Michael D'Arcy (Fine Gael) | Oireachtas source

I welcome the Minister for Finance back to the Seanad. When I was reviewing my notes on the European Stability Mechanism Bill 2012, much of what the Minister had predicted he could do after the establishment of the European Stability Mechanism, ESM, following the fiscal treaty and agreements at home and abroad, he had done, all to the satisfaction of the taxpayer. He is to be commended for this.

The significant issue of the fiscal treaty and the 2012 legislation was breaking the link between sovereign debt and the banks. Unfortunately, internationally banks operate in a cyclical way. When there is an economic downturn or recession, they tend to operate in an appropriate manner. Then the dogs of war in the banking sector are unleashed and they start to operate inappropriately again. They have done this for hundreds of years. I hope the checks and balances in the systems will hold the dogs of war off for as long as possible.

The DRI, direct recapitalisation instrument, is the important tool of this legislation which was not available when the banking catastrophe occurred, landing a bill of €64 billion on taxpayers’ shoulders. This legislation is a continuation of the 2012 Act. The Single Resolution Mechanism, SRM, and the accompanying Single Resolution Fund, SRF, are the construction blocks of a system of recapitalisation of banks which may be strategic importance to a country and ensure it will not fall on the taxpayer to pay for it. It is welcome to see the two mechanisms being mutualised, that Latvia has entered the eurozone and the spreading of the burden. The initial paid-in capital for the ESM is €80 billion, with a call on a further €620 billion.

Senator Darragh O’Brien pointed to several important aspects of the Bill. The 2012 Act was concluded by the time in 2012 June of the communiqué from eurozone leaders on the possible retrospective recapitalisation of the Irish banks. At the time, the Taoiseach and the Minister for Finance were trying to get the best deal for the country. Bank of Ireland has since repaid all of the moneys it received from the State to preserve its liquidity ratios, but we still own 15% of the bank. I do not see how the ESM can be used to recapitalise retrospectively this bank when we have got the money back. If we sell AIB, are we out of the game? Is there a mechanism by which the ESM can take over the bank?

The bigger question relates to IBRC, Irish Bank Resolution Corporation, formerly Anglo Irish Bank and the Irish Nationwide Building Society.

The Minister and his team secured substantial benefits for the taxpayer in the deal liquidating IBRC. They included agreement on extending the period of Ireland's loans and a reduction in the interest rate applied to the loans. This had a major impact on Exchequer cashflow.

While I am not someone who wants to have his cake and to eat it, I query the extent to which we may lose out on recapitalisation from the European Stability Mechanism? Fairness is required because taxpayers took the initial hit and it was a significant blow. While we are now on the road to recovery, we did not know that during the early period which was characterised by incredible uncertainty. I remember receiving a briefing from the Department of Finance shortly after this Seanad was convened. I was shocked to learn where we could end up and that we have not ended up in that position is thanks to the work of the Minister and his Department as well as improvements in relations between the State and international bodies.

I have spoken about the retrospective recapitalisation of the banks. I assume any countries that join the European Union will also participate in the European Stability Mechanism. The ESM was established with a fund of €700 billion. If other countries with large financial sectors join the eurozone, will this €700 billion be adequate? If not, will additional moneys be provided. I note Latvia is adopting the same approach as Ireland in that it will provide a certain amount in equity over a five-year period and give a commitment that will be for a callable amount. I assume if other countries with large financial sectors join the European Stability Mechanism, the funding available to the ESM will have to increase. Would this require the introduction of further legislation? I note the Minister is nodding.

Reading the notes provides a wake-up call in terms of how far we have come. It is amazing how quickly people, including political representatives in both Houses, have forgotten from where we have come, especially in the context of where we are today. Much of this progress is due to the careful handling of matters by the Minister.