Michael Noonan (Limerick City, Fine Gael)
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It is like coming to the cinema long ago, the big picture was first and we are back to the cartoons now, with no offence to Deputy Michael McGrath. We will do out best.

I welcome the opportunity to discuss the latest developments in the euro area and, in particular, to update Dáil Éireann on the outcome of last week's euro area summit. To improve the functioning of monetary union will require national parliaments to increasingly take into account the euro area dimension in their day-to-day business. Therefore, today's statements on recent euro area developments are both timely and appropriate. As everyone in the House is aware, the euro area sovereign debt crisis has been ongoing for almost two years now. However, the crisis has moved up a gear in recent months, especially since the summer. While the euro area does not have a monopoly on public debt problems, unfortunately the region has been the focus of constant market attention.

Since it is often overlooked, it is worthwhile pointing out that EU policy has responded well since the crisis began. Among other things, I am referring to the establishment of crisis resolution mechanisms, the European Financial Stability Facility, EFSF, and the European Stability Mechanism, ESM, to help vulnerable member states. It has also brought forward an improved governance structure and the new European semester. Notwithstanding these important developments, the perception remained that policymakers were behind the curve and had not fully grasped the scale of the problem. However, a quantum leap forward was taken last Wednesday in the form of the comprehensive, integrated strategy, although the situation remains fragile, as is evidenced by the markets' reaction to the announcement by the Greek authorities to hold a referendum on the strategy. Nevertheless, the co-ordinated approach clearly demonstrates that the EU can unite and work in the interests of all. This shows that the European Union is strong and can make significant decisions and progress that, not so long ago, would have been seen as almost unthinkable. We can all take encouragement from this.

I wish to outline the key elements of the comprehensive strategy before outlining what I envisage to be the main implications for Ireland. The need to put the Greek public finances on a sustainable path was of paramount importance. The agreed approach, which involves appropriate burden-sharing between the private and official sectors, seeks to reduce the stock of Greek public debt to 120% of GDP by the end of the decade. To achieve this, the banking sector has agreed to shoulder some of the burden through participation in a voluntary 50% write-down of its holdings of Greek government paper. If Greek debt was reduced to 120% of GDP by 2021 it is unlikely that it would get back into the markets, but under the sustainability profile drawn up by the IMF and the European authorities, this is the most benign scenario. The outlying malign scenario is that the Greeks would not arrive at 120% of GDP until 2027. Let us imagine an austerity programme stretching from 2011 to 2027 - a further 16 years of it. This underlines how deep Greece is in crisis and why the Government there is under such pressure at the moment.

Euro area leaders also agreed to fund a new EU-IMF programme for Greece that will be put in place by the end of the year. The amount of funds from the official sector will be approximately €100 billion. The Greek authorities will also contribute to reaching the debt target through ongoing fiscal consolidation, privatisation and structural reforms.

The Greek situation is a key part of the current difficulties and a credible solution is in all of our interests, including those of us in Ireland. It is inevitable that the involvement of the private sector in resolving the Greek situation has led to similar demands here. Nevertheless I emphasise, as the Taoiseach has done already, that the restructuring of its public debt will be no panacea for Greece. In fact, the harsh austerity measures and the conditions affecting the sovereignty of Greece which must complement the new adjustment programme will have serious implications for the living standards of the Greek people for the foreseeable future. This was underlined in the quotation from the letter of the Greek Prime Minister, Mr. Papandreou which the Taoiseach has put on the record. These austerity measures and other conditions are a great deal more severe than anything that we in Ireland have experienced or will experience. This fact is ignored by those who call for a default in Ireland. That is not the way forward, it is the way over the cliff and towards a total crisis.

In addition, there is the crucial issue of reputational damage. To renege on our commitments would have major adverse implications for our international reputation and could seriously harm our prospects of attracting inward foreign direct investment and trading our way to recovery. This brings up a final critical difference between the two economies in this regard that relates to the importance of international trade. In Greece, exports amount to the equivalent of 20% of its GDP, whereas the figure is more than 100% of GDP in Ireland. Any move towards a structured or unstructured default may have severe negative consequences for the exports that drive our economy and for its long-term health. Equally, any reneging on our commitments would necessitate eliminating the primary budget deficit almost immediately. In other words, it would be disastrous and the effects would be felt by every man, woman and child in this country.

I am keen to be absolutely clear in this regard: the Government will not go down that road. The Government is acutely aware of the great burden that has been placed on Irish citizens but our strategy is growth, not default. We aim to promote growth by working to try to improve the terms and conditions of banking-related debt, in agreement with our external funding partners, in order to reduce the overall burden of debt.

We have already done a great deal to renegotiate the programme agreed by the last Government. As I have stated previously, the Government is renegotiating the programme in phases. The first phase of the renegotiation involved the restoration of the minimum wage to what it was before the Government reduced it. The agreement contained other measures as well. We secured an extra year for the readjustment and it is now up to 2015 rather than 2014. We are allowed to bring down the VAT rate from 13.5% to 9% with a particular focus on the tourist industry. Everyone agrees that this impacted on tourist numbers during the summer months. We will continue to promote the tourism industry. At the Heads of Government meeting in July, the Taoiseach finally completed our renegotiation of the interest rate. The effect of the interest rate renegotiation will involve €10 billion off the debt during the period of the loans.