Tuesday, 11 May 2010
Last weekend, the EU finance ministers put together a package of €750 billion for the relief of distressed eurozone economies. I am disappointed that the Dáil did not have an opportunity to discuss the matter, as allowed under the Lisbon treaty, in advance of its being considered by the EU ministers. While the new mechanism is necessary, it is insufficient in so far as it will not deal with the structural deficiencies in the economies of vulnerable eurozone countries, including Ireland. Although it will deal with debt liquidity for a period of time, it will not deal with the financing pressures that will arise in the future in the absence of a serious and determined programme of competitiveness, growth and investment. Ireland is no different - we cannot plan for a jobless recovery.
It is worth mentioning, in that context, that 433,000 people are on the live register at the moment. They yearn to have a job, to enjoy the privilege of going to work and to contribute to the economy and the good of society. In his Budget Statement of April 2009, the Minister for Finance set aside €100 million enterprise stabilisation fund, designed specifically to protect vulnerable employers and businesses, to allow them to continue to trade internationally, to enable them to maintain their workforces and to help them to get through this crisis. Can he explain why a fund that was supposed to protect jobs, in the first instance, was cut by €22 million at a time when 433,000 people are on the live register?
The decisions taken by the European Council and ECOFIN over the weekend were taken as a rapid response to what the European Central Bank regarded as the prospect of a systemic risk to the euro currency, beyond the Greek situation alone. The original purpose of last Friday's meeting was to finalise the arrangements relating to Greece. It was not a question of not giving prior notice of issues that were coming up. This issue had to be dealt with as a matter of urgency. It was dealt with quite well by the European Council and ECOFIN over the weekend. Rather than running down the prospects of the euro and the country, it is far better to acknowledge that the market has reacted positively.
The statement also referred to the structural issues that have to be dealt with, in terms of deficit reduction, by all countries with such issues. There has been an acknowledgment that the Irish Government and the Irish economy started that structural adjustment in 2009. There was an adjustment of 5% in 2009 and an adjustment of 2.5% in 2010. While we have to remain vigilant, further adjustments which will lead to a reduction in the deficit have to be made. The international markets have shown an acknowledgement and an acceptance of the credibility of the Irish position.
The European Commission, the European Council and ECOFIN are clearly emphasising the need to have a more effective surveillance and monitoring mechanism, in respect of the stability of the euro, in the future. The task force that is working under the Presidency of Herman Van Rompuy will have to accelerate its work. The proposals to be made by the Commission this week will make an input into that. When people are commenting on these matters, I ask them to acknowledge the commendations that have been given to the Irish so far. While we should not be self-congratulatory in any way, that which is acknowledged externally might be acknowledged at home as well.
In response to Deputy Kenny's point about support for the jobs strategy, the fundamental aspect of everything we do is to try to protect and create jobs now and in the future. We have taken a very hard hit throughout this recession, particularly last year when we experienced a contraction of 10.5% of GNP.
There has been an increase in unemployment up to 13.4%. We have taken action in improving the position of our public finances, which provides greater confidence externally and internally. Thankfully, this will result in an improvement in consumer sentiment and an increase in consumer spend for the first time in two years. We have also seen an improvement in competitiveness, which has been remarked upon not only by the President of the European Central Bank but by colleagues throughout Europe. We are also trying to maintain and create jobs by repairing the banking system and we are in the throes of doing that.
In addition to the stabilisation fund referred to by the Deputy, we are providing an employment subsidy scheme. Both initiatives are protecting in the region of 90,000 jobs. The semi-State sector will provide €2 billion in investment this year and when this is added to the capital investment programme of €6.5 billion, that makes a total investment of €8.4 billion. That will also provide jobs for up to 60,000 people. Therefore, it is not correct to say the Government is not in any way trying to assist people. We are assisting people in every way we can and the €100 million programme referred to by the Minister for Finance in 2009 related to a two to three-year programme.
The Taoiseach can add the €20 billion he put into the banks to all the figures he mentioned. I asked why the €100 million enterprise stabilisation fund was cut by €22 million when it was designed specifically to get employers and businesses that were trading over this economic crisis. In both 2008 and 2009 Deputies Bruton and Varadkar, on behalf of the Fine Gael Party, put forward a series of measures to protect employment, to give incentives to employers and to give encouragement to employees. A number of them related to PRSI. In his Budget Statement last December, the Minister for Finance committed to leaving aside €36 million for a PRSI holiday for employers that take on new employees who have been six months on the dole in full-time jobs, which would give hope, confidence and the opportunity to contribute to our society and our economy to those involved.
The Department of Social and Family Affairs at the time issued a statement that the scheme would be implemented in a few weeks and it set out the conditions that would apply such as no substitute jobs, which I accept, and so on. However, the central issue, about which I am sure the Taoiseach is acutely aware, is the right to have a job. I support this fund because it was proposed initially by the Fine Gael Party in both 2008 and 2009.
In the interests of taking some of the 430,000 people on the live register off the dole and encouraging employers to avail of this fund, which the Minister for Finance announced in this Budget Statement last December, will the Taoiseach give a commitment that inside one month he will stand by the Government's word and ensure the €36 million PRSI holiday for employers who take on new employees will be up and running? I support the Taoiseach on this and I would like the scheme to be realised and to be up and running halfway through the year. Will he see to it that the Government will implement this budget proposal?
That decision is in the process of being implemented. We have agreed the heads of a social welfare Bill, which will be announced shortly. Full details of the employer job incentive scheme relating to PRSI, including the application procedure, will be administered by the Department of Social Protection. The scheme will run for the calendar year and any qualifying employment created this year will be eligible for the scheme, which will be structured in order that employment created prior to its launch can participate for 12 months from the time of launch and employment created later in the year can participate for 12 months to the corresponding date the following year. For example, in the case of qualifying employment created prior to the launch of the scheme, standard employee and employer PRSI will be paid but, following approval for the scheme, the employer will benefit from a PRSI exemption for 12 months from the date of approval. PRSI rebates will not be a feature of the scheme. Account will be given for the creation of employment in 2010, as promised.
I welcome the agreement reached at the weekend by EU Finance Ministers to established a €750 billion stabilisation fund for the euro and EU economies. It is important that EU governments are prepared to act collectively to face down financial speculation against the euro and individual economics, which has caused great worry across Europe to people about their jobs, savings and prospects. I sincerely hope the agreement works.
However, I have a number of questions about it. The first relates to its implications and consequences for our national budgeting. The Taoiseach is reported as saying there will not be an early budget this year and that it is the Government's intention to have the budget as expected in December. Will he confirm that is the position? I would like him to comment on the belief that the decision at the weekend will result in greater oversight, supervision and EU involvement in national budgeting. Will the decision made at the weekend require the Government to seek approval, at least in general terms, in advance from the European Commission before introducing the next budget?
I would also like to ask about the other element of the package. The establishment of the fund is a positive development, which I welcome, but there is also the issue of the regulation of financial markets and financial activity in Europe about which the statement issued by Ministers afterwards appeared to be much more aspirational than the agreement on the fund. For example, what action will be taken against financial speculators and what action will be taken to reform the markets for government debt? The statement refers to the possibility of regulation of rating agencies. What action is envisaged on that?
Where do we stand on the regulation of hedge funds, something the Labour Party and its sister parties in Europe have sought for some time? In that context, I draw the Taoiseach's attention to reports in March, which suggested that the resistance to the regulation of hedge funds in Europe was coming in the main from London and Dublin. Where does the Government stand on the regulation of hedge funds? Where does it stand on the proposal to have a Robin Hood tax on financial transactions? I agree the establishment of the fund is a positive and welcome development. Where does the Government stand on the strengthening of regulation of financial markets in Europe?
I welcome the support the Deputy indicated for the developments over the weekend, which were necessary. A situation had arisen which, as far as the European Central Bank was concerned acting independently, was of such a nature that decisions were taken both on Friday evening and Sunday night that have had the impact required in terms of confirming that there is a full, united, comprehensive approach by members of the euro area to defend the currency in every circumstance. Based on the initial response, that has been understood by the markets. One must remain vigilant. We cannot determine the outcome of such matters in the space of 24 hours but the initial response has had the intended effect.
Some of the questions asked by Deputy Gilmore will be a matter for discussion within the taskforce headed by Mr. Van Rompuy. I refer to economic governance issues in general, how the Stability and Growth Pact works, what improvements need to be brought about and whether there are areas in which one could introduce measures that would be regarded as preventive rather than corrective. A warning system is currently in place for excessive deficit procedures. The sanction is usually in the form of a fine. Debate is ongoing on whether there should be a greater degree of surveillance or monitoring. All of those issues must be discussed.
As yet, no decision has been taken but there has been an indication of the need for the Van Rompuy taskforce to accelerate its work. It was envisaged that the work would proceed until the end of this year prior to recommendations emerging but it may well be that they would emerge sooner than that. As part of the urgency of the need to deal with those matters that relate to the structural issues that arise in the European economy and how the stability of the currency is viewed in that respect, not just from a monetary point of view but a fiscal and competitiveness point of view, a Commission proposal this week will input into that process. The first meeting of the taskforce will take place in the following week, on 21 May. We are seeing a ramping up of the ideas that will be brought forward for discussion and ultimate agreement within the taskforce, which will then come back to ECOFIN and the European Council in due course.
No one wants to see the euro in this position again. That involves first demonstrating that community instruments are in place to support the euro or countries. The only country that has sought support is Greece. A contingency arrangement has been put in place and a special purpose vehicle has been set up by euro area member states to allow for the purchase of bonds in the market which would be guaranteed by the states proportionately. This country has signed up to that commitment. We must show solidarity for the stability of the currency.
Deputy Gilmore raised the future regulation of hedge funds. It has always been our view that we must ensure we are competitive in the context of the provision of financial services. They provide a significant number of well-remunerated jobs. The IFSC has weathered the financial storm relatively well, perhaps better than expected. Potential has been identified in the funds administration area for future job creation in this country. It is clear that one must balance that perspective with the need for adequate regulation. We need to consider our position in that respect.
My view and the view of the Minister for Finance and the Government is that there was a mistaken view in terms of governance of such instruments in the past. That is why we ended up in the current position. It is clear that we must devise an improved surveillance and monitoring mechanism and a regulatory system in all respects, not just in terms of financial institutions but some financial instruments as well. Our general disposition is that we are open to joining a consensus that would see Europe providing for an improved regulatory regime in all of those areas. We should also be mindful of the fact that this is a global industry and it is important that we are competitive in the industry as well in terms of retaining jobs. Significant Exchequer resources accrue to this country annually as a result of having a profitable financial services industry. The IFSC has had that benefit for us both in terms of employment and revenue. Based on the fact that this area is a work in progress and that no decision is imminent, although the ongoing work is urgent, that is the best response I can give.
I thank the Taoiseach for describing how the issues are to be progressed at European level and the expected work of the taskforce. Not only is it important that there is agreement at European level on the need to stabilise the currency but it is important that there is agreement at national level as well on the measures that are required to do that. It is with a view to establishing where the Government stands in respect of the issues that have now to be addressed that I am pursuing these questions.
With respect, the Taoiseach's responses on where the Government stands on the future of the regulatory regime in Europe are a bit on the vague side. Issues require to be addressed such as the regulation of hedge funds. It is clear that the speculation we have seen in the recent past against individual countries and the euro gives rise to a requirement for much greater regulation. I interpret what the Taoiseach has said as a somewhat belated move in Government thinking from the era of light touch regulation and what he described as the mistaken view of the past. I presume what he means by that is the kind of policies that were advocated and expounded by the then Minister, later Commissioner, Mr. McCreevy, and the generalist position of the Government. There is a need for the Government to be clear and to outline the position on the regulation of hedge funds, the so-called Robin Hood tax and the other issues which will now be considered at European Union level and which are the next phase of this process.
The Taoiseach did not answer the earlier part of my question, namely, the implications and consequences of the weekend's agreement for our national budgeting. Could the Taoiseach confirm there will not be an early budget? Is it the case that there will be a requirement for greater European supervision of our budgetary process as a result of the agreement? What is the Taoiseach's take on Europe's interpretation of our current deficit and likely deficit given the EUROSTAT decision on the €4 billion that went into Anglo Irish Bank and whether that has to be factored into the national accounts?
The point I made previously in response to Deputy Kenny is that, thankfully, this country has established some credibility in international markets due to what we have been proactively doing. One of the main messages that arises from the weekend's developments is that the strategy the Government has been pursuing since July 2008 has been vindicated. Firm action to arrest the fiscal deficit over a realistic period builds confidence and market credibility.
We must pursue vigorously all the elements of the economic recovery strategy especially on the question of improving the public finances - what is known as fiscal consolidation - or the markets would punish us severely. That is the reality we now have to face. What has happened has shown that the Government was correct to resist suggestions about prolonging the period of adjustment, which was something that was mentioned in the public debate at the time. The idea was probably mentioned in this House as well that we should have had a period of adjustment that was longer than up to 2014. Had we listened to that advice from elements of the Opposition-----
Opportunities are taken by everyone in the House to explain issues. I am making the point that the current market volatility confirms that had we taken no action - views were expressed as part of the public debate-----
This is the time for Leaders' Questions. It is not yet time for the House to hear Deputy Burton.
To finalise the point, had we taken the route proposed by others we should now be in a very severe crisis, relying on supports which would, effectively remove our economic sovereignty.
I am supposed to stand here, take the Opposition's analysis, sit down and say it is right. Is that it? Had I done this, we should be in a very different position to the one we are in now. In regard to the question that Deputy Gilmore asked-----
He should not worry. It is not like his own, and he is under no duress to attend ours.
On the question as to whether there will be a budget, the Minister for Finance and I have said that with revenues on stream and spending down 10% over the first quarter compared to last year, and being on target, it is not envisaged that we will have any requirement for a budget, other than at the end of the year because the strategy that was outlined is working.
In respect of the international transactions tax, again, that will require a response at global level. As the Deputy knows, the British Prime Minister indicated his support for that at the G7 summit but it did not meet with unanimous approval there-----
-----and it is a matter of continuing discussion. However, it is something we need to look to in order for the banking industry to re-establish credibility with the public. An international transactions tax, if globally applied and in a way that does not undermine Ireland's competitiveness, is something I do not have any ideological problem with as long as it is pragmatic, effective and efficient.
On the question of speculation, the bottom line is that this will occur where weaknesses are identified. That is what happened in the current situation. Clearly, beyond the Greek situation a bet was being taken as to whether the euro was in a position to survive. The sovereign debt issue was even being questioned, not just institutional or private debt. Clearly, we faced the prospect of a second financial crisis, where the indebtedness of states was being questioned in terms of their ability to repay.
The response over the weekend has had the intended effect. However, at this point it must be accompanied by the fact not just that a contingency measure has been put in place to support the currency by member states, but also that further structural adjustments will have to be accelerated for those countries for whom this applies. Deputies will have seen that Spain and Portugal have indicated that they will have a report from the European Commission by mid-May or June, I understand, to look at that situation as well.
There is no room for complacency in this country, either, or for self-congratulation in our situation. We need to acknowledge, however, that having taken the steps necessary we are being believed internationally. We now have to build domestic confidence at home. One way we can do that is through the budgetary process we have outlined. A €3 billion adjustment for 2011 is certainly a possibility but there have been no formal or informal indications from the European Union that it requires or expects anything beyond that level of adjustment at this point. In any event, it is in Ireland's interest that we make this adjustment. We would always look to the European institutions as being supportive, and work with them on the basis of a common analysis to the effect that Ireland has established a certain degree of credibility and that we must now proceed along these lines in order to effect an economic recovery strategy that will have credibility abroad as well.