Paschal Donohoe (Fine Gael)

I thank the Minister of State for attending this debate. I agree with the point made by Senator Boyle. This appears to be a situation of huge gravity and it is important that this debate take place. We should examine what is taking place in the Greek economy and the implications overall for the eurozone.

The nub of the issue is that governments bailed out the banks. One can quibble with the language but governments played a huge role in supporting and stabilising the cost of bank failure. As a result, they have incurred or are incurring debt on their balance sheets owing to dealing with a recession that was induced by the failure of the banks. The question now is: who will bail out the governments? We are seeing a movement of risk and uncertainty of debt from the balance sheets of banks to the balance sheets of elected governments.

Consider the level of debt with which the various European economies are dealing. I looked at some of the statistics when preparing for this debate. The Greek level of national debt stands at nearly eight times its gross domestic product. The level of debt in the eurozone is five times its gross domestic product; the US debt is more than five times its gross domestic product. The levels of debt are getting larger and the markets are looking to the governments to ascertain whether they have confidence that they will be able to sell that debt over time and, second, reduce the level of debt which they are asking the markets to finance.

Some of my colleagues in the House have mentioned the role and responsibility of Greece in this situation. That is a vital point, but there are broader questions to be asked regarding the composition and future of European monetary union. These are very grave questions, to which we must provide answers. Economic and Monetary Union, EMU, has two pillars which I can discern. The first is the credibility and strength of the euro. The second which is required to make the euro work is that the fiscal performance of the governments that form the eurozone must be healthy.

Overall, the health of the European economy is dependent on how national governments perform. It is apparent that we have monetary union, but we obviously do not have political union. Different governments can choose different routes in terms of how they wish to manage their taxation, spending and so forth. However, they are making these decisions within the environment of a single currency and single exchange rate. That tension was shielded or managed by the fact that for most of its history the eurozone enjoyed and caused in many cases unprecedented levels of economic growth. However, now that those levels of economic growth are receding, that tension is becoming increasingly apparent. Huge questions have been asked about the stability of monetary union, but this is the first example of these questions being put to governments.

I am a supporter and firm advocate of the need for a single currency and Economic and Monetary Union. My point is that huge questions about how that actually operates did not have to be answered previously because the European economy was doing so well. The German, French and other economies were leading the way and doing the heavy lifting for other economies that did not need to confront major questions regarding their fiscal stability. Three crucial questions must be answered. I do not have the answers and I should not have because they are so big. First, if any government or group of governments plays a role in providing a bailout for the Greek economy, to what degree will that undermine the long-term stability of monetary union and the euro, as opposed to helping it? The issue of moral hazard which we have discussed repeatedly with regard to banks arises with regard to a country.

Second, in an era of normal economic growth or recession, how can we maintain monetary union with the current levels of political integration? The declaration that emerged from the G20 summit spoke about the need for increased peer pressure to be applied to various countries to review the performance of their economies. However, it appears we will have to deal with a bigger question in this regard. If a national government decides to take steps that could potentially undermine the health of monetary union and the broader European economy, will we continue to give it the latitude to do so? That is a huge question which must be teased out. In effect, we could reach a point where the actions of another government will, as Senator Boyle said, drive up the interest rates we are paying on our debt. Let us say a plan is developed for Greece. Does that mean we must have a plan for every other economy that could face this problem? As we help one economy after another, who will pay for this?

These are the three big questions that must be answered. I will conclude with two brief points relating to what I think might form the components of the answers. The first is that Ireland's plans must be credible and supported by everybody. The Opposition has a role to play in that regard. Second, economies that have the ability to drive their domestic demand such as Germany should be acting to do so. If these economies can reflate, it will allow the export performances of other countries to pick up. That is desperately needed, if for nothing else than to help the balance sheets of the countries we are discussing.