Brian Cowen (Laois-Offaly, Fianna Fail)
Link to this: Individually | In context

I propose to take Questions Nos. 1 to 7, inclusive, together.

I attended the December meeting of the European Council in Brussels on 16 and 17 December. As I will make a statement to the House later, I will confine myself to a summary account of the proceedings. The agenda of the Council was dominated by economic issues. The Heads of State and Government agreed that the EU treaties should be amended in a limited way to provide for the establishment of a permanent mechanism to safeguard the financial stability of the eurozone. It is intended that this permanent mechanism would come into being in 2013 and would replace the temporary mechanism established last year. The other relevant institutions, including the European Parliament and the European Commission, will be consulted on the text of the proposed amendment before its formal adoption next March.

Each member state will then aim to complete its national ratification process by the end of 2012 in order that the treaty change can take effect at the start of 2013. I am confident that the text is compatible with the Constitution. If an amendment to the Constitution arises, a referendum will not be required for Ireland to ratify the treaty change. The European Council, in the context of a broader discussion on economic matters, welcomed a statement by the Heads of State or Government of the euro area and the EU institutions which made clear that they stand ready to do whatever is required to ensure stability of the euro area as a whole and which called for determined action in a number of areas.

The European Council was also informed of ongoing work on the evaluation of the European Union's relations with its strategic partners, including the US, Russia and China. While in Brussels, I also attended a pre-Council meeting of the European Liberal Democrat Party, ELDR, on 16 December. I have no formal plans for a meeting with the President of the European Commission but I will see President Barroso at the next meeting of the European Council on 4 February, which is expected to focus on energy and innovation.

I have not yet received a finalised agenda for the March meeting of the European Council, though the custom is for this meeting to focus on economic issues, including growth and reform.

I have not finalised travel plans for 2011.

Brian Cowen (Laois-Offaly, Fianna Fail)
Link to this: Individually | In context

The Deputy will be aware that advices from the Attorney General are not available to anyone other than members of the Government but the basic point behind the wording is no transfer of competence will take place under this proposal and that has always been seen as the threshold of requirement in terms of whether a referendum is required based on the Crotty judgments.

With regard to President Sarkozy's comments, I was informed as I rose to reply to Deputy Gilmore yesterday that the Minister of State, Deputy Roche, had issued a statement. I presume he did. I do not have the details but I will obtain the statement for the Deputy and send it to him. I also made the point in my response that President Sarkozy had been reiterating a position which has been mentioned in other quarters apart from what was picked up by the media recently. I also stated that I made our position clear at the European Council meeting and put it on the record. The president knows directly from me what is our position on this matter since we discussed it at a round table dinner session of the Council when the question of what work would be ongoing within the Eurogroup regarding growth, stability and currency issues generally in the euro area was discussed.

My colleague, the Minister for Finance, has reiterated on numerous occasions our commitment to maintaining our 12.5% corporation tax rate, including at the time of the EU-ECB-IMF funding negotiations. I strongly defended our position in this regard at last month's European Council and will continue to do so. It is the cornerstone of our industrial policy and an essential feature of our future growth strategy. This has also been emphasised to EU authorities on many different occasions and we are clear that this is the position under the EU treaties. There is no evidence that imposing a higher corporate tax rate would sustain higher revenues or contribute in any way to restoring balance to the public finances. All impartial analysis points in the opposite direction, supporting the view that the 12.5% rate is key to sustaining our attractiveness to foreign direct investment and to sustaining the export-led recovery under way. Corporate tax revenues in Ireland are at a similar level to other EU countries. They were equivalent to 2.9% of GDP in 2008 compared to a weighted average of 2.7% for the EU as a whole.

Notwithstanding the views of any particular person or member state, direct taxation remains a matter of national competence. Furthermore, in the event of any matter arising for decision at EU level, unanimous approval of all 27 member states, including Ireland, would be required. This was confirmed in the context of the Irish guarantees on the Lisbon treaty. The European Commission has indicated that it intends to bring forward a proposal for a common consolidated corporation tax base later this year. Ireland and many other member states are opposed to such an initiative, which, in any event, would require unanimous approval. However, even in this context, the Commission, President Barroso and Commissioner Rehn stress that the adjustment or harmonisation of rates is not envisaged.

Brian Cowen (Laois-Offaly, Fianna Fail)
Link to this: Individually | In context

First, I do not have a draft of the text of the conclusions with me but I will ask that our people pick up on the technical drafting issue raised by Deputy Gilmore. We will provide an answer to him on that having got the text. From memory, I cannot recall the issue raised by him.

The second point raised by Deputy Gilmore relates to the Attorney General's advice. The normal approach is that we would inform the House. We will be doing so in the statements on the outcome of the meeting of the European Council. We will put on the record of the House the fact that it is the view of the Government based on the advice of the Attorney General that this is not an issue that requires a referendum.

I will have to check what the convention is on these matters. I do not wish to set a precedent either so I will check what is the room for manoeuvre regarding the availability of the advices themselves. Usually what happens in such cases is that the Taoiseach puts on the record of the House the position of the Government based on the Attorney General's advices and gives a general reasoning behind it as distinct from the specific advices themselves. I will check on the matter.

Brian Cowen (Laois-Offaly, Fianna Fail)
Link to this: Individually | In context

I know what point the Deputy is making now. I am sorry. I thought he was talking about general conclusions. I did not pick up on the point. He is talking about the proposed amendment itself.

Brian Cowen (Laois-Offaly, Fianna Fail)
Link to this: Individually | In context

I am sorry. The proposed amendment states:

The Member States whose currency is the euro may establish a stability mechanism to be activated if indispensable to safeguard the stability of the euro area as a whole. The granting of any required financial assistance under the mechanism would be made subject to strict conditionality.

As Deputy Gilmore indicated, a strong political view is held by Germany that this is a matter of last resort. It is about keeping the focus on what states themselves are doing to correct their public finances rather than being prepared to allow things to drift and then move into the mechanism. It is a fundamental position of the German Republic and from Chancellor Merkel's point of view that this can only be activated if it is indispensable. As Deputy Gilmore is aware, ultima ratio means as a last resort. The change in text does not do damage to the basic concept. The concept is that it is the indispensability of the use of the mechanism that would trigger its use rather than it being available without it being pursued to the full what national authorities can do to avoid using the mechanism. The biggest contributor to the mechanism is Germany as it is the biggest component of GNP within the Union. That is the context. The concept has not been changed. It was a drafting issue that arose for the purpose of strengthening the view of the Council that this is only used as a very last resort.

Brian Cowen (Laois-Offaly, Fianna Fail)
Link to this: Individually | In context

The third matter, the question of the ETA development, was not discussed at the European Council. One welcomes any improvement in respect of that situation. We hope it leads to a process that will bring a permanent outcome appropriate for the situation there. The Spanish Government has definite views on the matter regardless of the political composition of such governments. It is a matter that must be dealt with. We are available to assist at any time. However, the Spanish Government has outlined its position clearly and it regards the present situation as not yet adequate for such talks to be opened. There is hope that through whatever informal contacts can be maintained, matters could be advanced further to obtain an outcome to which we could all subscribe.

Regarding the earlier question on the tax rate or interest rate-----

Brian Cowen (Laois-Offaly, Fianna Fail)
Link to this: Individually | In context

This issue did not come up at the European Council. It is a matter for the Minister for Enterprise, Trade and Innovation to respond on where exactly that dossier is at present. As a general point, the competitiveness of the European economy is being challenged seriously by other growth areas in the world. International investment patterns are changing and prospective, sustainable growth rates for the European economy are a good deal lower than in other parts of the world. Therefore, we must deal with the question of growth in the economy. The demographics are very different as well. The 2020 strategy outlined by Herman Van Rompuy as President of the European Council seeks to develop sustainable growth for the European Union. All areas of activity that impinge upon competitiveness must be examined. The need for flexibility in labour markets is something the Commission, the council and the ECB regard as an important issue to be addressed by national authorities.

One of the great benefits and attractions of the Irish economy has been the flexibility of the labour market. This is not available to the same extent in other European countries. Much of the investment that has come here has been on that basis. It has been one component although certainly not the sole or determining component, but it has been important. This relates not only to the availability of skill sets and of people to do the job required in many high technology sectors but also to the question of the flexibility of our labour market. In better times, to which we can return as we seek to stabilise the economy and return to growth, this flexibility ensured and enabled many in the informal economy or those on low wages to obtain employment. Inflexibility of labour markets leads to higher unemployment. We must find the balance between ensuring that people are treated with dignity and respect and, at the same time, that we have an economic model that can compete with other parts of the world which would otherwise obtain the investment we strive to obtain, were we not to ensure that we have a package that meets with all of the requirements.

It is not a black and white situation but there is a need to examine these issues because if one becomes rigid about these matters, it has been shown that, ultimately, the loss of competitiveness affects the quality of living that one strives to protect by having working time directives in the first place. One must find the balance. I believe there is room for further work to be done at European level which would not undermine the social model of Europe but would get it into the ballpark where it can compete. If it cannot compete then the maintenance of a social Europe is at risk anyway. What was the earlier question?

Brian Cowen (Laois-Offaly, Fianna Fail)
Link to this: Individually | In context

It is a matter for the Whips but I would welcome a discussion in the House. That would be beneficial and it would help the House to come to a common conclusion.

Brian Cowen (Laois-Offaly, Fianna Fail)
Link to this: Individually | In context

I guarantee Deputy Eamon Gilmore that when the campaign is over he will be very tired. He need not worry about it.

Brian Cowen (Laois-Offaly, Fianna Fail)
Link to this: Individually | In context

Deputy Gilmore should not worry about it. He should build up his strength because he will be very tired by the time this is all over.

Brian Cowen (Laois-Offaly, Fianna Fail)
Link to this: Individually | In context

He has gone paranoid at this stage for a man in a handy position. He must be feeling the heat.

Brian Cowen (Laois-Offaly, Fianna Fail)
Link to this: Individually | In context

There are three furlongs to go and Deputy Gilmore is running out of juice. He cannot get out there quick enough.

Brian Cowen (Laois-Offaly, Fianna Fail)
Link to this: Individually | In context

A major concession by the Deputy.

Brian Cowen (Laois-Offaly, Fianna Fail)
Link to this: Individually | In context

I thank the Deputy for the first representation I have received in my second tenure as Minister for Foreign Affairs.

Brian Cowen (Laois-Offaly, Fianna Fail)
Link to this: Individually | In context

A letter is on the way.

Brian Cowen (Laois-Offaly, Fianna Fail)
Link to this: Individually | In context

Informal contact and discussion with the Spanish Government in the normal way would be the best way of influencing this situation, rather than trying to raise this to a European level. There is a strong view in Spanish society that this issue is a jurisdictional one to be dealt with solely by the Spanish Government. Political developments in regional autonomy arrangements in Spain only occurred since the return of democracy there. This is a sensitive issue that must be respected as an internal matter. Accordingly, one would be mindful of this in any conversations one would have on the issue and would simply confirm the availability of the resource we built up in this area should those parties in question deem it appropriate or relevant.

Legal advice has been obtained from the Attorney General on the proposed treaty amendment. During statements on the Council meeting, I will set out the position on the proposed amendment. It is a straightforward amendment with a simple text. Having considered the matter carefully, including taking the legal advice of the Attorney General, the Government is confident the amendment will be compatible with the Constitution. As no amendment to the Constitution would arise, a referendum will not be required for Ireland to ratify this treaty amendment. The ultimate interpreter of the Constitution is the Supreme Court.

Brian Cowen (Laois-Offaly, Fianna Fail)
Link to this: Individually | In context

Deputy Kenny raised a good point. There would be political discussions at the European Council dinner about this whole matter. It is important the confidentiality of much of these discussions would remain so as to allow people to be open and frank about prospective issues, developing trends and the assessments from the Commission and European Central Bank. The Euro Group, under the presidency of Jean-Claude Juncker, prime minister of Luxembourg, is actively pursuing investigations into other possible measures. The problem is if a signal is sent to the markets that existing measures are inadequate with more to come, a feeding frenzy that can never be filled results. As Deputy Kenny will be aware, there are many views taken in these markets.

The issues driving this problem are the debt levels and prospective sustainable economic growth rates in European economies. In turn, the interest rates charged for international money on wholesale markets makes it difficult for a more optimistic approach to be taken by those who assess and determine interest rates in the currency markets. The determination by EU governments, therefore, to co-ordinate and consolidate on this matter, and the demonstration and implementation of such actions, is an important factor in building confidence in the seriousness of sorting these problems out in the general European economy and economies within it.

That is the issue that affected Ireland. With the Greek crisis, there was a shift in sentiment as to the level of interest rate required from capital markets for sovereign debt. Subsequently, there was a slight rise in rates in the autumn. The publication format of the global declaration sent a signal to the markets that made them jumpier. The interest rate premium for Ireland, subsequently, went from 7% to 8.5% in three days. That is when we had to decide to pull out of the markets for funding the sovereign debt.

The IMF-EU option, accordingly, became the best option for Ireland, simply because money was cheaper from that source. Countries are funded by sovereign debt markets; if not, their only other source is the IMF. The EU has now taken up a competence in this area too. The joint EU-IMF fund now provides the funding stability for Ireland for the next several years that will give us the time and space to implement the economic policies that are necessary to reduce the budgetary deficit.

The national debt was reduced substantially in the good times to a ratio of only 12% of GDP, if the National Pensions Reserve Fund is included. It, however, increased to a ratio of approximately 115% but is going back down. In the 1980s, Ireland had a debt to GDP ratio of 133%. That gives an indication as to what must be done. The absolute priority for this country in the coming years is to implement the fiscal plan in place. While it might be a matter for debate when the election comes up, in my opinion there is no other show in town. There may be discussions around the edge of the plan. However, we must show a determination to reduce our deficits. We will spend €18 billion more than we will bring in this year. The figure in this regard will be reduced during the lifetime of the plan in order that we can return to a position where there will be a degree of equilibrium in the public finances. In other words, there must be a greater correlation between the amount we spend and the amount we take in.

There is an easy way to explain what is required. The plan is to return spending levels, which are currently at 2010 levels, to 2007 levels. In addition, taxation is currently at 2003 levels and these must be brought up to 2005 or 2006 levels. This will create the 3% buffer that is regarded as being sustainable. In many cases, one's capital programme is of the order of 2% to 3% and borrowing for capital, with an adequate and appropriate return, is financially feasible. However, one cannot continue to borrow for day-to-day purposes on an ongoing basis, particularly as this increases one's level of debt in circumstances where one lacks the capacity to eventually repay one's loans.

Part of the problem we faced was that people in the debt markets and individuals in certain institutions who should have known better were suggesting - this was echoed to a certain extent in the article in The Irish Times on Saturday last - that Ireland would be in default. Ireland did not enter the EU-IMF mechanism in a default position or in a position similar to that occupied by Greece earlier in 2010. We had pre-funding in place for the period up to June or July of this year. There was an opportunity for us to lay down parameters that would enable us to engage in the discussions which took place in a way which led to the emergence of a four year plan, 95% of which was drafted by the Irish Government and its officials.

That is an important point to make because it highlights our determination and sovereign will, as a country, to face up to our responsibility to deal with this issue while also acknowledging that we lack the capacity to deal simultaneously with a banking crisis and an economic crisis of the magnitude of those currently being experienced. It also highlights the fact that we can find a way through our current difficulties in a way that will maintain stability and social cohesion. I accept this will be a challenge but it is possible with the right policies, which balance the need to foster enterprise, job creation and growth with the imperative to maintain - while taking account of our current circumstances - public services at a certain level and in an efficient and effective way.

The question posed by Deputy Kenny is good. It is true that we cannot renegotiate our deals unilaterally. It is in the European context that this will happen. The developments that will take place in the context of policy initiatives will increase the range of mechanisms available to us to deal with what I regard as the basic issue relating to the interest rate problem in debt markets, namely, the size of sovereign debt itself.

Brian Cowen (Laois-Offaly, Fianna Fail)
Link to this: Individually | In context

In respect of Deputy Rabbitte's first question, the interest rates are manageable. Ireland was the first entrant into the new mechanism. The EU element of the mechanism is new but, as Members are aware, the IMF has been involved in activity of this sort for many years. The point the Tánaiste was making is that any change in the arrangements relating to Ireland - I will return in a moment to whether there is a prospect for such change - cannot be unilaterally negotiated between this country and the institutions. There must be agreement among the 27 member states in order for this to happen. Apart from the mechanics of what is involved, the question really relates to the prospect of that which I have outlined happening.

We must take cognisance of the German Government's policy in this area. Germany would be the main contributor to any such fund as a result of the fact that such a high component of Europe's GDP resides in that country. Governments tend to take account of sentiment among German taxpayers regarding the idea that Germany should be the post of last resort in extreme circumstances. The reaction of the public in Germany in respect of the bilateral loan made available to Greece last year became an issue. There were particular reasons a negative attitude was adopted by certain people in Germany in this regard. As the Government of Greece has discovered, its equivalent of the CSO was not functioning properly and, therefore, that country ended up in a situation that was based on information which was not accurate. There is no such contention in respect of Ireland, which is well-regarded in all of the areas to which I refer.

A risk premium was determined by the eurogroup and the ECOFIN Council in respect of Ireland, as the first entrant into the new mechanism. The reason for this relates to the need to strike a balance in respect of the composition of the interest rate that must be paid. In the first instance, such a rate must be one which, presumably, the country involved can pay. The second point is that a premium must be attached which will discourage countries, that may be heading towards difficulties, from believing that moneys will be available to them at a certain rate. Countries must not be in a position to continue on the course they have chosen, safe in the knowledge that there remains a last resort open to them which would be far more attractive than what would occur if they continued to obtain sovereign debt in debt markets. I hope the Deputy understands my point. The decision in this regard was made at European level and Ireland was the first entrant into the new mechanism.

The Deputy referred to eurobonds. Obviously we would be interested in that concept. However, it has attracted varying levels of support in the European Council. Those who would be interested in such bonds are those who could benefit greatly from being in receipt of them. There are large contributor countries which have a very different view of eurobonds. To my knowledge, these countries have taken a strong stand against their introduction.

President Juncker is a long-standing chairman of the eurogroup. When he and another European Head of Government put the proposal relating to eurobonds back on the table in recent months, there was a very strong reaction in respect of it in individual European capitals. The eurogroup has, however, embarked upon this process. As line Minister, the Minister for Finance would be the best person to go into further detail on this matter. It seems the sooner the European monetary system convinces markets that we are on the road to recovery and that sovereign debt levels can be brought under control by means of the policies, both domestic and European, that are being implemented - the role of the ECB in this regard will be crucial - the sooner we will return to normalcy in respect of sovereign debt markets. The sooner Ireland can return to the market at rates which were traditionally of the order of 4% to 4.5% prior to the emergence of the crisis the better it will be.

The currency crisis has not gone away in that respect. There are, as the Deputy says, fundamental issues that need to be addressed. However, the policy mix and the initiatives to be taken collectively, given the varying perspectives countries have on the impact such initiatives have on their own national Exchequers or their own exposures, is something that will require further detailed discussion. It is not clear to me that, if one likes, the cheap money option is just down the road.

On the developments in the EU involvement in this whole area as it evolves its policy - just as it has evolved its policy in regard to the financial institutions arising out of this crisis since 2008, policies will evolve - this does not necessarily mean that something will happen just because there is the prospect or the possibility of it happening. The underlying issue for the EU, to come back to an earlier comment by Deputy Gilmore, is to use this permanent mechanism, when it does arise, as a very last resort - the term being used is "if indispensable".

All the co-ordination and harmonisation of policies that is now taking place at the economic level within Europe - which has the semester and all of the increased surveillance that is taking place - which was not sufficient to signal the crisis when it did occur, will be pushing national member states to take greater steps at consolidation, in my opinion, to avoid the permanent mechanism coming into place. Even if it does come into place, one should not think that because it is a bigger pool of money, if that arises, based on the number of countries which could be looking at this as an option in due course, without my predicting that this is the case or doing an injustice to those countries, the use of this fund will only occur on a very strict criteria basis and after national governments having done everything - I mean everything - possible to avoid its use.