as chairman of the Eurogroup, was involved during this process. There was a great deal of effort and strong engagement on his part during the entire process.

The Eurogroup has agreed that following the appropriate ratification procedures in each of the euro member states both amending agreements should enter into force from the beginning of 2022. Our ambition is to progress Ireland's national ratification procedure swiftly over the coming weeks so that we can meet this commitment.

I will give a brief overview of ESM treaty reform. It is composed of four complementary and mutually reinforcing building blocks. The centrepiece of ESM treaty reform is the establishment of a common backstop to the Single Resolution Fund with the ESM as provider. The ESM is a little like the National Treasury Management Agency, NTMA, at national level but it will operate at European level in the banking sector with funds and the ability to borrow such that if there is a crisis in the financial sector, it will be dealt with through the ESM and the banks and the funds they will have in place and will not fall back to the taxpayer, as would have happened previously.

The common backstop necessitates amendment of both the ESM treaty and the Single Resolution Fund intergovernmental agreement. The backstop will be available as a last resort to support effective and credible crisis management within the Single Resolution Mechanism framework. Loans from the backstop to the SRF will be repaid via contributions from the European banking sector, meaning there will be no use of taxpayer funds. The common backstop will replace the existing ESM tool for dealing with bank failures, the direct recapitalisation instrument. The backstop better suits current regulation and the overall banking union architecture.

The Single Resolution Fund was established for the purpose of applying resolution tools and exercising resolution powers. The fund is financed by levies imposed on credit institutions at national level and member states entered into an intergovernmental agreement, which established a transitional period of eight years, during which time national contributions would be progressively mutualised into a common fund. These reforms will allow the backstop to come into operation two years ahead of schedule. This is a significant positive decision that marks another important step towards completing the banking union. When I refer to national contributions I am referring to contributions from the banks, not from the taxpayer.

The early introduction of the common backstop will bring real benefits and additional stability to the European banking sector while protecting taxpayer resources. As the backstop will be repaid by bank sector contributions, the resolution of a bank will no longer put taxpayer resources at risk. This is in line with our goal of breaking the link between banks and their sovereign states.

The second element of ESM treaty reform involves the modernisation of the ESM's financial assistance toolkit. The ESM's precautionary conditioned credit line, PCCL, is reformed to enhance its effectiveness in order to prevent minor crises from escalating into more serious ones that might make it necessary for the member state to request an ESM loan with a full economic adjustment programme. The PCCL is available to any ESM member whose economic and financial situation is fundamentally sound but which could be affected by adverse shock beyond its control. The reform standardises the application process for PCCL access making it more transparent and predictable.

The third element of ESM treaty reform provides for a stronger future role for the ESM in the design, negotiation and monitoring of future financial assistance programmes. The existing ESM treaty allocates the various tasks involved in the ESM's operations to the European Commission, the European Central Bank, ECB, and the International Monetary Fund, IMF. The political reality is that the IMF has stepped back over time from its role in euro area financial assistance programmes. It is therefore appropriate to clarify the roles of the institutions going forward in the amended the ESM treaty.

The fourth and final element of ESM treaty reform concerns the debt sustainability framework in the context of ESM financial assistance. A key principle of the ESM since its establishment is that financial assistance should only be provided by the ESM to member states whose debt is considered sustainable. This principle will be strengthened by three improvements to the ESM's debt sustainability framework. First, a new common methodology for conducting the debt sustainability analysis of a prospective programme country has been jointly developed by the ESM and the European Commission. The second improvement to the ESM's debt sustainability framework is the introduction of single-limb collective action clauses, CACs, in future euro area sovereign bond issuances. Collective action clauses are clauses in bond contracts, which allow changes to the terms of the bonds to be made subject to a vote by the holders of the bonds. This reduces holdout risk, that is, that a small group of bondholders decides not to partake in the restructuring, forming a minority to block it in the hope of getting a better deal for themselves. These holdouts can result in delays and deepen a debt crisis. The final amendment to the ESM's debt sustainability framework is the ESM's new role of facilitating dialogue between a member state and its private investors on a voluntary, informal, non-binding, temporary and confidential basis in the exceptional circumstances where a member state requires a restructuring of its debt.

I will briefly outline the content of the Bill. In essence, it is mechanical legislation - people will have detected that by now - which seeks the approval of the Oireachtas to ratify the amending agreements to the ESM treaty and SRF IGA. The Bill has eight sections and three Schedules, each comprised of two parts to include both the English and Irish language versions of the agreements.

Section 1 provides the definitions to the legislation and clarifies references to existing legislation contained in the Bill. Section 2 provides for the approval of the ratification of the agreement amending the treaty establishing the ESM by the Oireachtas. Section 3 provides for amendments to the ESM Act 2012. This includes a new definition of "Treaty" and an update of Ireland's paid-in capital to the ESM following the end of the temporary correction periods for three of the founding ESM members, namely, Malta, Slovakia and Slovenia, during the period between 2019 and 2021. Section 4 provides for amendments to the ESM (Amendment) Act 2014 and amending the definition of "Treaty" within to align it to the definition of "Treaty" in section 3 of this Bill.

Section 5 provides for the approval of the ratification of the SRF IGA amending agreement. It also provides that my Department will publish a notice of this intergovernmental agreement coming into operation in Iris Oifigiúiland on the Department of Finance's website, once the conditions in Article 5(2) of the agreement have been met. The purpose of this provision is to signal to banks and signatories of the intergovernmental agreement that it has come into effect.

Section 6 provides for amendments to the Finance (Miscellaneous Provisions) Act 2015. It redefines "Agreement" in this legislation. Section 7 provides that any expenses incurred by the Minister in the administration of this Act shall be paid out of moneys provided by the Oireachtas.

Section 8 is a standard section defining the Short Title of the Bill.

As I indicated, there are three schedules to the Bill, each composed of two Parts. Schedule 1 is the amending agreement to the treaty establishing the ESM treaty, schedule 2 is the text of the ESM treaty and schedule 3 is the intergovernmental agreement. All are set out in both the English and Irish language versions.

As I mentioned at the outset, the purpose of this Bill is to seek the approval of the Oireachtas to ratify two amending agreements agreed last November by the Eurogroup, which was chaired by the Minister, Deputy Donohoe, during that period. The agreement to reform the ESM treaty and bring forward a common backstop to the SRF represents an important step forward in the euro area. When the agreement is implemented early next year, it will make our monetary union more resilient, boost confidence in the euro area's ability to quell crises before they escalate and strengthen the crisis resolution capabilities of the euro area should they be required. I look forward to a constructive debate on the Bill.

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