Dáil debates

Wednesday, 5 October 2011

Recent Developments in the Eurozone: Statements

 

6:00 pm

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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I welcome this opportunity to update the House on recent developments in the eurozone. I participated in the Eurogroup and ECOFIN ministerial meetings in Luxembourg earlier this week. Just over two weeks ago, I attended the annual meetings of the IMF and the World Bank in Washington, where developments in the eurozone were high on everyone's agenda. The Taoiseach, the Tánaiste, other ministerial colleagues and our officials and diplomats have maintained an intense programme of contacts and meetings to ensure Ireland's voice is heard as things evolve. I am happy to report that at the recent meetings in Washington and Luxembourg, Ireland came in for much praise for the progress it is making as it returns to sustainable growth and economic stability.

It goes without saying that there is no basis on which to become complacent about what we are doing. Equally, the extent of our recovery and growth depends on what happens beyond our shores. I will speak about these meetings and how I see matters evolving, but it would also be useful to inform the House about the important steps we and our European colleagues have taken in recent months. Too often, perhaps, there is a focus on finding an immediate fix to the latest fluctuation in the markets or the situation of one or more member states. Putting in place the right framework for economic sustainability in the longer term is just as necessary. We are making genuine and good progress in that regard.

It is clear that the outlook for the wider euro area and the EU economy deteriorated over the summer months. A key factor weighing on activity is the dramatic change in market sentiment towards the euro area. Tensions in euro area sovereign debt markets have intensified, with spill-over effects to some non-programme countries. At the same time, the markets have become increasingly concerned about the exposure of some European banks to sovereign debt. The weakening economic outlook is exacerbating the situation. There is a great deal of uncertainty and nervousness.

The situation regarding Greece remains fluid. My Eurogroup colleagues and I discussed the latest developments on Monday night. In recent weeks, the Greek authorities have announced additional measures to address the situation. Significant measures are planned on the revenue and expenditure sides. The Troika is assessing whether they are sufficient to close the fiscal gap. We are awaiting the Troika assessment.

Although there are significant difficulties, as I have set out, it is important to stress that it is not all doom and gloom. It is often overlooked, but it is fair to mention, that the policy response at EU level since the crisis began three years ago has been impressive. A new and improved economic governance structure is being put in place, for example. A European semester involving ex ante guidance on national economic and fiscal policies has been introduced. Crisis resolution mechanisms - the EFSF and EFSM - have been established. Significant progress has been made in terms of financial sector repair at EU level.

Recent months have been difficult for the eurozone and its financial sector. The initiatives relating to the EFSF that were pursued following the eurozone meeting on 21 July last are to be welcomed. I am pleased to say that since early July, Irish banks have had success in securing term wholesale funding from international banks, with some €4.5 billion funded to date in a very difficult environment. This shows the progress the banking sector has made. The exposure of Irish banks to some of the peripheral sovereigns is very limited and manageable within the context of their capital, which was confirmed through the European Banking Authority stress tests as being well in excess of requirements.

Deputies are aware that the heads of state and government committed in July to improve the terms at which financial support is available, to increase the scope of the EFSF and EFSM and to consider proposals on how to improve working methods and crisis management in the euro area. As the Taoiseach said to the House last month when he reported on the 21 July meeting, significant and important enhancements are to be made to the EFSF. The Government had actively been seeking the increased flexibility that has been provided for. Member states are engaged in the process of legislative change that is needed to bring the arrangements that were agreed in July into force. For our part, the necessary legislation was passed in September and has been signed into law by the President.

The decisions made mean the EFSF will lend to Ireland at a significantly reduced rate. This will apply not only to moneys that are yet to be drawn down, but to future interest payments on existing loans. This will involve a saving of several billion euros over the term of the loans. In this regard, we welcome the decision of the European Commission to propose that loans under the EFSM will come with zero margin. I hope a decision in this respect can be approved as soon as possible. The July meeting recognised Ireland's resolve to press ahead with the implementation of our programme and expressed its strong commitment to our success. I have repeatedly said that Europe needs a win. That message has resonated with my EU colleagues.

With regard to corporation tax, there was no new language agreed at the July meeting. We agreed to engage in what is expected to be a complex debate on the Commission's common consolidated corporate tax base proposal, and more generally in the structured discussions on tax policy issues that are provided for within the framework of the euro plus pact. There was nothing new in this. The Government's position on the substance of the matter has not changed in any respect. A proposal has been published by the European Commission for a financial transactions tax. The draft directive will be subject to detailed discussions at EU level. As always, we will participate constructively in those discussions.

There is no consensus among European member states about whether a financial transactions tax should be introduced, or what precise form it should take. It is important that any proposal does not have the effect of encouraging relocation of activity or damaging the EU's competitiveness in financial services. It is for this reason that there is an emerging view that the EU and other international groupings, such as the IMF and the G20, should move in tandem to avoid the danger of financial sector business gravitating to jurisdictions where taxes are not levied on financial transactions.

There has been much discussion of the concept of Euro bonds. I have spoken about them on both sides of this House in the past. President Barroso has indicated that he will make proposals in the coming weeks for what he calls "stability bonds". I am sure Deputies will agree it is prudent to withhold judgment until we see the details of the actual proposals.

On wider economic management issues, I have already mentioned that one of the more welcome policy responses has involved putting a new and improved economic governance structure in place. The Government's view is that every appropriate step should be taken to avoid a recurrence of the economic shocks that hit us in recent years. We believe we should bring Ireland's experience of recent years to the table as the new governance structure is discussed in the coming weeks.

A series of significant measures are already in place. I have mentioned the European semester, which is already proving its worth in terms of ensuring a co-ordinated, flexible and effective system of economic planning at member state and EU level. A series of legislative reforms with four broad goals, known as the "six pack", has been agreed. The six pack will toughen the rules of the Stability and Growth Pact, which was designed to limit budget deficits and government debts, by introducing a much greater degree of surveillance at an earlier stage and making it easier to initiate the excessive deficit procedure. The rules will give a greater importance to debt - and not only deficit - reduction and sustainable growth. The six pack introduces new controls on macroeconomic imbalances across the EU, such as housing bubbles and growing divergences in competitiveness between member states. It sets standards to ensure the correct and independent compilation of statistics. This data is crucial to sound budgetary policy-making and monitoring of budgets. In addition, it strengthens the transparency of the decision-making processes and the accountability of decision-makers.

I am pleased to note that ECOFIN formally adopted the six pack measures yesterday, 4 October 2011. This means that work can begin immediately on implementing the new legislation and that member states can begin to work towards the 31 December 2013 deadline for having the provisions of the directive transposed into national legislation. Ireland already has some of the directive's provisions in place, and a significant number of those outstanding will be transposed through the upcoming fiscal responsibility Bill which will be debated by the Oireachtas.

These are real and substantial changes in EU economic governance and are perhaps not appreciated enough yet in terms of their long-term value. The work does not end here. The Heads of State and Government tasked the President of the European Council, in close consultation with the President of the Commission and the President of the Eurogroup, to make concrete proposals by October on how to improve working methods and enhance crisis management in the euro area. This work is being advanced, including through bilateral consultations at official level. Officials from my Department, the Department of the Taoiseach and the Department of Foreign Affairs and Trade met President Van Rompuy's team on the subject last week.

In all we do on governance and all such issues - and we have taken many tough decisions at EU level and at home in our capitals - we should keep our focus on growth and on job creation. This will guide this Government as we approach the next steps in the governance debate.

I will conclude with some of the points I made to ministerial colleagues and to members of the global financial community when I was in Washington for the IMF and World Bank meetings last month. I told them that the global economy is in a major crisis and that the euro is being buffeted by this crisis. I see the euro as the centrepiece of European integration, which has been good for Ireland and for our partners. Throughout the current crisis, many of the strengths and advantages of the euro have been overlooked. It should be remembered that, since its introduction, the euro has increased trade by 50%, controlled inflation and allowed for the deepening of a successful internal market across the EU.

This financial crisis will be solved but it will take time. The credit bubble that caused the crisis must be reduced, which means everyone must, in effect, de-leverage their balance sheets. This de-leveraging must be done in as speedy a manner as possible without putting at risk the all-important return to economic growth which will create the jobs that our citizens seek. Developments in the eurozone and the wider world are a major concern to us but we will continue to take decisions on the economic and financial matters that are within our control here at home. Ireland is in the process of re-establishing financial and fiscal credibility. Against this background, we will play our full part in ensuring that the eurozone's current crisis is brought to a resolution.

Photo of Seán BarrettSeán Barrett (Dún Laoghaire, Ceann Comhairle)
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I call Deputy Michael McGrath.

Photo of Micheál MartinMicheál Martin (Cork South Central, Fianna Fail)
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I had hoped to begin.

Photo of Seán BarrettSeán Barrett (Dún Laoghaire, Ceann Comhairle)
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Are you the spokesperson for Fianna Fáil?

Photo of Micheál MartinMicheál Martin (Cork South Central, Fianna Fail)
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We intend to share time between us.

Photo of Seán BarrettSeán Barrett (Dún Laoghaire, Ceann Comhairle)
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That is not possible, according to the order. The order is that "the statements shall be confined to a Minister or Minister of State and to the main spokespersons for Fianna Fail, Sinn Féin and the Technical Group". The Deputy is wasting time.

Photo of Richard Boyd BarrettRichard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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Can we share time?

Photo of Seán BarrettSeán Barrett (Dún Laoghaire, Ceann Comhairle)
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No, not according to the Order of Business.

Photo of Micheál MartinMicheál Martin (Cork South Central, Fianna Fail)
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I asked for a debate on this two weeks ago. I asked the Taoiseach yesterday whether he would speak, and he said he would. He actually took me to task for suggesting he would not speak. We then had a discussion this morning about questions. I came to the House not knowing this and believing we would share time together. It is incredible that a crisis of this scale is happening and we are not-----

Photo of Seán BarrettSeán Barrett (Dún Laoghaire, Ceann Comhairle)
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This is the way the order was put to the House. I am sorry.

Photo of Micheál MartinMicheál Martin (Cork South Central, Fianna Fail)
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It is pathetic.

Photo of Seán BarrettSeán Barrett (Dún Laoghaire, Ceann Comhairle)
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This is the way the order was put to the House and agreed.

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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On a point of order, is it possible to amend the order to allow Members to share time?

Photo of Seán BarrettSeán Barrett (Dún Laoghaire, Ceann Comhairle)
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Unless the Government wants to produce an amendment to the order, I am not in position to do so. All I do is apply the rules. The order states that immediately following the statements "a Minister or Minister of State shall take questions for a period not exceeding 30 minutes". That does not restrict other Members from asking questions. I am just talking about the statements, which are confined to the spokespersons and "shall not exceed 15 minutes". If the Deputy wants to reduce the time-----

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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You could interpret that as meaning it is for the parties to appoint their spokespersons.

Photo of Seán BarrettSeán Barrett (Dún Laoghaire, Ceann Comhairle)
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I am sorry. You have a Whip and this was discussed at the Whips meeting. I cannot do anything about it.

Photo of Gerry AdamsGerry Adams (Louth, Sinn Fein)
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I can understand the Ceann Comhairle is simply interpreting and presiding over arrangements which were agreed earlier today. However, to be fair, while I only speak for my party, none of us thought for one second that this would be the case. I tabled a request at least three weeks ago seeking a debate on this issue and I have returned to it two or three times since. There are two interpretations of this. Either it is just a mistake, a mess-up and a bit of bureaucracy or it is very bad governance and sleight of hand by the Government. I ask the Minister to recognise-----

Photo of Brian WalshBrian Walsh (Galway West, Fine Gael)
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It was agreed to this morning.

Photo of Gerry AdamsGerry Adams (Louth, Sinn Fein)
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I appreciate that. I was here this morning.

Photo of Micheál MartinMicheál Martin (Cork South Central, Fianna Fail)
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The position this morning was that the Taoiseach intended to speak.

Photo of Seán BarrettSeán Barrett (Dún Laoghaire, Ceann Comhairle)
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Can we clear up this matter? My understanding is that this is the way the order was made this morning.

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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I do not mind who speaks.

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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Can the Minister propose a change to the order?

Photo of Seán BarrettSeán Barrett (Dún Laoghaire, Ceann Comhairle)
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Sorry, I have to interpret this. The way this was presented this morning was that we would have statements from the main spokespersons and then it would be open to questions and answers. It does not state the questions coming from the Opposition side have to come from the spokespersons. I suggest that the main spokespersons make their points and we will then have time for questions.

Photo of Micheál MartinMicheál Martin (Cork South Central, Fianna Fail)
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On a point of order, we debated this yesterday and the Taoiseach said-----

Photo of Seán BarrettSeán Barrett (Dún Laoghaire, Ceann Comhairle)
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I know that. I am only telling you that, as Ceann Comhairle and chairman of the proceedings, I have to administer the rules in accordance with the order of the House. I am not engaging in dispute with anybody here. This is what I have in front of me.

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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Can we change it?

Photo of Micheál MartinMicheál Martin (Cork South Central, Fianna Fail)
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The Taoiseach took me to task yesterday-----

Photo of Seán BarrettSeán Barrett (Dún Laoghaire, Ceann Comhairle)
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We are just wasting more time.

Photo of Micheál MartinMicheál Martin (Cork South Central, Fianna Fail)
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We raised the matter of who would ask questions and the Taoiseach made it clear we would not be asking questions and that the spokespeople would ask the questions.

Photo of Seán BarrettSeán Barrett (Dún Laoghaire, Ceann Comhairle)
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No.

Photo of Micheál MartinMicheál Martin (Cork South Central, Fianna Fail)
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The spokespersons would ask the questions.

Photo of Seán BarrettSeán Barrett (Dún Laoghaire, Ceann Comhairle)
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Obviously, that was changed.

Photo of Micheál MartinMicheál Martin (Cork South Central, Fianna Fail)
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It is incredible that the leaders of the Opposition parties are not allowed debate the eurozone crisis - it is beyond belief.

Photo of Seán BarrettSeán Barrett (Dún Laoghaire, Ceann Comhairle)
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You can ask questions.

Photo of Micheál MartinMicheál Martin (Cork South Central, Fianna Fail)
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That is not at all satisfactory.

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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Is it open to the Government to propose an amendment to allow-----

Photo of Seán BarrettSeán Barrett (Dún Laoghaire, Ceann Comhairle)
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It is not. This is the Dáil's order of the day as made this morning. That is the way I have to rule and Members understand that. I am asking you to get on with it. I call Deputy McGrath on behalf of Fianna Fáil.

Photo of Richard Boyd BarrettRichard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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On a point of order-----

Photo of Seán BarrettSeán Barrett (Dún Laoghaire, Ceann Comhairle)
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Yes, Deputy. We are wasting time.

Photo of Richard Boyd BarrettRichard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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That is the last thing I want.

Photo of Seán BarrettSeán Barrett (Dún Laoghaire, Ceann Comhairle)
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That is all you are doing. This debate has to finish at 7.30 p.m.

Photo of Richard Boyd BarrettRichard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I agree. On the point of order, it is news to us that we could not share time because normally-----

Photo of Seán BarrettSeán Barrett (Dún Laoghaire, Ceann Comhairle)
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That is a matter for your Whip. I cannot do anything about it if the information is not passed on to Members of the Technical Group and to the main parties in Opposition.

Photo of Richard Boyd BarrettRichard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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Clearly, it was not passed on to anybody because the other parties in Opposition are also-----

Photo of Seán BarrettSeán Barrett (Dún Laoghaire, Ceann Comhairle)
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So be it but-----

Photo of Micheál MartinMicheál Martin (Cork South Central, Fianna Fail)
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It is farcical.

Photo of Richard Boyd BarrettRichard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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Can I finish my point? First, it has not been passed on to us and we were not aware of it. The normal procedure for these debates is that it is stated that main spokespersons will make statements and that they can share time. That is what normally goes into the order.

Photo of Seán BarrettSeán Barrett (Dún Laoghaire, Ceann Comhairle)
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Okay. We will share our time.

Photo of Micheál MartinMicheál Martin (Cork South Central, Fianna Fail)
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In that case, I wish to share time with Deputy Michael McGrath.

Photo of Seán BarrettSeán Barrett (Dún Laoghaire, Ceann Comhairle)
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Is that agreed? Agreed.

Photo of Micheál MartinMicheál Martin (Cork South Central, Fianna Fail)
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Over the past seven months we have had a series of extremely limited debates on the eurozone crisis. We have heard repeatedly from the Government about how decisions just taken show that the Union will quickly overcome the crisis or, as we heard again today, how such decisions will happen soon. The fact is that the crisis stumbles on. Every time the leaders of the Union fail to take action which is both fast enough and large enough to tackle it, they end up making the crisis even worse.

It is two months since it became obvious that the Greek situation is threatening to engulf Europe. The contagion which forced Ireland and Portugal out of the bond market has not been contained and confidence has not recovered. Larger and more systemically important economies are now on the edge, with rising concern about bank capitalisation throughout the eurozone adding an extra layer of instability. In the face of this, the failure of Governments to agree any step forward at this week's ministerial meeting is the worst possible outcome. Their putting off of any decisions until the end of the month appears almost calculated to cause further damage.

Last December, leaders accepted that incremental and grudging actions had achieved nothing. They agreed to fundamentally change the terms of official support for countries. Principles were agreed in February but, when it came to turning principles into action, the Council failed. Implementation was put off for further discussions and things got worse. In turn new measures were agreed in July, which have been followed by delay and argument.

Time and again, leaders have reverted to trying to find an easy way out or have fallen back on pre-crisis demands for new powers that will never be given by either the member states or their citizens. The introduction of medium and long-term issues has directly led to delay and an increase in the urgency of the problems at hand. In all of this, the time and effort being put in by leaders, to push for action has been nowhere near what is required. The scale and pace of the budgetary adjustment being implemented by the Greek government is enormous. Its particular difficulties are being made significantly tougher because of the constraints of eurozone membership. The lack of devaluation or unilateral restructuring puts a major limit on Greece's ability to come out of the crisis. The attitude towards the Greeks that everything is their fault is disgraceful and ignorant. Europe is Greece's problem just as Greece is Europe's problem. Helping Greece is not charity but is a proper recognition of the duties of a currency union that freely admitted Greece as a member.

It is a complex situation but the key elements of what needs to be done are clear. There is no longer any time for delay. On the immediate issues, the funding available to achieve debt sustainability in current and potential bailout countries must be dramatically increased. The same goes for the funding available for bank recapitalisation. The ECB must be candidly told there is no alternative in this regard. As it stands proudly admiring its independence and its rigid adherence to increasingly discredited orthodoxies, it is causing immense damage. With the funding in place, Greece must be allowed to restructure its debt while selected bank debt here and potentially elsewhere must also be allowed to be restructured. The opposition of the ECB and some countries to burning bondholders was credible last year when Ireland proposed it. They were scared of the possibility for contagion and wanted to take a "safety first" approach. This is not credible any more, as markets have priced in restructuring and the failure of governments to implement it actually is making matters worse. Markets do not believe that a policy of no restructuring is credible and therefore doubt the credibility of the overall effort. Once these two critical short-term issues of a larger fund and debt restructuring are addressed, more complicated issues regarding the architecture of the eurozone can be considered. A reform of the European Central Bank is essential, as is more substantial control of national financial systems. Whatever is to be done will never be ratified if the current approach of exclusive negotiations and ultimatums is continued.

The Government's approach to these fundamental issues has so far been to stand back and wait for things to be agreed that it can pretend to have delivered. This is little different from its approach of claiming credit for the economic impact of a budget against which it voted. On 3 April, the Tánaiste announced the launching of a diplomatic initiative, which was due to involve him and the Taoiseach touring Europe to meet their counterparts in substantive bilateral meetings. Other than meeting on the margins of much larger gatherings, what has followed can be characterised as anything but an initiative. The Tánaiste told the House yesterday that his July meeting in Berlin was the only major bilateral meeting he has held and the Taoiseach has confirmed he has held none. The only communication of the Government's position has been through controlled leaks and briefings. The Taoiseach has stated he is against a new treaty but has not stated exactly what he himself seeks.

There also has been a speaking out of both sides of the mouth. The Minister, Deputy Noonan, went to Washington and said he was going to burn bondholders but returned home, continued to pay every red cent and said he would like to meet Mr. Trichet some time soon. Even though it is four and a half years away from an election, the Government continues to put political positioning ahead of everything. Last night the Government tabled a ridiculous amendment to Fianna Fáil's Private Members' motion in which it referred to its own "resolute action in facing the economic crisis". The same amendment of course distanced the Government from each specific action which would contribute to such "resolute action". Last night, one Minister told Members how the Government had skilfully negotiated a halving of Ireland's bailout interest rate in July. The facts show, however, that the Taoiseach, the Minister, Deputy Noonan, the Minister of State, Deputy Brian Hayes, and others confirmed that Ireland sought a much smaller reduction. Before the summit, the Taoiseach did his bit to further Ireland's negotiating position by neither meeting nor phoning any of the other participants.

Instead of spending time looking for things for which to claim credit, the Government should now set out in detail exactly what it is proposing. Does Ireland support a dramatic increase in bailout funding and if so by what means? Is Ireland supporting the restructuring of Greek debt? Is it insisting that a restructuring of certain classes of bank debt be allowed? Has Ireland responded to the Franco-German proposals for treaty changes? The leaders of Europe must start talking to one another and acting with the urgency the situation demands. If within the next few weeks there is a failure to both agree and start implementing a more significant series of initiatives, this could be the moment when the euro finally loses all credibility. This is a pan-European crisis that is becoming an international emergency. No purpose is served by countries stepping back and failing to commit to decisive action. It is time for the Government to state clearly what it is proposing and to actually launch the diplomatic initiative it has been talking about but failing to deliver for the last seven months.

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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I am pleased to have an opportunity to make a contribution to this important debate on the eurozone debt crisis. The most disappointing aspect of how the debt crisis has been handled in Europe thus far has been the sense of drift that has been allowed to develop. The handling of the crisis has been characterised by a lack of clarity, by uncertainty and by indecision. Moreover, the decision-making process in the European Union has been badly exposed as cumbersome, slow and inadequate in every respect, notwithstanding the various initiatives the Minister outlined in his opening contribution. More than anything else, this inadequacy was summed up for me by the failure to follow up promptly on the outcome of the Heads of Government summit of July 21. Decisions were reached that were criticised by some but which, if implemented quickly, certainly would have made a difference to how the debt crisis evolved over the summer and the autumn. However, instead of arranging for those decisions to be implemented quickly, all the Heads of State and Government returned to their home countries and went on holidays. Consequently, there was uncertainty for the rest of the summer and the autumn and only now are national parliaments getting around to ratifying the provisions of that summit and hopefully having them implemented shortly. It is truly extraordinary that as Europe faces its greatest peacetime crisis, the measures decided upon on 21 July have yet to be implemented. There has been much grandstanding, as well as a plethora of meetings involving the French President and the German Chancellor and even the United States Secretary of the Treasury, Timothy Geithner, came to meet the European Finance Ministers in Poland. However, there has been little real tangible action to make a difference to the crisis.

We now have an interlinked sovereign debt crisis in Europe and a banking crisis that is threatening to spiral out of control and which poses a serious risk to the very survival of the euro itself. Moreover, at a human level, there is a personal debt crisis in this country and other countries that is affecting many families at present. To make this debate relevant for people, one must ask what does all this mean for Ireland. I am sure there is a tendency for people who watch the news every evening as this crisis rumbles on to question how it really affects them or their country. The truth is it affects us directly and in a tangible and meaningful way. The protracted nature of the eurozone debt crisis has damaged confidence across economies both in Europe and across the globe. It has dampened demand among our trading partners and has the potential to derail the prospects for Irish recovery through the export-led growth people here are working to develop. Exports are the single area of the Irish economy that is performing exceptionally well and the lack of confidence in Europe among our main trading partners poses a serious threat to those exports.

Moreover, as the Minister outlined earlier today during Question Time, each 1% reduction in economic growth means €800 million of revenue loss to the State. Consequently, if exports do not perform as well as they otherwise might, it will affect economic growth, which in turn affects the Exchequer position. There is a clear relationship between the debt crisis and Ireland's economic performance, which may then result in the need for budgetary decisions involving a greater adjustment then would otherwise have been necessary. The decisions in that budgetary context directly affect consumer sentiment, the level of people's disposable income and spending power within the economy. There is a clear connection between the debt crisis, the performance of the economy, Ireland's national budget and how that affects people's day-to-day lives and in particular, on retail spending and disposable income.

On top of all that, the huge turbulence that has pervaded stock markets during the summer and the autumn has wiped billions of euro off share prices. Many people have had their pension funds taking a huge hit over that time. Some markets are down by 20% to 25% in recent months. People are directly affected as a result - through their pensions, investment products, credit union investments and so forth. The point is that this debate is relevant to people's daily lives. As the Minister prepares the pre-budget outlook and the new multiannual plan, the key variable is economic growth. Not only does that impact on the State's revenue, but the size also determines the deficit percentage and we all know we are committed to achieving a deficit of 8.6% next year.

Those are all the negatives, but there has been one very large positive for Ireland arising from this debt crisis. No one - not even the Minister - believes that Ireland would have got such a substantial interest rate reduction on the bailout funds in the absence of such a clear and present danger to the euro in recent months. That interest rate reduction is very positive and will have a real impact on the budgetary plans.

At the heart of all this is the position of Greece. Most independent economists now seem to take the view that the 21% voluntary discount of Greek debt simply will not be enough; Greece is drowning in debt. For weeks we were led to believe that Greece would run out of money on 14 October, but we are now being told it will not happen until mid-November. That delay only serves to provide an excuse for further procrastination and uncertainty. It is clear the Greek people will only accept so much austerity, no more than any other country would, including our own. Given the level of volatility in the markets Ireland is fortunate at this time to have a secure funding stream available so that the State can conduct its business and put through the essential reforms in the economy.

We have had mixed messages from Europe characterising the entire debate and the handling of this crisis. Mr. Jean-Claude Juncker says that Greece will not default but yet he says that the next tranche of the first bailout is to be delayed. At the heart of the matter is a complete lack of credibility about the European response: the failure to make decisions promptly, and when they are made they are not deemed to be sufficiently comprehensive and are not implemented with decisiveness.

I acknowledge there is no easy solution to this crisis, but it now seems inevitable that the level of private creditor involvement will play a greater role in the ultimate resolution of the process. In that context the attitude of the ECB to Ireland's desire to achieve some level of burden sharing with the remaining unsecured, unguaranteed bondholders in Anglo Irish Bank and Irish Nationwide Building Society is quite unbelievable. Holders of Greek government bonds will certainly take a larger hit. Just as Irish banks did on property loans, European banks look likely to take a hit on the Greek bonds they hold. The share price of European banks in recent weeks reflects that reality. It appears the markets have already priced in the restructuring of Greek debt. We now appear to be looking at a programme of bank recapitalisation across Europe. Even back as far as August, the managing director of the IMF, Ms Christine Lagarde, indicated she believed that was required.

I look forward to having an exchange during the time allocated for questions. There are many questions about Ireland's handling of this crisis, including: what we are seeking; our view on many of the elements that are now being proposed as forming part of the overall resolution of the issues; the financial transactions tax; the euro bond; and increased flexibility in the EFSF.

Photo of Gerry AdamsGerry Adams (Louth, Sinn Fein)
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Ba mhaith liom mo chuid ama a roinnt leis an Teachta Pearse Doherty.

Photo of Seán BarrettSeán Barrett (Dún Laoghaire, Ceann Comhairle)
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Is that agreed? Agreed.

Photo of Gerry AdamsGerry Adams (Louth, Sinn Fein)
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Fáiltím go bhfuil an díospóireacht seo againn ach tá sé go mór thar am. Nuair a chím an tslí ina bhfuil an díospóireacht seo curtha le chéile, tá an fáth go bhfuil an géarchéim seo againn soiléir. Given the scale of the eurozone crisis and its effect on this State, it is shameful the Government has taken months to schedule this debate. However, I cannot say I am surprised. The approach of the Government to this crisis has been incompetent and inept. When it was elected, the Minister should have gone to our partners in the EU and told them that as a new Government with a huge mandate it was not bound by the commitments of the previous Government and it was mandated to negotiate a new deal for the citizens of this State. In other words the Minister should have told them what the Government was elected to do and it should have done what it was elected to do. However, it stood idly by and as one crisis piled on another, and political leaders across the EU scrambled to respond, the Minister and his colleagues sat on the sidelines waiting for somebody else to come up with a solution.

In June and July of this year the Government struck lucky. The crisis in Greece deepened to such an extent that eurozone leaders, fearful of serious contagion in Italy, lowered interest rates beyond the Government's own miserable target of 0.6%. Sinn Féin welcomed this reduction in the interest rate but we warned that it would not address the overall level of debt held by those eurozone countries most at risk from default, including this State. The EU deals struck over the summer also did nothing to address the urgent need for investment in job creation, and economic and social recovery. These agreements strengthened the underlying flawed approach of the EU to this crisis - namely pouring billions of Irish taxpayers' euros into toxic and dead banks and imposing the cost of these bailouts on ordinary people in the form of so-called austerity policies. This approach in its time was pursued enthusiastically by Fianna Fáil and now it is being actively implemented by Fine Gael and Labour.

As the Minister plans to slash up to €4 billion from the economy in December it is clear that he cares little about the social consequences for the young, the low and middle-income families, the elderly and sick, the almost half a million people on the live register, or those thousands of people who have been forced to leave the island.

The mortgage crisis continues to spiral out of control. Low income families are being pushed further into poverty. The Government is living in a bubble and is not in touch with what is happening. As evidenced from the latest Exchequer returns, the domestic economy will continue to be in recession well into 2012 and all the time the eurozone crisis deepens. The Government's failure to come up with adequate solutions to the eurozone crisis, a failure that it shares with its EU partners, is that it simply does not understand the problem. The Government is unashamedly Europhile.

The euro crisis was not caused by excessive public spending in peripheral euro economies such as Greece, Portugal or this State, nor was it caused by deficits in these countries. The crisis stems in the first instance from the reckless behaviour of banks at the core of the eurozone which lent aggressively to banks on the periphery. The banks were assisted by excessive surpluses in core economies such as Germany and cheap money facilitated by low interest rates for the euro. The failure of governments and EU institutions to properly regulate this massive lending spree is now well acknowledged. Although the mountain of debt has yet to be quantified, this mornings newspapers indicate that European leaders are beginning to wake up to the black hole that lies at the heart of all of this.

I am very concerned at a number of points in the Minister's statement, including his reference to new governance and improved economic governance structure. On behalf of the party I represent, let me warn that we will not tolerate the Government moving from where it is at the moment. Already having given away fiscal powers it now appears to be poised to give away monetary powers. Sinn Féin will oppose that here and wherever we get the opportunity to do so.

Ní maith ar bith a bheith ag caitheamh airgead isteach sna bainc dona seo. Tá a fhios ag an Aire nach réiteoidh sé sin an fhadhb. Ní maith a bheith ag cur fiacha móra sa mhullach ar thíortha atá faoi fhiacha troma cheana féin. Ní cuidiú ar bith é don ghéarchéim.

Forcing ordinary citizens to pay for this financial mess is not only morally and ethically wrong, but makes no social or economic sense. My colleague, an Teachta Pearse Doherty, will set out Sinn Féin's view of what new approach is needed and how we see the problem being resolved.

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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As outlined by Deputy Adams, the Minister's approach to the eurozone crisis, and that of his EU counterparts, is clearly failing on many levels. While the Minister has argued and will argue otherwise, on his watch Ireland has been demoted to junk status. On his watch, thousands more people have become unemployed. On his watch, tens of thousands of young people have left this State, and on his watch, domestic demand has fallen by 3.6%. On his watch, our Exchequer deficit has increased by €7 billion as a result of him pumping our money into the banks. On his watch, he has bailed out unguaranteed bondholders and he intends to do so again, with an unguaranteed, unsecured bondholder in Anglo Irish Bank due to receive €704 million. This is happening at a time when the Minister tells us that he has no wriggle room, at a time when funding for special needs assistants and benefits to pensions, carers and those with disabilities have been cut or withdrawn.

It is time for a new approach. What should that new approach be? For Sinn Féin, a number of key steps must be taken at European and domestic level if we are to have any hope of delivering a fair and sustainable social and economic recovery. It must also be stressed that the measure of success of any proposed solution to the eurozone crisis must be its impact on ordinary people. Will it get people off the dole and back to work? Will it help reduce household debt and mortgage distress? Will it put money back in the pockets of the working poor and in turn back into the domestic economy? Will it help hard pressed families meet the cost of education for their children and health care for their elderly parents? These are the indicators that matter, not arbitrary deficit reduction targets or ideologically motivated EU and IMF policy prescriptions. Sinn Féin believes that the first step in addressing the crisis in the eurozone is to deal with the banks. The European Banking Authority's stress tests of July this year identified 24 banks in need of recapitalisation. At the time, some commentators said that this was only the tip of the iceberg. Others criticised the stress tests for failing to uncover the full extent of the banks' liabilities, including those hidden away in special purpose vehicles.

On the basis of the most recent round of crisis meetings in Brussels and Frankfurt, it is clear that the critics of the European Banking Authority were right. The extent of the black hole at the heart of European banking is not yet clear. The solution is not, as some European leaders suggest, to pour more taxpayers' money into these toxic banks, nor is it to increase the fund of the EFSF to cope with the funding needs of the banks. What is needed first and foremost is a new round of stress tests that uncover fully, and without any ambiguity, the full extent of the problems in the European banks. Rigorous and compulsory stress tests are now required as a matter of urgency. Once we know the full extent of the problem, the banks must be forced to write down the cost of their bad debts as a prerequisite to any recapitalisation. It is also Sinn Féin's view that the cost of bank recapitalisation should not be born by ordinary taxpayers, particularly given the crippling levels of austerity being imposed on people across the EU.

Sinn Féin has long argued for a significant write down in the toxic banking debt imposed on the State by Fianna Fáil and now by this Fine Gael-Labour Government. Negotiating such a write down, including the Anglo Irish Bank promissory note - which I will state again is not €47 billion, but over €74 billion because we must borrow the money to pay for it - must be a priority for the Government in any talks on a long term solution to the eurozone crisis.

If the Greek Government has managed to secure significant private sector participation in its debt restructuring, then it is not credible for the Minister for Finance here to claim that a similar deal cannot be secured for Ireland. It is simply unpatriotic for him to come back from Brussels with additional private sector involvement for Greece, while asking the people of Ireland to bear the brunt of the toxic debt in the recapitalisation and the toxic Anglo Irish Bank promissory note. We do not believe that an enlarged EFSF is the right vehicle for meeting the funding requirements of cleansed banks. Rather the European Central Bank must become the lender of last resort for the European banking system. The ECB is already performing this function in a number of countries, including Ireland. Rather than printing euros to buy the bonds of indebted European economies in a vain attempt reassure market anxieties, the ECB would be better placed to redirect these facilities to stabilise the European banking system.

The EU must abandon its fixation with austerity. The crisis facing the domestic economies across the EU is a crisis of under investment. The banking crisis has led to a withdrawal of private sector investment from the domestic economy of an unprecedented scale. The result is a loss of jobs for many and a loss of spending power for more. Each round of Government imposed austerity further reduces investment in the domestic economy, forcing more people out of work. This vicious cycle of under investment, unemployment and declining consumer demand is crippling real people in real economies. In the absence of private sector investment, we need the State to fill the investment vacuum. We need a Europe-wide stimulus programme to compliment stimulus programmes in individual member states.

The European Investment Bank, a body with twice the lending capacity of the World Bank, must be empowered to work in conjunction with national governments to increase the level of investment in labour intensive projects which, in addition to creating jobs, also have a clear social, economic and environmental dividend.

The three steps of cleansing the banks of their toxic debts, using the ECB to stabilise the cleansed banks, and increasing investment in job creation at a domestic and European level provide a coherent alternative to the failed policies of bank bailouts and crippling austerity being pursued by this Fine Gael and Labour Government, and which were pursued by the previous Fianna Fáil and Green Party Government. It is also the policy being pursued by the European Council and the Commission.

It is time to abandon the policies of bank bailouts and austerity. It is time to adopt new policies to cleanse our banking system and stimulate our economies. The parent or young person languishing on the dole queue cannot wait any longer. The family struggling with rising prices and increasing debts cannot wait any longer. The grandparent lying on a trolley waiting for surgery cannot wait any longer. We need solutions that work for ordinary people of this State and other states right across Europe. We need solutions that work for citizens, not for A. J. Chopra or Olli Rehn. We need solutions that work for the domestic economy, and we should not prioritise the international markets time and time again.

The Minister comes in here and tells the best tale he can, but in reality he is playing with matches in a petrol station. There is a serious crisis, and as one of the European leaders at the Ecofin meeting, he is twiddling his thumbs while Italy is downgraded and Greece is carrying a debt which everyone in this Chamber knows they cannot pay back, even though the Minister and his Ecofin partners continue to say that there will be no default.

Photo of Seán BarrettSeán Barrett (Dún Laoghaire, Ceann Comhairle)
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There are five Deputies sharing 15 minutes. I call on Deputy Boyd Barrett, who has three minutes.

Photo of Richard Boyd BarrettRichard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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At what point do we shout that the emperor has no clothes? The European empire that is the troika of the EU, the ECB and the IMF, has no clothes, or to put it more accurately, it has not got a clue. Everything it has done over the past two years and everything it has dictated, which it claimed would improve the situation, has made the situation worse. That is blatantly obvious for everyone. The more they ram austerity and bank bailouts down the necks of countries like Ireland, Greece and Portugal, the worse the situation gets. It gets worse for the people in those countries with more unemployment, more cuts in services, slashing of incomes, and more attacks on the vulnerable. The immorality and the hurt of it are obvious, but even in economic and financial terms, it clearly is not working. The more they say the action is to contain the crisis, the more the crisis spreads. The more they say that the action is designed to restore economic growth, the more we get economic contraction. Is it not obvious? The more they have rammed this stuff down the throats of the Greeks, the worse the position in Greece has become. It now threatens to spread into France and Italy. What will those two countries do but the same thing? The banks will be recapitalised at all costs and who will pay? French working people will pay through more austerity, economic contraction and suffering. Italy and France will not be able to pay their debts and the holders of their bonds will be faced with the same crisis six months down the line. When will someone shout "Stop the madness"? The answer is obvious and every sane and sensible commentator agrees on it. Despite this, the Government continues to live in cloud cuckoo land and tries to suggest to members of the public that we can insulate ourselves from the current problems because there has been a small number of tiny improvements in the books in a small number of export related areas and we will all be saved by export led growth. To which countries will we export when the European economy hits recession and contracts, as it is starting to do? We will not have anyone to export to, certainly not at a level that would pull us out of a recession while austerity destroys the domestic economy. Let us tell the truth and strike out in a different direction. Let us stop the austerity and the bank bailout and do what the Greek people are doing, namely, fighting on behalf of society and for fairness and pointing towards a fair way out of the economic crisis.

Photo of Shane RossShane Ross (Dublin South, Independent)
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The Greek people are on the streets today, Italy's credit rating has been downgraded and there is a threat of further downgrades. Deputy Boyd Barrett is absolutely right. In the meantime, this Chamber is given one and a half hours to discuss an issue which has rapidly become totally out of hand. I do not have time to indulge in a critique of Government policy. Will the Minister, based on his perception of the situation and his meetings with Ecofin Ministers in recent days, indicate if any crisis management mechanism is in place in Europe because I do not see any substantial procedures or structure for tackling the incredible problem facing the Continent?

While I will not argue that it his entirely his fault, the Minister has again returned from Europe empty-handed. Moreover, the Greeks have been told again they will have to wait and, once more, no decision has been made. This is very alarming given that daily events are getting out of hand.

I note the German Chancellor, Ms Angela Merkel, stated today that €200 billion may be required almost immediately to recapitalise the banks. Neither the Commission or anyone else appears to have a plan indicating from where this money will come. Deputy Boyd Barrett is correct that it will come from the taxpayers of the nations which will have to pay and they will include us. While the spotlight has temporarily moved off Ireland because of developments in Dexia Bank, Italy and Greece, there is no cause for congratulations as the problem of Greek, Portuguese and Irish debt remains. Although superficial figures suggest the economy will achieve growth this year and next year, Irish growth is threatened with destruction. As an IMF spokesman stated today, the Irish recovery, for what its worth, will be destroyed if there is another contraction in Europe. Such a contraction is taking place. Let us not congratulate ourselves because we are at the mercy of growth elsewhere.

I read in the Financial Times today a shocking and truly terrifying figure that half the sovereign debt in the eurozone is on credit risk. I do not wish to debate the Irish perspective tonight. I want to know whether, from a European perspective, any plans are being made for a write-down of debt across Europe, in particular, in Ireland, Greece and Portugal. Such a write-down will almost certainly take place. Will a default occur by accident or by design and plan?

Photo of Stephen DonnellyStephen Donnelly (Wicklow, Independent)
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Tomorrow I will address a conference of investment managers from the United Kingdom. When I asked them what issues they would particularly like to discuss, their first response was to ask me what economic reforms Ireland and its people are prepared to accept. This is a question the bankers, European Central Bank, bondholders and European leaders have been asking since September 2008. They believe the answer is that Ireland and its people will accept anything. Why do they believe that is the case?

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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The Deputy should ask the Fianna Fáil Party.

Photo of Stephen DonnellyStephen Donnelly (Wicklow, Independent)
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The reason is that we keep telling them we will accept anything. We have accepted a great deal thus far, including the entire liabilities of a failed banking system which amount to €100 billion in banking losses or €70,000 for every household. Until recently, we accepted interest rates on the so-called bailout which made small fortunes for the friends who were allegedly bailing us out. We also accepted the loss of our economic sovereignty. Other things we have all been asked to accept were that the Irish bailout would be the cheapest in history, the markets would never lend to us unless we repaid the bondholders and Anglo Irish Bank was somehow systemically important. Most important and of relevance to the forthcoming European meeting, we have been asked to accept that austerity, without any serious stimulus, write-down of debt or printing of money, will lead to our salvation. None of these things has turned out to be true. The truth is we are being pulverised by external commercial and political powers acting, understandably, in their own interests. Why? The reason is we keep doing exactly what they tell us to do before congratulating ourselves because they tell us we our great for doing as we have been told. This is what Fianna Fáil did and, unfortunately, it seems the current Government is continuing with its predecessor's policy. It is certainly what I am hearing in the Chamber.

We must tell the bondholders, European leaders and bankers that we are no longer willing to accept their conditions. Iceland did this and its approach is working. It has 6.5% unemployment compared to 14.5% here. That is the message I would like the Minister and Taoisach to take to the forthcoming European meetings.

7:00 pm

Photo of Mick WallaceMick Wallace (Wexford, Independent)
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We can accept at this stage that all is not well in Europe. We have the threat of a Greek default and the insolvency of the banks and now that Italy has entered the equation, the current problems have dramatically worsened. Austerity fatigue has set in both in Greece and elsewhere and will probably come to a town near all of us. Bailout fatigue has emerged in Germany and growth is slowing because austerity is killing it. While I accept that not everything wrong in Europe is the Minister's fault and it would be unfair to blame him for everything, the Government needs to take a new approach. It is time to challenge current thinking in Europe. The failure of austerity will be accepted eventually and the European Union will change tack. Unsecured bondholders will not continue to be paid because the sums do not add up. Most people accept that, regardless of what form it takes, Greece will default.

One need not be a mathematician to see it is impossible for that country to pay its debts. It would be wonderful if our country was the first to stand up and say this is not the way forward. It is difficult because we are a minor player but we would gain much respect for doing that.

Our next payment on an unsecured bondholding is €700 million. Let us keep that for ourselves and spend it on the domestic economy, investing it in our own society. After the Great Depression in the 1930s and the problems Europeans had after the Second World War, the attitude was different. John Maynard Keynes's philosophy was to restore economies and save societies. It worked. There was 3% growth from 1936 until 1971, when we invented neoliberalism. Average world growth has only been 1.9% since then.

I find it hard to credit that the markets and the neoliberals are being allowed to dictate how we think about all of this because they have been proved inefficient. I refer to one section of an article yesterday by Fintan O'Toole on how people coped in the post-Depression years. He states: "Crucially, it focused very heavily on the human and social consequences of the crisis. Its primary insight was that you can't save an economy by destroying a society. Jobs, housing, pensions, healthcare and education were at the very heart of the response to the crisis, not as the areas to be attacked but as the springboards for recovery."

Photo of Clare DalyClare Daly (Dublin North, Socialist Party)
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It must be a bizarre feeling for the Minister to attend eurozone meetings and come out with a fanfare, thinking that matters have been worked out finally, only to find the crisis getting worse. Everyone knows now what the reality is across Europe. The actions of the eurozone leaders are making the situation worse. The establishment is attempting to exploit that crisis because the only show in town is austerity.

I will deal briefly with the signing yesterday of the six pack governance measures by the European Parliament. The Minister's introduction in that regard was a very sanitised version of what is being opened up. What was done yesterday was the institutionalising of austerity and the neoliberal agenda across Europe. I am amazed this has shown up so little on the radar for the media because it is a substantial step in the direction of fiscal unity. I would like the Minister to deal with some of these points.

This deal centralises power into the hands of an unelected European Commission and effectively sets up a scoreboard of austerity. If one does not meet the grade, one is liable for substantial fines. There is the spectre of budgetary surveillance whereby draft budgets will have to be submitted in advance to the European Commission and Council before national parliaments get to see them. How can that be in the interests of the people? With the strengthening of the Stability and Growth Pact, countries that breach targets will now be subjected to fines of hundreds of millions of euro. Countries in trouble will be penalised even further, but that is not all. The extension of that deal and enforcement measures will include other mainstream economic measures such as wage and fiscal policies.

The eurozone leaders are proclaiming, therefore, that this is not only about dealing with deficits but is about liberalising markets and attacking public services, a regime the Minister's Government seems to be happy enough to implement. There is now the spectre that if even a mildly social democratic government should decide to raise taxes to stimulate a bit of economic growth, it will be subject to fines. It is a ludicrous situation. To facilitate that process the European Parliament has moved to a very undemocratic system of voting, a reverse qualified majority. In this instance the Council is presumed to agree with sanctions unless a qualified majority votes against it. This is a very serious situation for weaker countries.

I put it to the Minister that the real reason these dictatorial anti-democratic measures are being signed off and attempts made to implement them is that the establishment is not confident that national governments will be able to impose austerity. They should be worried. Today's strike in Greece, the call for a further general strike there later this month and the movements in Portugal in recent days demonstrate that the people will not accept paying the bill for the misdeeds of others. There is a point when people will say enough is enough.

Photo of Seán BarrettSeán Barrett (Dún Laoghaire, Ceann Comhairle)
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We must conclude this item by 7.30 p.m. We will begin with a round of questions to the Minister followed by his replies. I call Deputy Michael McGrath and ask for questions only, not statements.

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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This issue is coming to a head very quickly because Greece will run out of cash by mid-November. What is the Government's position? What does the Minister advocate on behalf of the Government when he sits around a table in Europe to discuss Greece? Can Greece be allowed to fail? Should it get the next tranche of money no matter what, or only if it meets the targets set out in the first bailout deal, through which it is still working?

What is the Government's position on Greek debt and related private creditor involvement? Is it the Government's view that the voluntary 21% rate needs to be increased? Is that a matter we are advocating in Europe?

The IMF stated today that bank recapitalisation across Europe might cost between €100 billion and €200 billion. What is the Government's view on that and how it is to be funded?

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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I thank the Deputy for his questions and his earlier contribution and I thank all Deputies for their interesting contributions.

When people ask what we are going to do about Greece they are asking the wrong question. The question is what are our colleagues in Europe going to do about the eurozone. If one tries to answer that question, the Greek situation falls into place. In Europe I have advocated that the first step should be that those banks which have been identified as being weak in the round of stress testing should be recapitalised immediately, within the coming weeks. There is no need for new stress testing because all the evidence is present. The second step that should be taken is building a firewall to prevent contagion effects across the Community in order that, when the Greek situation is resolved, there are preventative measures in place to ensure that Greece stays within the Union and the eurozone but that countries such as Ireland, which has very little contact with Greece, either on the markets or through our banks, should not suffer a knock-on effect. As the Deputy noted, we were downgraded to junk status. This was not because of anything that was happening in Ireland but because of the knock-on effect of what was happening elsewhere in Europe. One can look at the actual evaluation which shows this.

The third point is to sort out Greece. The current position is that the troika is in Athens, working with the Greek authorities to see if they can meet their fiscal targets. It looks as if they will not make those for 2011 because it is too late in the year. No matter what one does with three months to go, it is unlikely one will make very sharp corrections when one is not hitting the targets. The authorities seem to be concentrating on the fiscal targets for 2012. Greece has sufficient money to pay its bills into November and the European Union is not in a position to disburse moneys to Greece until the troika returns with a positive report.

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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What if it does not do that? The Greeks will run out of money.

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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Everyone is conscious of the situation and it is my view these things will not be allowed to happen. The Greek situation will get sorted. The next step after that must be changes in governance. Deputy Clare Daly referred to the debate in the European Parliament. The debate on the six pack regulations went on for some years, with the French Government holding matters up. Finally a compromise was negotiated by the Polish Presidency and this went through the Parliament. The Deputy will be able to have his say in the House. These are proposed legislative changes and we will be obliged to deal with them in the Chamber. In that context, there will be a full debate on the matter in due course.

The issue of governance must be addressed. It is vitally important that if this crisis is finally resolved, matters cannot be allowed to slip because we would be faced with another drama in two years time. If it is going to be fixed, it had better be fixed properly. The governance arrangements must be put in place. As I stated in the House on previous occasions, the key problem is that the euro - which was a great idea - was put in place 12 years ago, but the policy instruments to protect it in times of adversity were never introduced. These instruments are now being retrofitted. This process has been taking place for the past year or so, but there is more to be done. Part of the process to which I refer relates to the new governance system for the eurozone and the wider group of 27 member states. That is the fourth step in what needs to be done. There must then be a policy to grow the European economies.

In the 12 years since the euro was founded the level of trade in Europe has grown by 50%. During that period inflation has remained below 2%. The currency was established at a rate of €1 to $1.17. Up to two weeks ago it was trading at $1.43 or $1.44 and in recent days it has been trading in the $1.20 to $1.30 range. However, it is still above the value it held at its point of establishment. It is obviously responding to the stress being felt. This is the basis of the agenda I am pushing in Europe.

I wish to revert to the point made to the effect that we got lucky on the interest rate. If Deputies wish to see my position on the interest rate, it was published in the Financial Times in January this year, well before the general election. At that point I stated our policy was to move the interest rate down to that which applied to the balance of payments fund in Europe, of which Romania and some other countries outside the eurozone are beneficiaries. The latter fund has no margin attaching to it and when I checked the position on the most recent disbursement at the time, I discovered that money had been given at a rate of 3.3%. The position I have outlined is one I have consistently maintained. When I became Minister in March, I argued in Europe that there should be no margin in respect of the money being made available to us and that it was counterproductive to be charging us margins because we could not be rescued if the interest rate applying was 6%. It does not make economic sense to charge 6% on money, unless the growth rate is going to be 6.5% or 7%. Even then, it would only be possible to break even. There is a relationship between what a country can pay on its interest rate and its actual rate of growth.

We have dealt with this matter and I am pushing the agenda to which I referred on the basis that Ireland is one of 27 member states. There are many whose thinking on this matter is similar to mine. Matters are rapidly coming to a head and a solution will emerge in the next three weeks or so. I am not trying to talk down the crisis. There is a serious crisis in the eurozone. To centre that crisis on Greece is merely to focus it on one country which has paid a very heavy price. The crisis is within the eurozone. This can be seen from the way pressure has moved from Greece to Italy to Spain to the French banking system and so on. The crisis must be dealt with quickly and the Deputy is correct to state time is running out.

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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The Government got lucky on the interest rate. There is a litany of replies to parliamentary questions and statements made in the House which referred to a rate of 1% and then the acceptance of one of 0.6%. The Minister may have argued in favour of a cost of borrowing, but he got lucky. The reduction in the interest rate did not come about as a result of his negotiating skills; it happened because of the contagion effect, particularly as it relates to Italy and Spain.

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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That is begrudgery.

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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The interest rate reduction is welcome and we welcomed it on the day it was announced.

The Minister has said a great deal, but I am still at a loss. Does he see himself as an equal-----

Photo of Seán BarrettSeán Barrett (Dún Laoghaire, Ceann Comhairle)
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The Deputy should put a question.

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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I am asking a question. Does the Minister see himself as an equal partner in ECOFIN? Has he, for example, outlined the four steps he believes we should take in order to resolve the crisis in the eurozone? He continually comes before the House and refers to resolving the Greek crisis and outlines the Government's agenda to ensure there will be no negative impact on Ireland. I would like him to state that if there is a debt write-down in Greece, this must be extended to Ireland. I want him to indicate to ECOFIN, which he attends as an equal, that he will accept no less than a debt write-down for Ireland if such a write-down occurs in Greece.

Photo of Seán BarrettSeán Barrett (Dún Laoghaire, Ceann Comhairle)
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I ask that the Deputy put a question because other Members are offering. We are obliged to conclude at 7.30 p.m.

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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That is the question.

My second question relates to the bank stress tests. The Minister has stated there is no need for any new stress tests. Is he of the view that the stress tests carried out in June were credible? In recent days there have been problems involving Dexia Bank and a number of French banks have been downgraded since the stress tests were carried out. Does the Minister believe the stress tests uncovered all the losses within the banks?

My final point relates to Greece. Does the Minister genuinely believe Greece can get out of the mess it is in? He hinted to Deputy Michael McGrath that the Greeks would not be left without money. However, he and his comrades in Europe continue to refer to the need for the Government of Greece to impose austerity measures. Does he genuinely believe there is a need for a debt write-down in that country?

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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A debt write-down has been negotiated in Greece. This is voluntary in nature and it was negotiated by the authorities with the banks which had lent money to Greece. It is worth approximately 21% of the country's debt and in quantitative terms the write-down will be in the region of €24 billion over a significant period. As stated, the write-down was voluntary and while it was a credit event, it was not deemed by the rating agencies as a default. There has not been a Greek default and I do not expect there to be one. I do not believe there should be a similar write-down in Ireland because that is the last thing we need in the current circumstances. Greece will be protected from the worst elements of what is taking place. As I indicated to Deputy Michael McGrath, it is late in the day and there are only weeks left, but action is being taken. That is how matters stand and the situation is not easy for anybody.

The Deputy has asked if we see ourselves as being equal with our European partners. Of course, we do. We have never had the inferiority complex displayed by certain other parties in the House. Ireland is equal to all the other sovereign states in Europe.

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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What is the position on recapitalisation and the stress tests?

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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While I disagree with the conclusions reached, if one considers the relevant data, it is obvious that sufficient funds are available in order to recapitalise those European banks which require it. I do not agree with the conclusion reached at the time that only four or five banks required recapitalisation. If one considers the data in the context of where the line was drawn, one will see that it was stated every institution with tier 1 capital below a certain percentage was okay. The line was drawn too low. The relevant data are available. The IMF stated €200 billion would be required for recapitalisation. I do not know if that will prove to be the case, but it is my view that well in excess of €100 billion will be required. Perhaps the eventual figure will be somewhere between these two amounts.

Photo of Thomas PringleThomas Pringle (Donegal South West, Independent)
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By the time there is private sector involvement in the writing down of debt, we will have no private debt left. All of our debts will be with the ECB and the European Union and we will not be able to avail of a debt write-down.

I wish to put two questions to the Minister. Deputy Clare Daly referred to the six pack of measures. In the next six to eight weeks the IMF, the European Union and the ECB will be drafting the budget and the Minister will come before the House on 7 December to deliver it. Will he outline, in plain English, what will be the impact of the six pack of measures? Will they represent a continuation of the process whereby our budgets will have to be read line by line by the European Commission and agreed in advance before being delivered? What will be the outworking of what is involved? I accept that we will be debating this matter at a later date, but it is important to state today the position on it.

The Minister has stated the European Commission has agreed to increase the scope of the EFSF-ESM. What does this mean in the context of the contribution Ireland will be required to make to the ESM? We will be obliged to borrow €12 billion from the IMF and the ECB in order to make this contribution. Will what is envisaged mean an increase in the level of our contribution?

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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A full debate took place in the European Parliament on the six pack of measures to which Deputy Clare Daly referred. This House will also engage in a full debate on them.

I would be here through Private Members' time if I outlined it in detail. In general terms it is the development of the stability and growth pact with the right to intervene earlier in the budgetary process. There are also sanctions at the end for countries that do not stay within the terms of the pact. It is an agreement freely entered into by the nations of the eurozone, with a new set of rules for countries participating in the eurozone. There are also other elements, such as early warning systems, if the European authorities believe there is a property bubble in a country like Ireland. If the new rules existed three or four years ago there would have been intervention and an indication that the property bubble would get us into dreadful trouble.

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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They gave us the cheap credit.

Photo of Richard Boyd BarrettRichard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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There would have been another few bob gambled.

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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There will be a full debate on it. We are not contributing to the European Financial Stability Facility, EFSF, because we are one of the programme countries. Subject to verification of the figures, the contribution to the European Financial Stabilisation Mechanism, EFSM, is 1.75% of the total fund. That is paid over five years. I slightly overstated the figure, it is actually 1.592% of the total.

Photo of Gerry AdamsGerry Adams (Louth, Sinn Fein)
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The Minister should have gone to Specsavers.

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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Ireland's share of the €80 billion of paid-in capital would be just above €1.275 billion, to be paid in five equal instalments of approximately €254 million each, beginning in July 2013.

Photo of Stephen DonnellyStephen Donnelly (Wicklow, Independent)
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Understandably, there is much talk about sovereign debt and whether we can repay it. I saw some data yesterday dealing with our total external liabilities and comparing them to a bunch of other eurozone and EU countries. Our total external liabilities are a factor of 17 times higher than GDP. It was interesting that the next nearest country had liabilities of a factor of six times higher than GDP. Taking our total quantum of debt, including commercial, national and private debt, we are completely on our own and nobody is near us, including Greece, Portugal and the UK. It is entirely unsustainable.

As a result, I have been advocating over the past few weeks and months for quantitative easing, and the Minister expressed tacit approval for the measure. What concrete actions are being taken by the Taoiseach, Minister or other members of the Government to push a policy of increased quantitative easing as one of the policy solutions to the current crisis?

Photo of Luke FlanaganLuke Flanagan (Roscommon-South Leitrim, Independent)
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With various EU referenda through the years, anybody in opposition would have acted because the changes would lead us to a European super-state. Such people were labelled lunatics and told that would never happen but it is happening now.. Is the Minister in favour of a European super-state and the end of the Republic of Ireland as it has been? That is what will happen. What is the point in us being here if people in Europe will decide our budgets, whether a person can dig a drain and if people can smile? What will be next? Will we all have to wear tags in our ears because if we refuse, we will not get the money? Where does this end?

Photo of Richard Boyd BarrettRichard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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Will the Minister explain his remarkable comment that there should not be a write-down of our debt burden? Is it not a fact that being a good boy in the class and submitting to the austerity poison being inflicted on us to pay back bankers' debt has not worked? This can be contrasted to the resistance of the Greek people, where there is a 21% write-down in their debts, with talk of further haircuts on the debt. That is because the Greek people are fighting back and the Government is finding it difficult to impose austerity. The people are out on the streets and the result is a write-down on the debt. The lesson is that all the bankers' gambling debts are to be paid if one is the best boy in the class and does what he is told but there is some write-down if the people get on the streets, fight and stand up to these dictators in the European Central Bank, the EU and the IMF.

Photo of Seán BarrettSeán Barrett (Dún Laoghaire, Ceann Comhairle)
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Thank you for being the good boy in the class.

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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With regard to quantitative easing, if the issue is raised privately rather than publicly with central bank authorities in Europe, they will indicate there is no debate and it is not done. The argument is that one of the biggest problems in Europe now is too much liquidity, and as I noted in my preliminary remarks, one of the solutions is to de-leverage and take the liquidity from the system. It would be reasonable to argue that excess European liquidity triggered the Irish property bubble because on the wholesale market it was possible to access money at very low interest rates. The banks, such as Anglo Irish Bank, sucked in money on the inter-bank market and used it for speculative purposes. The process was fuelled in such a fashion.

I understand the Deputy's comments and there must be a solution at some point where Europe must grow again. It will need resources to do so and that must be part of the solution.

Photo of Stephen DonnellyStephen Donnelly (Wicklow, Independent)
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Does the Minister support quantitative easing as a policy?

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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There is a reasonable economics-based argument to be made for it but I am giving the Deputy the European Central Bank's position. All the advocacy in the world will not move that position currently. In the UK there will be a third or fourth tranche of quantitative easing shortly and it is being considered in Washington DC as well. Europe has been awash with liquidity so throwing more petrol on the fire may not be the solution.

I do not support a European super-state but I support a European currency that would be properly managed. To run a currency across the nations of Europe-----

Photo of Luke FlanaganLuke Flanagan (Roscommon-South Leitrim, Independent)
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There must be a super-state.

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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-----there must be rules of the game. We are where we are because the rules were not put in place when the currency was implemented.

Photo of Luke FlanaganLuke Flanagan (Roscommon-South Leitrim, Independent)
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It would be nice to have a say in the rules.

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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With regard to going around with tags in our ears, I would be a reactor in that case. With regard to Deputy Boyd Barrett's comments, we will see if the Greek prescription works. If he wants to apply the Greek prescription to Ireland, he can go on the street, burn down the bank, hurt and kill a few people.

Photo of Richard Boyd BarrettRichard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I would not kill people.

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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Suddenly there is a solution and the Deputy believes everybody will roll over and cancel debts. Everybody will live happily ever after. The plan does not appear to be working out in Greece so I would not like to take the Greek formula and prescribe it for Ireland.

Photo of Richard Boyd BarrettRichard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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Why did the Greeks get a write-down?

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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In the finance committee the Minister responded to a question on fiscal integration by saying he would support greater fiscal integration. He mentioned how he would like that and the six pack of measures are on the table. What other measures would the Minister like to see with regard to greater fiscal integration and will any of those require a treaty change? For example, last night British Prime Minister Cameron indicated there would be a need for a treaty and referendum in Britain because of necessary changes down the line. What does the Minister support with regard to further fiscal integration and where is the cut-off line?

Photo of Mick WallaceMick Wallace (Wexford, Independent)
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Does the Minister agree the goal posts have moved slightly in Europe over the past while, particularly as the Italians, who owe €1.9 trillion, have come into the equation? I built out there for years and remember going into a hardware store that turned over €50 million per year. The first question I was asked was if I wanted to pay VAT or if I wanted an invoice. Does the Minister believe that no unsecured bondholders will be unpaid in the next two years?

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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We are going beyond the terms of the debate. We will have the debate on the six pack when legislation is introduced.

Photo of Clare DalyClare Daly (Dublin North, Socialist Party)
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When?

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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The fiscal responsibility Bill will be in the House before Christmas, so we can kick it off on that. I think we will need a cup of coffee to discuss the proposition about VAT.