Róisín Shortall (Dublin North West, Social Democrats) | Oireachtas source

I welcome many of the provisions in this Bill but I also have concerns which I will refer to over the next few minutes. The European Stability Mechanism has been important in providing financial assistance to EU member states experiencing a crisis and so safeguarding the stability of the wider euro area. The Single Resolution Fund, focused as it is on resolving failing banks, is also important in the context of the banking union. In being financed by contributions from the banking sector rather than by taxpayer money, it shows that at least some lessons have been learned from the financial crisis of 2008 and 2009. Had some of these provisions for economic and monetary union been in place in 2008, it is unlikely that Irish taxpayers would have been left footing the substantial bill that we were.

When the Minister of State and Minister first began to attend the meetings that led to the agreement referred to in this Bill, their Department stated that they and their colleagues in the Eurogroup would make important decisions that would help to shape the eurozone in the years ahead. The question is whether the shape that emerges is one that fully addresses the challenges that Ireland and our fellow EU member states face.

This Bill is largely about deepening the economic and monetary union. There are some positive points in it, as I have already noted. Ireland, perhaps more than any other country, is aware of the importance of ensuring that a repeat of what happened with the banks a decade ago is impossible. Improving resilience to future economic shocks and facilitating sustainable and inclusive growth for Europe's citizens were among the stated aims of the negotiations which brought about the reforms we are now discussing. These were laudable and appropriate. As I have already alluded to, it cannot be understated how important it is to improve resilience to economic shocks. However, I do not see what in this Bill will do anything to drive inclusive growth. Perhaps the opposite is likely, given that the Bill does nothing to enhance the kind of flexibility around fiscal policy that would allow Governments to pursue such growth.

I will elaborate on that in a few moments. Questions arise about the direction of travel being taken. Economic and monetary union can have its positives but we can be sure it has negatives as well. For example, the Stability and Growth Pact is used to "maintain stability" of economic and monetary union. That fiscal monitoring of EU member states by the European Commission has some obvious negatives that I will address now. I acknowledge the Stability and Growth Pact was suspended to allow for the economic and fiscal repercussions of the Covid-19 pandemic but we have been repeatedly informed that these rules are coming back and the window in which they do not apply will be a short one. Surely the economic consequences of the pandemic and the need to temporarily suspend the Stability and Growth Pact is evidence enough of the need for increased flexibility on a more permanent basis within the key elements of economic and monetary union. The suspension of the pact was tacit acceptance of its limitations but long before the pandemic, there was criticism of the pact from the point of view of its insufficient flexibility and the need for the rules around deficits and debt to be applied over the economic cycle, as opposed to in any single year.

Given that EU member countries no longer control their own monetary policy, fiscal policy is governments' only significant mechanism with which to react to economic shock. By limiting governments' ability to spend during economic slumps, the rules risk intensifying recessions and hampering growth. That is clear and it is a danger that has not been acknowledged by the Minister of State. This is one of economic and monetary union's most obvious practical weaknesses. When a recession lingers for several years, it makes good economic sense to implement fiscal stimulus, especially if a recession is deepening. However, the fiscal rules as currently constituted allow, at best, the slowdown of some postponement of fiscal consolidation. The rules are not designed for the type of persistent recession the EU experienced after 20008. Other countries suffered worse than Ireland from this in the past decade but there is the prospect that Ireland could face such challenges in the near future. There are too many aspects of economic and monetary union that have led to pro-cyclical fiscal tightening across Europe in the past decade. Such policy likely played a role in prolonging the recession and increased unemployment in many countries, including Ireland. The excessive pro-cyclicality of fiscal rules, therefore, undermines the stabilising ability of fiscal policy.

It is not only economic shocks that require fiscal flexibility and the ability to react according to circumstances. It is not news to anyone in this Chamber that Ireland is and has been for a number of years facing a raft of crises in different policy areas, most notably health and housing, and has now committed to taking extraordinary and unprecedented action to reshape our economy and society in order to meet our international climate-related obligations. These are the areas I alluded to when I talked about the need for inclusive growth and for flexibility of Government policy in achieving this. These areas will have perhaps the greatest influence on living standards in this country in the coming decades. I fear that in spite of the obvious need for significant Government intervention in housing, health and climate, Ireland will continue to be severely constrained in our ability to borrow to finance even the most productive investments. I made the point the other day that if a company chose not to borrow in order to invest, it would not last terribly long and the same basic rules apply to an economy.

It is clear that increased Government intervention in the housing sector will be necessary to meet our targets there. This was spelled out clearly recently by the ESRI. The Government is involved in the most ridiculous housing policies, most notably in relation to long-term leasing, where the State is entering agreements with investment funds for 25-year leases where we end up paying close to market rents on thousands of apartments for the purpose of social housing. We pay high rents, are committed for 25 years and the State has to look after the sourcing of tenants and must ensure maintenance in that period, including with issues arising from tenants or vacancies. At the end of 25 years, the State is obliged to refurbish the apartments and hand them back. After forking out what amounts to a mortgage in rental payments over 25 years, the State is left with no asset. It is ridiculous and makes no financial sense. It would be far more sensible and cost-effective for the State to borrow, which it can do currently at low interest rates. It can borrow ten-year money for 0.25%. It would make sense from a financial, economic and social point of view to borrow the quantum of money the ESRI referred to and to invest in social and affordable housing. For some unknown reason, the Government will not do that. One has to ask why on earth not, when it is so obvious and makes so much sense.

It is also clear the reforms outlined in Sláintecare have received insufficient financial backing, which is part of the reason for the almost imperceptible levels of progress in a key element of any civilised modern society, namely, a functioning public healthcare system that meets the health needs of citizens and contributes significantly to reducing the cost of living.

It is perhaps in the area of climate mitigation where there is the most obvious rationale for rejecting the fiscal rules and directing significant investment into public transport projects and renewable energy generation. Last month in our alternative budget, the Social Democrats advocated significant borrowing, which we can do at negligible interest rates at the moment. We advocated borrowing in the range of €5 billion in order to capitalise a green transformation fund, which would be used to fund some of the projects necessary to transform Ireland's economy and help us on the road to carbon neutrality. It is obvious that the State should be investing in this critical area, in relation to the grid and to the development of sustainable and clean energy sources. We can do that and anything that brings a return of more than 0.5% makes sense. Why are we not borrowing during this narrow window available to us when the fiscal rules have been suspended and investing heavily in alternative, secure and clean sources of energy generation? As it makes sense to do that, why are we not doing it? Why are we leaving this key element of our economic and social activity to the market?

Why is the State not setting up a semi-State body to take control and to develop sustainable sources of energy generation? The return on that is obvious and it makes sense.

We outlined the goal of making Ireland a net exporter of renewable energy in the years to come. It is doable. Let us imagine if the Government got the country to a point where we could do that. It is hard to fathom why this option, which is open to us at this point, has not been grabbed with both hands. With the temporary suspension of the fiscal rules, Ireland has a narrow window of opportunity to utilise historically low borrowing costs to capitalise the fund. Without the necessary reform of the European Stability Mechanism, we will have no scope to do so once the suspension ends, despite the clear and obvious economic, social and strategic rationale for ensuring State involvement in and control of such an important and potentially lucrative sector of the economy.

Why are we not doing this, as the country faces into a situation where there have been several increases in energy costs that are putting such a huge burden on households? In short, European fiscal rules have not been sufficient either to ensure the sustainability of the public finances in the medium term or to allow countries to meet fiscal needs in a dynamic economy, nor do they offer flexibility when countries are faced with extenuating needs and circumstances, as Ireland is. It is clear that frameworks to improve and enhance fiscal sustainability have a place but I argue that the current structure is found wanting. That is without getting into the lack of proper enforcement measures or the hypocrisy of the situation that has seen Germany and France running what would be considered excessive deficits under the pact for a number of years, while resisting any enforcement of sanctions against them due to their size and influence. That is a strategy Irish Governments have seemed unwilling or incapable of pursuing.

There also seems to be an issue with the precautionary credit lines noted in the Bill. There are two available credit lines in the European Stability Mechanism's lending toolkit – a precautionary conditioned credit line and an enhanced conditions credit line. It looks to me like the eligibility criteria for the precautionary line will make it quite likely that it will never be used. Countries availing of it must meet three conditions in the two years preceding the request for financial assistance. First, they must have a general government deficit not exceeding 3% of GDP. Second, they must have a general government structural budget balance at or above the country-specific minimum benchmark. Third, such a country must have a debt-to-GDP ratio below 60% or proof that the country is reducing its stock of debt by an average rate of one 20th per year over the previous two years. Given current and future debt levels, one would have to seriously question the last condition about debt-to-GDP ratios, or the need to be already reducing debt. It makes it quite likely that this precautionary line of credit will not be available to the countries most likely to need to avail of it.

The only reason Ireland might qualify for access at present is the overstated impact of multinational companies in our national income numbers, which would allow us to come under the 60% threshold and fulfil the precautionary credit line criteria. I would welcome if the Minister of State could address those issues. The Social Democrats will not oppose the Bill on Second Stage. We will consider how the debate goes in further Stages.

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