Michael Noonan (Limerick City, Fine Gael) | Oireachtas source

I thank all contributors to the debate. I have received some notes from my officials and I will go down through them. It was obviously a very constructive debate, which underlines the importance of the Fiscal Responsibility Bill. The Bill will implement the key provisions of the stability treaty, as voted for by the people. As Senator Reilly said, there might not have been any mass movement on the streets for this type of legislation but when it was put to the people there was a very strong majority in favour of it. It is therefore not true to say that there is not public support for this measure. We believe that the proposed rules are sensible, prudent and represent a sensible approach to budgeting.

A number of issues have been raised, while various proposals and queries have been put to me. I would like to respond to them in due course. Some of the responses will be more appropriate on Committee Stage but I will give an initial response now.

I welcome the support of Senator Darragh O'Brien and his party for the Bill. I also welcome the support of Senator Barrett and his comments on the Bill. Senator Darragh O'Brien raised the issue of the recapitalisation of the banks. With regard to the comments about a solution to our banking debt, discussions are ongoing between Ireland, the ECB and other members of the troika.

We will see how that works out. I cannot be expected to negotiate over the airwaves or in public, but talks are ongoing.

Ireland is subject to an excessive deficit procedure decision requiring us to reduce our headline deficit to below 3% by 2015. We are in line to do so and will continue with budgetary policies to get us to that position. When we emerge from the programme we will be required to comply with the adjustment path towards our medium-term objective and, as such, we will be subject to the budgetary rule. The fiscal council examined this recently, suggesting that based on current information and a number of technical economic assumptions, including tight expenditure control, Ireland may reach its medium-term objective as early as 2019. However, caution must be taken with this forecast and as highlighted by the fiscal council in its report, there is great uncertainty about the structural position so far into the future.

I thank Senator Michael D'Arcy for his support and excellent speech, in which he spoke about the "exceptional circumstances" reference in the Bill. As outlined in the interpretations section of the Bill, "exceptional circumstances" refer to a period where an unusual event occurs that is outside the control of the State and which has a major impact on the financial position of the general government. This phrase can also refer to any unusual economic circumstances, such as those in which we currently find ourselves. It is further specified that exceptional circumstances must be defined within the meaning of the Stability and Growth Pact to ensure we are complying with the essence of the pact.

In the event of a case of exceptional circumstances, we will set out the position to the European Commission in our stability programme update and our case will take full account of the assessments of the fiscal council under section 8(3)(a) as to whether exceptional circumstances exist. The process that follows is that the Commission, in its assessment of our stability programme update, decides whether exceptional circumstances exist and ultimately includes a recommendation to ECOFIN, the final arbiters of whether the case comes within the definition of "exceptional circumstances". In essence, we work towards a definition and send a report if we believe there are exceptional circumstances. The Commission evaluates this and makes a recommendation to ECOFIN, which has the final decision. If it finds in our favour and decides that exceptional circumstances exist, we get a reprieve from the terms of the Bill for the period in which exceptional circumstances prevail.

Beyond that explanation it is extremely difficult to provide a clear and unambiguous definition of the phrase. We know exceptional circumstances when they arrive but we are not always in a position to describe them in advance. There is enough in the Bill and process to ensure that a result in favour of the country would be achieved if we get into that kind of difficulty. Rather than creating a definition that would be inconsistent with the treaty definition, the best course of action is to follow closely the definition provided in the treaty.

Senator Gilroy asked about the fiscal council reports and where the responsibility for action on the reports lies. The reports and recommendations of the council are a matter for the Government to consider and I have undertaken to provide comprehensive responses to the reports. I should also point out that the Government is required to comply with or explain if it disagrees with the council's assessments on exceptional circumstances and the need to deploy the correction mechanism and adherence to a correction plan.

Other Senators also raised this issue. Representatives of the fiscal council have gone before the Oireachtas finance committees and participated in full discussions. The council is not accountable to the Houses of the Oireachtas because it is independent in the exercise of its functions but there is no reluctance to come before committees of the House, particularly the finance committee, for an exchange of views and to be subject to scrutiny.

The council does not have an executive function. If the fiscal council produces a report which in its independent state indicates that the Government's forecasts are totally off the rails and the budgetary strategy is incorrect, it would not take very long for the Opposition to hold the Government to account. It has independent input to public and Oireachtas debate, and that gives the council its authority. It does not have any executive function in implementing the recommendations, as they are considered by the Government.

There has been much debate about the structural deficit calculation. This must be done on the basis of a harmonised methodology agreed by member states. This is not ideal for small open economies like Ireland but we can and do contribute to the revision of the methodology. As the process develops, the Irish input is being taken into account and we may get to a point where there is a more refined definition of structural deficit. It is an issue that is hard to measure but very often the fact that there is a structural deficit is the base position for dealing with it. I accept that definition is difficult in that area.

Senator Reilly's views mirror the arguments put forward by her party during the fiscal stability treaty referendum campaign. It was the party's entitlement to oppose the referendum on the fiscal stability treaty but circumstances have now changed; the people considered all the arguments and supported the treaty. As I have indicated, the purpose of the Bill is to implement the stability treaty. I suggest to the Senator that her party is now positioning itself to hold out against the express will of the people and, in effect, to talk down to a very significant majority of the people on the insistence that Sinn Féin knows better.

The Senator also mentioned a point made by her colleague in the other House that the remit of the fiscal council is quite narrow and that it should have a wider mandate to take in social and economic issues. The council has been set up for a specific job and has been given the resources to focus on it. It is not the only organisation to proffer advice to the Government and the public. For example, the Economic and Social Research Institute and the National Economic and Social Council report at considerable length with considerable frequency on all aspects of policy development, assessing social and economic impacts of policies put in place by the Government. We do not need to duplicate processes by widening the remit of the fiscal council.

Some comments seem to indicate confusion about the debt rule. I remind Senators that the debt rule specifies that when the level of general government debt exceeds 60% of GDP, the Government must reduce debt by one twentieth of the difference between the level and 60%. It is not one twentieth of the whole debt, as I indicated in my original speech. If the debt is 100% of GDP, the calculation is done on 40%, taking 2% off each year. It is a straightforward concept.

I acknowledge Senator Barrett's comments on fiscal responsibility in general, particularly the Fiscal Responsibility (Statement) Bill 2011. On the single supervisory mechanism, a clear timetable was set out at the October European Council by the Heads of State and Government. It was decided that the legislative proposal to establish this would be dealt with as a priority no later than 1 January 2013. The single supervisory mechanism will come into operation during the course of 2013. The European Central Bank has suggested that the implementation of the supervisory rule could take between six and 12 months. Some progress has been made and the Commission published a paper in that respect. In simple rather than legalistic terms, the legal mandate to regulate would be vested in the European Central Bank.

The bank will have the legal competence and then it will directly regulate some of the large international banks. However, it will decentralise the function to the local supervisory authorities in respect of many other banks with the division to be decided as the process develops.

It is not possible to say all the banks in Ireland should be regulated from Dame Street and all the small banks in Spain should be regulated from Madrid and, therefore, a rule book has to be put in place that will apply common rules across the banking industry with a legal mandate from Frankfurt. There are approximately 6,000 banks altogether and that rule book will have to be supported by instruction manuals for the local regulators and by protocols. All that work is being done in advance of the single supervisory authority being put in place.

The other decision which is likely to be made - because in the political debate it is clear what politicians are thinking - is that there must be no spillover between the two functions of the ECB. In other words, the bank's function as the monetary authority must be kept entirely separate from its function as the supervisory authority. It will not be a case of Chinese walls; the ECB will have to have a totally different set of functions, legal mandates and personnel in order that there is not a spillover and that in the course of supervision of banks there is not a transgression of the monetary rules in easing the difficulties in banks.

I thank all Senators for their contributions. We will have a reasonably lengthy Committee Stage, to which I look forward.