Pearse Doherty (Donegal, Sinn Fein) | Oireachtas source

I welcome the opportunity to speak on Second Stage of this important legislation. We will scrutinise it further if it proceeds to Committee Stage. The purpose of the Bill, as the Minister of State set out, is to ratify the amending agreements between the European Stability Mechanism treaty and the Single Resolution Fund intergovernmental agreement. It is required in order to implement the agreement reached by the Eurogroup on 30 November last year and the signing of the ESM treaty reform in January this year. The Minister for Finance described it at the time as a crucial stepping stone on our path to strengthening the economic and monetary union. He has a real stake in this agreement as both president of the Eurogroup and chairperson of the ESM board of governors.

The provisions of the Bill and the agreements are substantive and consequential. I welcome the opportunity to explore them and for the Minister of State to present and clarify them. The ESM was established in 2012 as a permanent fund to provide loans to financially distressed euro area members, of which there are 19 in total. It is the permanent replacement for the European financial stability facility, EFSF. It was established with the superficial objective of providing loans to financially distressed euro area countries in order to safeguard the financial stability of the euro area member in question and the broader stability of the euro area. As we all know, assistance provided by the EFSF was subject to strict conditionality. In November 2010, the Government entered a financial assistance programme with the EFSF and the IMF. The memorandum of understanding that was entered into with the troika resulted in far-reaching austerity measures being implemented and imposed on the Irish people that caused great hardship and damaged our economic recovery. It was a treatment that made the patient sicker. Among the measures that flowed were cuts to the widow's, blind and invalidity pensions. The minimum wage was cut, there was a fiscal contraction equivalent to 17% of GDP and we saw cuts to public services that damaged families and communities.

The permanent successor to the EFSF is the ESM. It provides financing conditional upon the implementation of macroeconomic reform programmes designed and overseen by the ESM, the Commission, the European Central Bank and, in some instances, the IMF. Those programmes are, too often, ultimately informed by the ideological bias that favours austerity and privatisation. Currently, access to ESM financing amounts to a codification of the cap-in-hand process the troika meted out here during the financial crisis, applying imposed policy changes that did not work and will not work in the future. The issue of conditionality plagues the architecture of Europe. It is centre stage in the discussion around reforms to the fiscal rules. The stated worry of some is that, without conditions, funding will simply be wasted. In fact, the real issue is that those who impose conditions have done so from an ideological position that is counterproductive and, without accountability or oversight, undermines and damages citizens' interests and democratic rights. The fear of moral hazard has too often been used as an excuse to impose conservative ideology on countries. Some of those issues will be discussed in the course of this debate.

I will touch on three particular areas, two of which relate to changes proposed on foot of these agreements and through this legislation and the third of which is related to the second issue. The SRF was established on 1 January 2016 as an emergency fund for resolving failing banks. In this country, the Finance (Miscellaneous Provisions) Act 2015 implemented the original intergovernmental agreement on the SRF. The latter is funded and financed by commercial banks, with all banks and member states paying an annual fee that contributes to the fund. In this regard, I acknowledge that the SRF offers some protection to taxpayers in that it is the first line to pump money into a failing bank, after bail-in tools have been exhausted. Such tools have long been advocated for by Sinn Féin. We argued for them during the financial crisis and they are now part of the package across all European countries.

The agreements and this legislation provide for a credit line to be established between the ESM and the SRF beginning next year. They propose that the common backstop be used as a last resort when other options, including the bail-in tool, have been exhausted and only when the SRF is depleted. The ESM head of financial sector and market analysis has said the backstop will double the resources available to bank resolutions in the future, with a stated purpose of strengthening the resilience and crisis resolution capacity of the euro area. I note that this reform has been accelerated in the light of what are described as reduced risks, which is often code for securitisation. I ask the Minister of State to comment on this. I note, for example, that Permanent TSB, a majority State-owned bank, today sold off €390 million worth of loans to Morgan Stanley Principal Funding, with 57% originating from home loan products. Those loans have gone from a State-owned bank into the hands of funds at a time when many people have lost their jobs and income during the pandemic.

The Government has facilitated this by blocking legislation that would implement a requirement for the consent of families to have their mortgage loans sold in this way. Securitisation and the sale of family home loans to vulture funds is not risk reduction, but it is all too often the easy option for banks. This fact was noted even by the deputy Governor of the Central Bank, with Irish banks failing to work through the full suite of solutions under the code of conduct on mortgage arrears. In addition, the Dáil voted on a motion yesterday regarding the reserve fund for exceptional contingencies. While noting that the fund is empty and never really got off the ground, the legislation allows for the fund to be used for a capital injection into private banks in the domestic banking sector. Will the reform of the SRF in the legislation before us today make that provision redundant?

Returning to the changes envisaged, I note that any loans made from the ESM to the SRF under the new credit line would be paid back within three years from bank contributions, thereby meaning we would recoup any funds paid out of it. I acknowledge that this condition goes some way to decouple the dangerous sovereign bank link. I look forward to scrutinising the provision in greater detail.

On the second proposed reform, the agreements and legislation propose changes to the operation of the precautionary conditional credit line, PCCL. There are two types of credit line under the ESM lending toolkit, namely, the PCCL and the enhanced conditions credit line, ECCL. The former is available to member states only when they satisfy six eligibility criteria, such as public debt, structural balance requirements and others. Even under these agreements and this legislation, that will remain the same. There is no change in that regard. Criteria such as ensuring the member state that is applying for the PCCL has a debt to GDP ratio of 60% or less in the previous two years will continue to apply. These criteria are defunct, redundant and do not take account of the failure of the fiscal rules as they were implemented prior to the pandemic.

They fail to take account of the fact these rules must change to reflect the economic needs of member states and the level of investment required to respond to the climate breakdown. Even the European Stability Mechanism, in a working paper published in recent weeks, called for the debt-to-GDP ratio ceiling to be increased to 100%. Yet the legislation before us provides this line of credit can only be accessed if you hit the old defunct rules of 60%. The structural balance, relying as it does on measures such as the output gap, is not fit for purpose.

I recognise that other changes are envisaged. To date, both credit lines required a memorandum of understanding, MOU, that detailed the policy conditions to be implemented in exchange for financial assistance, often policies of austerity. These MOUs damaged economies, inflated hardship and bred resentment. Under the proposals, members applying for the PCCL will submit a letter of intent rather than be subject to an MOU, with that letter of intent outlining the members policies intentions and the proposals then being assessed with respect to the pre-existing legislation. It appears this seeks to replace imposition from above with proposals from below. Insofar as this is a change, I acknowledge it and believe it moves in the right direction.

However, in assessing the Bill it becomes clear that an opportunity has been missed, with no reforms whatsoever to the ECCL, the other line of credit from the ESM. Instead, all loans under this credit line would remain subject to a macroeconomic adjustment programme, with a memorandum of understanding negotiated and designed by the ESM and the European Commission, in liaison with the ECB and, in some instances, the IMF. These bodies are largely unaccountable and have displayed an ideological bias in the form of austerity in the past. We all recognise that austerity failed in the past and this new financial crisis, brought on by the pandemic, is not being resolved through austerity because of its past failure.

The agreement of 30 November, which this Bill seeks to ratify, provided no significant reforms to the ECCL. Such reforms could have been negotiated in line with those negotiated for the other line of credit, the PCCL. Therefore, as it stands, the architecture of the ECCL is not one we can support. We acknowledge the reforms to the ESM and the SRF but, taken with the opportunity for ESM treaty reform, this is clearly a missed opportunity. We cannot support maintaining a regressive architecture.

I look forward to further scrutinising this legislation, if it goes to Committee Stage, and the agreement it seeks to ratify at a later stage.

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