Brian Hayes (Dublin South West, Fine Gael)

Before I outline the purpose and contents of the Bill, I thank the Seanad for agreeing to discuss it today. I look forward to a constructive debate on the legislation and the ESM treaty. Although a short Bill, it is of critical importance to the public finances and to our country. Enactment of the Bill is required to allow Ireland to ratify the ESM treaty which was signed by euro area member states subject to ratification on the 2 February 2012.

With regard to recent developments, Ireland has made significant progress in implementation of its EU-IMF programme of financial support. Our programme is on track, we have met all of our commitments and exceeded many while completing more than 100 actions to date and we are on track to reduce our deficit to less than 3% of GDP in 2015. We have also negotiated a number of improvements to the programme since taking office, including the reduction in the interest rate, reversal of the minimum wage cut, the jobs initiative, the deferral of the promissory note payment and, most recent, the agreement to reinvest at least 50% of the proceeds from the sale of State assets into viable projects. However, we all know significant external challenges remain.

The Government believes the recent positive vote to approve the ratification of the stability treaty reflects a desire on the part of the people to take another step on the road towards economic recovery. The stability treaty will not solve all Ireland's problems but it is one of the many foundation blocks we need to put in place to ensure our economy will stand on the ground for the future. The people of Ireland have recognised the importance of restoring confidence in a stable euro and ensuring Ireland has the assurance of access to EU funds under the ESM treaty, should this be required. They also recognise the importance of good housekeeping for our economy. We cannot continue to spend more than we raise in taxes, thereby increasing our debt and draining the resources intended for stimulating economic growth, job creation and public services. In order to service our spiralling debt, we must manage our economy and debt. Ratifying the stability treaty would demonstrate a commitment to doing just that.

More broadly, the economy needs an effective resolution to the eurozone crisis as the crisis has weighed on economic growth over the past year. The crisis has been the principal reason for all forecasters to revise downwards our economic growth forecasts, and their assessment of our ability to return to market-based funding. In striving to meet the growth challenge for Europe, the Government is convinced that it will not have finished its work until what has become the major source of the loss of confidence in the eurozone, namely, the crisis in the banking sector, is addressed. Too many banks in Europe are responding to the crisis by tightening credit conditions for enterprise, thus damaging investment and job creation. As Senators will be aware, the European Council is to meet later this week. Developing a credible growth strategy agenda for Europe will be the foremost item for discussion. We will participate proactively in that discussion to agree a credible solution.

Turning to the ESM, the Government believes the availability to Ireland of credible funding backup, as provided by the ESM treaty, will be very important in respect of market re-entry and leaving the EU-IMF programme of support. Enacting this legislation and ratifying the treaty will ensure that Ireland will have access to this funding safety net if its efforts to re-access the markets are delayed in any way and it needs to resort to further assistance.

The effective lending capacity of the ESM will be €500 billion. Following the euro group meeting held on 20 March last, it was decided that the EFSF would remain active until July 2013. The ESM will be the main instrument to finance new programmes from July 2012. The EFSF will, as a rule, remain active only in financing programmes that have started before that date. For a transitional period until 2013, the EFSF will engage in new programmes in order to ensure full, fresh lending capacity of €500 billion for the ESM. After 2013, the EFSF will continue in an administrative capacity until all outstanding bonds have been repaid. In this context, there is provision that the ESM may assume the rights and responsibilities of the EFSF. Such an event would not, however, affect the existing terms and conditions of our EFSF loans.

Turning to the ESM treaty and its provisions, the treaty set out in the schedule to this Bill was signed by euro area member states on 2 February 2012. The original version of the treaty was signed on 11 July 2011 but was subsequently modified to incorporate decisions taken by the euro area Heads of State or Government on 21 July and 9 December 2011 aimed at improving the effectiveness of the mechanism.

The ESM will perform the same activities as the European Financial Stability Framework, which it is to replace, namely: issue bonds or other debt instruments on the market to raise the funds needed to provide loans to countries in financial difficulties; intervene in the primary and secondary debt markets; act on the basis of a precautionary programme; and finance recapitalisations of financial institutions through loans to Governments, including in non-programme countries.

All financial assistance to member states will be provided under appropriate conditionality, appropriate to the financial instrument chosen. The ESM will use an appropriate funding strategy so as to ensure access to broad funding sources and enable it to extend financial assistance packages to member states under all market conditions.

As Senators will be aware, there has been considerable attention on the challenges facing the banking sector in Europe in recent weeks. There are increasing calls for the ESM's tools to be extended to allow the ESM directly recapitalise systemically important financial institutions rather than recapitalisation through loans to ESM members for the purpose of recapitalising its financial institutions, thereby not adding to national debt by separating sovereign and banking debt.

As well as aggravating the financial crisis, the insistence to date that taxpayers in each member state must stand behind the entire liabilities of banks regulated in their jurisdiction has damaged the Single Market. The solution, in the Government's view, is to accelerate moves to develop a joint response to the banking crisis in Europe. It is important from here on in that we avoid the mistake of allowing bank crises in individual countries develop into sovereign crises in those countries and beyond, by way of contagion. Ireland has painful experience of that approach. It is not the best way to help recovery. What we need, as we stated before, during and after the election of last year, is a pan-European political solution to this banking crisis.

Europe badly needs a success story as it seeks to recover. Ireland can provide that success story if the correct framework is put in place. We will continue to monitor closely developments in Spain and elsewhere and we will seek a solution that works for Ireland - that assists our economic and financial recovery to ensure that Ireland's bank debt is made more sustainable.

I want to make it abundantly clear, as has the Minister for Finance, that if the terms and conditions change in respect of any of the programmes for applicant countries concerning bank recapitalisation, we will demand as of right that those terms and conditions be made retrospective in respect of our situation. If the terms and conditions improve for other countries, they must improve for this country. The Minister for Finance, as late as last week and in the previous conference call of eurozone Ministers on the previous Saturday week, made that perfectly clear to colleagues across the eurozone and the European Union.

The ESM treaty will enter into force as of the date when instruments of ratification, approval or acceptance have been deposited by signatories whose initial subscriptions represent no less than 90% of the total subscriptions set out in the treaty. To date, France, Greece and Slovenia have ratified the ESM treaty and the remaining euro area member states are on track for ratification and the coming into force of the ESM by 9 July.

The ESM treaty provides that the granting of financial assistance in the framework of new programmes under the ESM will be conditional, as of 1 March 2013, on the ratification of the stability treaty by the ESM member concerned and on implementation of the balanced budget rule as specified in the stability treaty within the agreed timeline which is one year after entry into force of the latter. The stability treaty contains a mirroring provision relating to the grant of assistance under the ESM.

As Senators will also be aware, the linkage of both the ESM and the stability treaty refers to new applications for assistance under the ESM and will not affect the transfer to the ESM of undisbursed amounts under the EFSF to Ireland and other programme countries. Thus, while the ESM will replace the EFSF and may assume the rights and obligations of the EFSF, this will not affect the terms and conditions of any amounts consequently transferred to the ESM and subsequently disbursed to Ireland.

To put this in straightforward terms, the terms and conditions applicable to Ireland under the EFSF will continue to apply once the funds transfer to the ESM.

To obtain the highest possible credit rating the capital structure of the ESM will have total subscribed capital of €700 billion, of which €80 billion will be in the form of paid-in capital by the euro area member states to be paid in five equal instalments from July 2012. The balance of €620 billion will be callable capital. The contribution key for each member state is set out in Annex 1 of the treaty and based on the European Central Bank capital contribution key. For Ireland, the key is 1.592% of the total paid and committed capital. Ireland's share of the €80 billion in paid-in capital, based on the contribution key, will be slightly above €1.27 billion. We will pay this into the ESM in five equal instalments of €254 million. The total contribution will be paid before the end of the first six months of 2014. Unlike the EFSF, there is no "stepping out facility" in the ESM when members enter a programme of support. Every ESM member must, therefore, contribute its paid-in capital.

The ESM will fund any programme through borrowing on the financial markets and lending the funding to programme countries. The capital base, both paid in and callable, provides the backup for the borrowing. The capital base is not used to directly lend to programme countries. The €80 billion sum will be used as leverage to obtain moneys on the money markets which can then be used for the disbursement of funds to successful applicant countries.

The ESM is being established as an intergovernmental organisation under public international law. Ireland's contribution will be treated as a financial transaction. This means that while it will impact on Ireland's Exchequer borrowing requirement, it will not impact on the general Government deficit. Ireland's share of the €620 billion callable capital is based on the same key, that is, 1.592% of €620 billion, making the callable capital €9.87 billion, which will be accounted for as a contingent Iiability on the State.

Following the decision of the euro group on 30 March, the paid-in capital will be made available more quickly than initially foreseen in the original ESM treaty. Two tranches of capital will be paid in 2012, the first in July and the second by October, with another two tranches to be paid in 2013 and a final tranche to be paid in the first half of 2014. In line with the ESM treaty, the payment of the capital will be further accelerated, if needed, to maintain a 15% ratio between the paid-in capital and the outstanding amount of ESM issuances. Any decision to change the authorised capital stock of the ESM will require a unanimous decision of the ESM's board of governors. The Minister for Finance, Deputy Michael Noonan, will be governor for Ireland at the board - I am sure he loves that title - and will serve to ensure Ireland's interests are represented.

The purpose of the European Stability Mechanism Bill 2012 is to further facilitate, in the public interest, the financial stability of the European Union by establishing a permanent stability mechanism to assume the tasks of the EFSF and the EFSM in providing, where needed, financial assistance for euro area member states. For the information of Senators, I have provided a brief note on each of the sections which we can discuss in greater detail on Committee and Report Stages.

I look forward to a constructive debate on the Bill. This is a time for unity among euro area countries to ensure financial stability in the euro area. The purpose of the Bill is to facilitate the stability of the European Union and the safeguarding of the euro area as a whole. Ireland must play its part as it is in its interests and those of the eurozone. For this reason, I urge Senators to support the Bill.

I acknowledge the positive comments that had been made by the Leader of the Opposition and others who have agreed to fast-track the legislation and to take it in the manner set out for today and tomorrow. We appreciate the co-operation and support which is very much in the national interest.