Brian Hayes (Dublin South West, Fine Gael)

I heard the Senator's remarks yesterday on Second Stage. He basically put forward the proposition that the better way of doing it is for the direct recapitalisation of the banking system through the European authorities. I do not fundamentally disagree. I would wish that to be the case. The Taoiseach made a remark that appeared this morning on the front page of The Irish Times agreeing with Senator Cullinane as well. We all agree with that but others do not agree with us on the issue.

One could ask what are the two key objectives we face at the moment in their broadest terms. First, we must get back to the markets if they can lend to us at reasonable rates. Otherwise we have access to rates of interest of a little less than 3%, which is not a bad situation in which to be in the circumstances, for a programme country. Our No. 1 objective is to get back to the markets. The No. 2 objective is to get money back into our banks so at some point in the future we can sell off the shares we own and thereby get money back for the Irish taxpayer. Senator Cullinane has put forward a view, which is shared by many, that the recapitalisation of the banks should occur from the centre. Many of us agree with him on that but that is not where we are at the moment. Of course I wish it were different but that is not the case.

Until such a time as the Germans, the Finns, the Dutch and the Austrians change their view on this issue, we are where we are.

The Senator said we were putting €11 billion into the fund. As I said yesterday in my reply to the points he made - I am not sure whether he was here at the time - what we are putting in at the moment is €1.27 billion in tranches of €254 million, two this year, two next year and one in the first six months of 2014. Our €1.2 billion is a small percentage of the overall €80 billion which the member states that have agreed to the treaty will put into the capital fund. That money is then leveraged for private sector borrowings across the world. The €80 billion is never touched; it is the essential leverage upon which borrowings can be made for this new fund.

I made the point yesterday that we could describe this as some kind of gigantic credit union in which, in order to obtain funds, one must have money on deposit. The Senator is right in saying this rule did not apply in the previous European stability mechanism. One could make the case that this is part of the commitment that all member states make as a firewall to protect the euro and also to protect individual member states that may need to access the fund from time to time. The €9.4 billion which makes up part of the €11 billion can technically be called upon, but there is no anticipation that it will be called upon, given the fact that the €80 billion will be provided by all member states together. We contribute our share of that. As I said yesterday, when 90% of it is in place, the fund comes into being. Progress is being made towards the ratification of the treaty across Europe.

Do we continue to work for a better pan-European solution? Yes, we do. Do we believe that requires far greater integration of our financial system? Yes, we do. Do we believe that ultimately what is required on bank recapitalisation is a much stronger resolve to shore up the banks rather than putting all of that debt on the sovereign? Yes, we do. Is that going to happen in the future? I cannot answer that question, as I am sure the Senator cannot, despite the fact that we might wish it to happen. I want to be honest. We need to deal with this as we see it. As I said yesterday in my reply to Second Stage, the entire objective of the last six months of last year was a firewall to support the euro. This is it, effectively. This is the support that underlies our currency.

We will continue to negotiate as best we can. If there are substantial changes to the ESM treaty, it will require primary legislation in this and the other House. No one can preclude that possibility for the future. However, in terms of where we are at the moment, it is important that this firewall is in place, not just for the euro but also for us. The reason is the difficult situation we face in terms of our national finances. In addition, the fund is important for us not only because it would allow us to obtain money if we did not return to the markets at the end of next year - which is the firm resolve and ambition of the Government - but also because it sends a strong signal to the international money markets that Ireland has this support behind it, which it has signed up for by adopting the treaty. That in itself is the kind of support that the private markets want to see. Were that not there, one could argue that the cost of Irish money would spiral even further. This is an important backstop of support behind our programme and behind our ambition to get us back to the money markets. That is why we think it is important to ratify the treaty.