Thursday, 20 May 2010
Euro Area Loan Facility Bill 2010: Second Stage
I am pleased to be in the Seanad today to introduce the Euro Area Loan Facility Bill. We are introducing this legislation to enable Ireland to play its part, along with all other euro area countries, in providing financial support to Greece. Our assistance, in the form of repayable loans, will be centrally channelled through the European Commission as part of an agreed euro area package in conjunction with the International Monetary Fund. It is important to make it abundantly clear that this assistance comes with strong conditions attached.
The multilateral loan facility represents only part of a package of decisive measures designed to restore financial market confidence and project a resolute signal that governments will take all the necessary measures to protect the integrity of both the euro area economy and the euro currency. As my colleague, the Minister for Finance, Deputy Lenihan, reiterated in the Dáil the other day, this support is designed to safeguard the fundamental financial stability of the single currency area. I feel we will all agree that this is an essential prerequisite to securing our economic recovery. In common with other euro area member states, we in Ireland can be relied upon to show meaningful solidarity with our partners in these turbulent times.
The current situation arises because our Greek partners can no longer access borrowing at sustainable rates on the international bond markets. The authorities there have requested support from other euro area member states and the IMF. In response to the ongoing difficulties of the Greek authorities, the Heads of State and Government of the euro area made commitments in February and March of this year reaffirming their willingness to take determined and co-ordinated action, if needed, to safeguard financial stability in the euro area as a whole. On foot of these commitments, the euro area finance ministers agreed on 11 April the terms of financial support to be given to Greece. This was to be implemented through bilateral loans centrally pooled by the European Commission as part of an agreed euro area package, with co-financing to come from the IMF.
On 14 April the Government approved Ireland's participation in the Greek financial support programme and agreed to the preparation of the necessary legislation to permit the provision of assistance. On 23 April 2010, Greece formally applied for the activation of the euro area support mechanism. At their subsequent meeting on 2 May 2010, euro group ministers agreed with the assessment of the European Commission and the European Central Bank that Greece's ability to access funding on bond markets was insufficient and that the provision of a loan to safeguard the financial stability of the euro area was warranted. The euro group ministers unanimously agreed to activate stability support to Greece through bilateral loans to be centrally pooled by the European Commission. This will comprise an overall aid package of €110 billion over a three-year period, of which €30 billion will be funded by the IMF. This financial support will mean Greece will not need to rely upon the sovereign debt markets for a period of time and can securely access funding.
The Government has approved ratification of the agreement, which will enable Ireland's participation along with other euro area states in providing this assistance, and has now introduced the draft enabling legislation we are discussing. On 7 May, the Taoiseach attended a meeting of the Heads of State and Government of the euro area at which the loan facility for Greece was endorsed. The Taoiseach confirmed Ireland's participation in this joint loan facility subject to enactment of our legislation. At the same time the Minister for Finance signed the inter-creditor agreement which will govern our contribution to the euro area response. All these steps are subject to the enactment of our domestic legislation.
On 8 May, the European Commission signed on behalf of euro area member states the loan facility agreement setting out the key terms and conditions of the agreement with Greece. While the first disbursement under this facility is imminent, Ireland will contribute to later tranches once we are in a position to do so. Obviously, that can only happen once all our national procedures are completed. Today is a key part of this process.
The Bill we are discussing will provide a legislative basis for Ireland's contribution to the agreed euro area financial support for Greece. In summary, the main proposals contained in the Euro Area Loan Facility Bill are intended to provide for Ireland's participation in the euro area loan facility to Greece, subject to the terms of the loan documentation, payments to be made from the Central Fund in respect of Ireland's share of the euro area funding, with such payments to be based on our paid ECB capital key of 1.64% and subject to an overall limit of €1.5 billion, the receipt into the Exchequer of interest payments and repayment of principal amounts of the loan funding and any related receipts, and the laying before Dáil Éireann of annual reports on expenditure and receipts to Ireland under the loan facility.
In legislative terms, this is a relatively clear-cut Bill containing six sections. Section 1 provides detail on the definitions of the various technical terms contained within the Bill, section 2 provides for payments from the Central Fund subject to the terms of the inter-creditor and loan facility agreements which are appended in Schedules 1 and 2 to the Bill, section 3 provides for the crediting of the Exchequer with moneys received on behalf of the State in connection with the loan facility, section 4 provides for annual reports on payments made and received to be laid before Dáil Éireann, and sections 5 and 6 cover, respectively, expenses incurred in the administration of the Act and its Short Title.
I will explain the agreements and the related memorandum of understanding, the latter of which, while not part of this Bill, was placed in the Oireachtas Library on 17 May. Schedule 1 is the Inter-Creditor Agreement which the Minister, Deputy Brian Lenihan, signed on behalf of the State on 7 May. It provides that the European Commission will act on behalf of the euro area member states in the management and administration of the pooled bilateral loans for Greece, with the ECB acting as paying agent. It comes into effect once the European Commission receives a commitment confirmation from a critical mass of at least five member states and two thirds of the total commitment amount.
Schedule 2 of the loan facility agreement between the euro area member states and Greece sets out all of the key details relating to the terms and conditions of the loan. The European Commission has been entrusted by the member states to coordinate and manage the pooled bilateral loans to Greece.
The memorandum of understanding sets out the policy considerations required of Greece. As I have already said, it has been laid before the House.
Briefly, the MoU contains three elements: first, the memorandum of understanding on specific economic policy conditionality specifies detailed economic policy measures that will serve as benchmarks for assessing policy performance in the context of the quarterly reviews under the assistance programme; second, the memorandum of economic and financial policies outlines the economic and financial policies that the Greek Government and the Bank of Greece will implement during the remainder of 2010 and in the period 2011 to 2014 to strengthen market confidence in Greece's fiscal and financial position; and third, the technical memorandum of understanding sets out the definitions surrounding the performance criteria and various target indicators. It also describes the methods to be used in assessing programme performance and the various information requirements to ensure adequate monitoring of the targets.
Ongoing compliance by Greece with the terms of the MoU will be a centrepiece for the draw-down of disbursement of the loan facility.
I turn to the conditions being placed on the Greek authorities as part of this programme. Since the beginning of the year, the Greek Government has shown its determination to address its fiscal challenges. The Greek Prime Minister has reiterated the total commitment of his Government to the full implementation of these vital reforms.
I wish to outline briefly to Senators the measures our Greek partners have to implement. As part of the proposed support package and loan agreements Greece has entered into stringent commitments to undertake fiscal consolidation measures, implement structural reforms and apply financial stability measures. The cornerstone of the Greek authorities' programme will be budget cuts aimed at reducing the deficit to below 3% of GDP by 2014. In cash terms this represents public spending cuts of €30 billion over this budgetary horizon. Moreover, in order to reduce their debt-to-GDP ratio, Greece will have to maintain a primary surplus on their budget of at least 5% for the next decade.
Greece will be the subject of continuous appraisal by the European Commission, the International Monetary Fund, IMF, and the European Central Bank, ECB, to measure its progress towards achieving these obligations and this will form part condition of further loan disbursements. We must be clear that there are no easy shortcuts in the context of restoring sustainability to the exchequer finances, either here or elsewhere among our EU partners.
The Bill will entail a large financial commitment in the form of repayable loans to Greece. It is important to provide reassurance to Senators that our financial support package will be repaid as the economic position in Greece improves. It is also important to note that central to the overall support package is the commitment that member states' funding costs are to be met in full. In summary, we will not be financially disadvantaged by these arrangements. Furthermore, while our debt level will rise as a result of this extra borrowing, the financial assistance we provide will not impact upon our general Government deficit, as it is classified as a financial transaction.
A further safeguard underpinning the entire process is that, if any euro area member state should encounter higher funding costs than those charged to Greece, there are provisions for these additional funding costs to be recouped.
We have reassurance from EU level on these important elements of the financial support programme. Commissioner Rehn has stated that there will be no loss to eurozone taxpayers throughout the process from the provision of this loan facility. In addition, from a budgetary perspective, these arrangements will be taken into account by the Commission in its fiscal surveillance procedures.
Based on the euro area contribution of €80 billion, Ireland's share of the contribution, which is based on the ECB paid capital, will be just less than 1.64%. Payments will be made on a phased basis and, as such, there is a likelihood that there might be some front-loading of our overall contribution. In overall terms our contribution to the euro area loan facility is anticipated to be about €1.3 billion. However, in order to allow scope for internal rebalancing within the loan facility, the text of the Bill provides for a precautionary upper limit of up to €1.5 billion.
The overall financial support agreement allows for a loan facility to Greece for the next three years while the component loans cannot exceed a term of five years. When all the funds have been paid back to the participating member states the mechanism will cease to exist.
I now want to mention the decision of the ECOFIN Ministers to establish a European financial stabilisation mechanism, based on Article 122.2 of the Treaty, and ratification of an intergovernmental agreement. This is being set up to support financially member states in difficulties caused by exceptional circumstances beyond their control such as those being experienced by Greece. It is likely that this, too, will also require domestic enabling legislation.
As Senators will be aware, this mechanism was devised in the context of a perceived background risk of contagion from Greece to other member states and can be rapidly mobilised as necessary. The activation of these moneys will be subject to strong conditionality. Already €60 billion has been made available from the EU budget. Supplementing this, members of the euro area have agreed to stand ready to complement these EU resources with an additional €440 billion, in conjunction with further financing by the IMF. The IMF will make available further funding in the region of €220 to €250 billion. This euro area and IMF support will be channelled through a special purpose vehicle to be set up shortly.
Experts mandated by the Eurogroup Working Group have started the preparatory work for setting up the facility as a matter of the highest priority and are evaluating the best technical options for the set-up of such facility within a short delay. Member states are in the process of preparing the necessary legal arrangements for their participation to the SPV.
This vehicle will make loans/provide credit lines to cover financing needs of member states in difficulty. It will be funded through bond issuances on the market, under the guarantee of participating euro-area member states, in accordance with their ECB capital participation key. Loans will be provided on terms and conditions similar to those of the IMF.
The governance arrangements of the European financial stabilisation mechanism, in particular relating to a possible activation of support, will be similar to those of the Greek case. The Commission will play a coordinating role in the set up of the mechanism and in the definition and monitoring of programme conditionality.
I want to also outline other measures being considered at European level. At their meeting on 9 May, ECOFIN Ministers also reiterated their commitment to ensure fiscal sustainability and enhanced economic growth in all member states. It was agreed that, where warranted, plans for fiscal consolidation and structural reforms will be accelerated across the full eurozone.
To advance this objective, last week the European Commission brought forward various reform proposals to reinforce economic coordination, including ones to ensure the budgetary policies of member states do not undermine the economic and financial stability of the euro area. These will form the basis for further discussion in conjunction with the task force, which is being chaired by EU President Van Rompuy. The first meeting of this task force will be on Friday, 21 May and the Minister, Deputy Brian Lenihan, has indicated he will attend.
We must be clear, however, that these proposals mark the beginning of discussions on these issues. It does not mean, as some have suggested, any loss of Irish sovereignty but is designed to assist the member states be better prepared for any future economic crises. Like most Commission documents, it is designed to float ideas and stimulate debate. Any policy proposals arising from it will have to be ultimately agreed by the member states.
Other initiatives decided upon by the Council relate to regulatory and supervisory reform of financial markets, including the derivative markets, and examining the role of ratings agencies. Work is continuing on other proposals including the possible introduction of a stability fee which will ensure the financial sector will in future pay its share in the event of another financial sector crisis.
Before concluding I wish to comment on our own economic prospects. It is appropriate to do so in the context of the commitment in this Bill to borrow an additional €1.3 billion having regard to the economic difficulties we are currently facing.
In Ireland we are only too well aware of the enormous challenges a small economy can face during difficult and turbulent economic times. However, there are welcome indications that we are beginning to turn the corner gradually. There is mounting evidence that economic conditions are stabilising. Recent economic data and a range of other indicators support this perspective. Consumer sentiment is strengthening and we see clear evidence of increased activity in the motor trade and retail sales sectors. Government policy measures in the last budget have helped restore confidence. In addition, industrial production data and other leading business indicators are also showing signs of improvement. In summary, the official view, as set out in last December's budget, that the economy would bottom out by mid-year and that positive growth would resume in the second half of this year, is being borne out. Most economic commentators now share this perspective. In fact, some are even more optimistic than that.
There are a number of key elements which underpin the Government's approach to addressing our economic challenges, namely, the restoration of stability to the public finances, the repair of the banking system and regaining our economic competitiveness. It goes without saying that all of these are inextricably linked to the return of economic confidence and are essential preconditions for an economic recovery.
Through implementing decisive expenditure control measures since mid-2008 to address the downturn in the public finances we have demonstrated our resolve to restore sustainability to the public finances and shown our ability to manage our budgetary and economic affairs in a prudent, credible manner. We remain committed to implementing our fiscal consolidation plan in order to bring the public spending deficit below 3% of the GDP Stability and Growth Pact threshold by the end of 2014. The evidence is clear. As the Government has already said, there are no easy answers and no quick fixes but we will continue to do the right thing.
The most recent set of Exchequer returns covering the period to the end of April were in line with expectations and show that the action taken by the Irish Government in managing the public finances is working. While challenges do remain in the context of implementing a €3 billion adjustment for next year's budget, our focus is to continue to improve confidence among households, the domestic business sector and the international investment community, through adhering to our consolidation plan. Recent developments such as those we are discussing highlight the importance of continuing to take firm and decisive action in this regard. It is fair to say that the difficult measures we have taken have been clearly vindicated. If we had not implemented these tough measures, we would now be in the unenviable position of having to take even harder measures to stabilise our economy than those now being put in place by our Greek partners.
I have outlined the background to this Bill. The decision we are now considering reflects the principles of solidarity and responsibility which lie at the core of monetary union membership. The support the euro area members states are prepared to give to Greece will benefit us all. I cannot stress enough that this is about the financial stability of the euro area and about European solidarity. In terms of the financial support package we are providing, I believe I have provided strong assurances to the House that the agreement provides that the funding costs will be fully covered. Here in Ireland, we are facing tough challenges and to succeed we must continue to pursue appropriate policies. Equally, the economic and budgetary issues we confront as a member of the euro area are vital to resolve. I look forward to an informed and constructive debate from Senators and commend the Bill to the House.
Everyone understands Ireland's role within the European Union and within the eurozone. That said, we are also very much responsible for our future. The money markets have little trust in the euro currently because it is a currency that is under significant pressure. The story of what has happened in Ireland in recent years indicates what has gone wrong and what should have been prevented. We have never been in this position before and are not working from a template we can understand. Comparisons have been made between where we are right now economically with where we were in the 1930s after the Great Depression. I suppose there are some similarities, such as problems with the banking sector, the global economy and massive debts. Not long ago, before the last election, we were talking about a €3 billion surplus in the economy, but in a short period of time we have gone to a budget deficit of €25 billion. I am sure the Minister remembers that in the days of the Celtic tiger, his party was first to take the credit for the successes of that era. There was no talk about the Tallaght strategy until we had well and truly landed ourselves in a serious crisis.
This legislation is necessary because it is essential to ensuring the eurozone area and currency do not collapse. If it requires this sort of measure to keep it going, we must play our part, despite that our own financial position is far from secure. We need to be more honest about how we will manage our finances. The Minister for Social Protection has spoken about cutting old age pensions. I do not know whether he is just flying a kite or whether this is something the Government plans for the next budget. We need honesty from Ministers with regard to the plans for the budget at a time when we are making the biggest per capita contribution to the Greek bailout. Our budget deficit is one of the highest in Europe but the Government does not appear to be showing any inclination to consider ways of dealing with our affairs with openness.
There has been significant criticism of Fine Gael because it objected to the fact our budget will be vetted by other parliamentarians before it is fully vetted in the Houses of the Oireachtas. There is a reason for that. We landed ourselves in the mess we are in because of our boom and bust economy where our budgets often did not reflect the reality of our position. Governments borrowed and spent without heeding the direction the economy was taking. The latest reports, published today, show our competitiveness has dropped again. We need to restore competitiveness as quickly as possible and restore jobs or we will be dragged down. The Government can begin to get us out of the mess by changing the mindset behind how budgets are delivered. We need more debate in the Oireachtas on budgets. We must move away from the one big day for the budget at the beginning of December and have better development of the multi-annual plans that have been happening over recent years. We need to broaden the discussion on our budgets and their provisions so that we can move away from our boom and bust system.
In one of today's newspapers, a well-known journalist pointed out that once former Taoiseach, Deputy Bertie Ahern, and the former Minister for Finance, Deputy Brian Cowen, had stoked up the construction boom and it took off, we were all on a roller coaster from which we would find it difficult to alight until it was derailed. It would have been difficult for Deputy Cowen to slow down the construction boom because he might lose an election as a result. It would have been difficult for him to rein in the banks to stop reckless lending because that would have had an effect on the economy. Despite the fact people were pointing out regularly at the time that we were borrowing up to €15 billion from our eurozone and European partners, mainly German banks, and that this was what comprised the growth in our economy, there was little said about the fact that this was unsustainable. That has been a contributory factor to our current position.
While the Bill before us is set up to deal with the Greek issue, we need to be more open and realistic about our home-grown issues. I have noticed that Government representatives are doing their best to highlight any sense that there are green shoots or that we are turning corners in the economy and I am aware the Government hopes growth will return by the end of the year. I, too, hope we have reached the bottom because we have been dropping significantly for too long. I do not know whether the Government is making the right choices. It must get rid of its mindset that only it knows and understands what is happening with the economy. We need to develop a more inclusive Parliament out of the crisis we are in. We need a different approach to how we deal with budgets. We need more discussion and more accelerated reform and transparency within the civil and public sectors because these account for such a large part of the economy and are of major significance to competitiveness and growth. We need to show we are seriously committed to this sort of change and to bringing it about more quickly.
Fixing our banking system has been very expensive for citizens, who will be paying for it for a significant number of years. We need to develop openness rapidly. Much of the anger in the community about the bailout for Greece is due to the lack of openness. People find it almost incredible that we are helping to bail out the Greeks. It is laughable that we are acting like big fellows, telling the Greeks we will give them €1.3 billion when the average person knows that we have the largest deficit within the eurozone, that we are borrowing €25 billion a year and have not got our own house in order. The Government needs to explain to people exactly what we are doing. It also needs to change the way it does business.
We need to be more open about how we do our business and about how the Government does business, especially the Cabinet, because few of the rest of us have any great say in how the country is run. The Dáil has been very much neutered over recent years in terms of the say it has in how the country is run. Decisions generally revert to Cabinet, but that must change. This change can take place if budgets are debated over a couple of months and if future strategies and plans are debated openly in the House so we will not land ourselves in a mess like the one we are in now.
The Government should consider including in the discussion everyone elected by the people to make these decisions on their behalf.
The benefits of the good times were undoubtedly squandered. Probably up to €100 billion just evaporated from the economy and we are now paying for this. NAMA is paying on behalf of the taxpayer. Individuals' houses have lost huge values, but they must still repay their loans. People and businesses have gone broke, while others are struggling to survive. Who knows where it will all end? There is only one thing worse than being negative about our future and that is giving false hope, which must be avoided. Last December the Minister for Finance, Deputy Brian Lenihan, spoke about how the country had turned a corner, while last June, on the day of the local elections, the Governor of the Central Bank said he could see green shoots in the economy. If people do not see things improving and are being given false hope, it can worsen the mood of the general public and consumer sentiment about where the country is going. We must spell out exactly what is the situation. We are still in dire straits. The Croke Park deal must be passed by all of the unions. If not, it will have a huge knock-on effect on our competitiveness. There must be increased transparency in government in order that the people can feel they are part of the decision making process and can buy into what is being done. We must also radically change the way we do business in order that it will be seen to be productive, useful and inclusive of everybody.
We have little choice but to support the Bill. However, a number of changes must be made in the coming months. The Government must take seriously the issue of creating a more inclusive government for the country because we are not yet out of the woods with regard to this difficult financial crisis. Things might be improving slightly, but the problems will be with us for years. We must take a new approach to the way we do things.
I welcome the Minister. We are fortunate that there is a contrast between the situation in Athens and Dublin. The Government in Dublin took action quickly. We saw the difficulties confronting us, took action immediately and promptly and were open and transparent in the way we did our business. That is reflected in how the economy is now in a position and seen as such by our European partners to be one of the partners that can help to bail out Greece.
The situation in Greece was different. First, Greece misrepresented its situation to the European Union when it applied to join the euro. It appears that borrowing was hidden and that the full extent of the problem with the drachma was not shown when it joined the currency. Second, there are inherent difficulties in the Greek economic system. It is a far more restricted economy, less mobile and less able to react to the difficulties within it. That is the reason it is so difficult for the Greek Government to achieve acceptance of the conditions and reforms necessary to get the country out of its difficulties. Then there are the hedge funds, to which I will return.
The situation in Greece is such that it appears the people who are rioting on the streets — there are a few I know — either do not understand the concept or deliberately do not wish to know. If the European Union and the IMF are providing the money for day-to-day spending, acting on the calls of "IMF Out" or "EU Out" would mean no pensions would be paid in Greece, as the economy would collapse. However, that is not the way the Greek Government has acted. It has acted responsibly and indicated a clear structure, whereby it will reduce its deficit of 13% in 2009 to 9% in 2010 and below 3% by 2012. That will require a great deal of hard work. The government has cut pensions and wages, removed restrictive practices and stopped extra bonus payments, early retirement at 45 years of age and the making of 14 monthly payments per year. This had to be done.
Everything done in Greece was probably done on the basis of growth rates. It appears that very few countries got it right; very few saw that it was not the big bang of freedom of capital that was the problem but its regulation. The Canadians perhaps show best what is and was necessary. Their banking and financial systems are very solid. We are getting there. Unfortunately, the regulation was not what it should have been, although, thankfully, it was not as bad in this country as in others. Ireland is now on the path to getting the economy right. That path to recovery means that we are anticipating growth this year and a 3% growth rate next year. Of course, that could change, but it could also change significantly for the better.
A big benefit was the fact that the man in charge of the US treasury, Mr. Ben Bernanke, absolutely understood the financial crash of the 1930s and avoided the restrictive trade that took place then. He avoided allowing banks to go broke, which would have created instability, uncertainty and fear in the market. Why not let some banks go broke? Lehman Brothers Holdings Inc. was allowed to go broke, but it represented only 4% of the American market. Anglo Irish Bank represents 50% of the Irish market.
The Government has made strong, stable and solid decisions. The proof of how solid and stable they were is that on two major occasions the major Opposition party supported them. Even recently we saw that the Labour Party would not support what was necessary. Previously, it would not support the bank guarantee. Party politics should never come into this situation. As the Opposition spokesperson in this House said, it is very important that the Croke Park agreement go through. It is important for the nation. No party should be allowed to sit on the fence and state: "We do not have an opinion on this because they have asked us not to get involved." The reality is that it is afraid of its electorate and afraid to make decisions. We are in politics to make decisions. In 1997 we did not know we would have so many years of growth and certainly did not know in 2007 that the situation would change so radically. However, one must face the situation as it presents itself. We will be judged ultimately not on enjoying the benefits or the losses in the bad times but on how we managed. I believe we have managed very well.
It is important that the Greek Government take a serious look at the measures taken in this country which I believe were taken fairly. From the outset the emphasis was on social solidarity. There has been little upheaval in this country, if one discounts the obvious attempts to create mischief at the gates of Leinster House. We have yet to find who was behind that mischief making. However, it was no more than that. It was a deliberate ploy to make waves and show there was instability in the country, which there is not. The public knows there is a request from the Government — that is all it can make — that everybody bears the burden according to his or her ability. We have made cuts. However, it is important that we are in this position because, other than the fact that we are saved the dreadful puns of being wary of Greeks bearing gifts which would have ensued if the Greeks were giving us the money, we are able to assist the Greek economy. Of course, that is something about which I am particularly pleased because if they follow the model we have implemented, ultimately it will benefit their economy. It shows that taking strong steps quickly is what will assist.
The Greeks have had a second problem. The second problem has been the betting and deliberate attempts to destroy the Greek economy by hedge funds. That is why I welcome the EU decision to regulate strongly hedge funds.
These hedge funds regard themselves as waiting lions on the savannah which, during natural selection, would take out the weak. The reality is these hedge funds are sometimes less than vultures. At least vultures wait for their prey to die before they attack.
These hedge funds have taken positions previously against currencies and against sovereign debt. In Argentina, for example, they bought up the sovereign debt at sometimes up to 20% of its write-down value and then brought the sovereign nation to court looking for full payment. They have done the same in Peru and they have done the same in Greece. It is quite straightforward. They buy up the debt, dump the debt on the market, create the impression of instability or use some riot or strike to give the impression that this will bring down the economy, drive down the price of the debt and then go in to buy it cheaply themselves. It is just short of economic terrorism and it is time it ended because it had a very serious effect on Greek bond sales, so much so that the Greeks refused to sell to mutual funds and to banks because some of those banks had acting hedge funds and instead went for insurance companies and sovereign debt. The Greek situation, bad and all as it was, was made much worse by speculation against the currency. The hedge funds would have speculated against Irish debt also using any excuse to imply we could not manage our debt.
Looking at the situation, of course, when one is dealing with reality one must take what people say. If an Opposition spokesperson states that €100 billion left the economy and just disappeared, that is arrant nonsense and it should not be allowed stand. First, it was suggested that it was the developers. Now we know from all the court cases that everything that the developers have, including part of their pension funds, is being taken from them, and that just does not run anymore.
Then it was the banks. The banks did make losses on the developers. However, the money that was in the Irish economy was given out. It was given out by the State in very low tax and in capital payments and it is clear that is what happened. Let somebody show me the truth of the amount of moneys that left the country because I do not believe it is there. There are losses and the reason was there was a property bubble, and that would have been managed were it not for the world collapse. However, the same people in those hedge funds I spoke about earlier were the very ones who sold the sub-prime lending and who, once the sub-prime lending hit Bear Stearns and Lehman Brothers, took positions against HBOS and Lloyds. At the very same time that they were responsible for the downturn, they were betting against solid banks and, of course, further exacerbating the problem.
In conclusion, we have faced difficulties but we faced up to our difficulties. I am glad we are in a position to support the Greeks. What they can learn from us is social solidarity, to move forward together. Let everybody see that there are no golden circles, that everybody who is responsible and everybody who is involved will pay equally. That is their way forward, the same as it is the way forward here.
I hope for a much brighter and better future. I expect we will get the growth rates. Of course, nobody knows what the future will bring but I suggest that within every fall is the inherent reason for recovery. If there is a major downturn in the world economies, all commodity prices fall, the price of labour falls and within a few years one will get recovery. The one thing we must never do is restrict trade and return to restrictive practices. We look forward with hope, recognising the considerable contribution that everybody is making to ensure that Ireland's economy is in a position to help the Greeks.
I must admit I was staggered when I first heard the news that we were volunteering to produce in one way or another, or certainly to put ourselves on the line for €1.3 billion. I really thought there was a certain degree of unreality about Ireland which, as Senator Twomey stated, has the largest deficit in Europe and is certainly the nation which has fallen the furthest in recent times, charging in to put itself on the line for €1.3 billion. It is, after all, over a third of what the Minister for Finance will be looking for in the budget. It is an enormous sum of money for a country which is as indebted as we are and in the sort of difficulties we face.
I could not quite understand the rationale for us doing it without reservations because there is an optimism about this particular package which assumes, as I noted in the speech of the Minister, Deputy Killeen, that Ireland "will not be financially disadvantaged by these arrangements". That is absolutely true, in terms of the interest rate we might be receiving for it. The circumstances in which we would be financially disadvantaged by these arrangements is if the Greeks do not pay us back, and that is not impossible.
Of course, the reasoning behind it is to be good Europeans and the word "solidarity" appears in the Minister's speech and in other speeches throughout the presentation of this Bill. However, one of the problems with this well-meaning measure is that there is a possibility the measures for conditionality to which the Minister refers cannot be implemented.
There is a kind of starry-eyed view of the IMF — it is contributing approximately €30 billion of this — as some sort of doomsday rescue agency which comes in, sets some very tough conditions and then the nation will be saved. In this case, there are tough conditions, some of which are being contributed by the IMF and some of which are being contributed by the nations in the form of guarantees. The assumption is that these conditions, having been accepted by the Greek Government because as a Government it has no option, will be implemented. I hope they are right but there are signs of civil disobedience on the streets of Greece, to which Senator Hanafin referred eloquently, and it may not be possible to implement the measures which have been agreed by the Governments.
There is civil unrest in Greek. It is not here, thank God. However, it is dangerous to assume the IMF has come in, the European nations have corralled Greece and we will get our money back. Let us hope it is true.
The Greek situation, both in terms of the economy and of political stability, is a matter of historical difficulty which we should take into account when we are giving money to this nation. It does not have the kind of political stability we have here. Senator Hanafin correctly pointed out that the marches that took place here in the past few weeks showed the lack of enthusiasm there is here for taking to the streets in a violent way that there may be in other countries. Greece is not Ireland. It is fair to say that the responsible reply that has been given by the trade union movement as well as others to many of the measures taken here by the Government is something we should be proud of and treasure, but not abuse. That is the first point I want to make.
My second point relates to setting up funds of this sort. This €110 billion, of which Ireland is contributing €1.3 billion, is a kind of safety net, not so much a fund. Often its like sets a target for the financial markets. We should note this is not just to save Greece but was followed by the setting up of a fund of €750 billion a few weeks later. That fund was set up for a similar but not identical reason — to save the euro. Whereas the economy, credibility and credit rating of Greece are under threat and it is an integral part of the euro economy, the euro itself came under threat within a couple of weeks and is still under threat. The reality is the fund set up with a nominal value of €750 billion to save the euro had very little effect. The euro fell very steeply because the markets regarded the fund as irrelevant. It is the largest fund of this sort ever set up but the markets took the view, and it was the same in Greece, that the economic fundamentals must be got right before any action of this sort is taken. For instance, a fund of €1 trillion could be set up and the speculators would take it on if the fundamentals were not right. This is the problem, not just for Greece but also for the rest of Europe, especially France, Portugal, Italy, Greece and Spain. Setting up any number of funds for the Club Med countries will not sort out the fundamental problem of their deficits, their property problems and whatever other fundamental economic problems exist in those countries. That is what has to happen. Whereas the Fine Gael Party took the view that it did not like the fact that the budgets of the European nations would have to be inspected, peeked at or looked at by the Commission in advance, it is going to be very difficult to defend the euro if the economies are not defended and the only way of defending the economies is by reducing their deficits.
We have to be honest about it that there are certain serial offenders in this category. That is why the PIGS countries are known as such. They are offenders in this category and they do not have the same discipline as some of the other countries. No one is a paragon of virtue, even Germany. Certainly, we and others have created such a record of economic profligacy that it is very difficult to justify us going ahead on our own without some checks and balance. Neither we nor Greece, Portugal, Italy or Spain will be able to look for help from Europe unless we impose those disciplines which we agreed to and which everyone breached in recent times. It is only right we should accept that these funds which are being set up, one for Greece and the other for Europe, are temporary at best and may actually be harmful in a certain way. The speculators to whom Senator Hanafin referred have decided to have a pop at the fund of €750 billion and question how long it will last. It is purely artificial and may give a feeling of security to those nations which will prevent them from or act as a disincentive to them to curing the fundamental economic problems they are suffering.
I would not say in any way, therefore, that this is going to cure the Greek problem. I think there are real difficulties ahead. I would not say in any way that setting up a fund of €750 billion is going to assist the euro in any meaningful way. The euro has gone down in value and is being attacked since that fund was set up. I have serious reservations about the fund, although I think the reasons it was set up are understandable, and measures taken in a hurry, which is the case when currencies are under threat, are difficult measures to take, as seen in the case of the bank guarantee and other such measures.
Ireland is not a particularly suitable country for lending borrowed money to someone else when it is in the sort of state it is in. It is a bit like the extraordinary suggestion that Anglo Irish Bank should rescue Seán Quinn, that a bankrupt bank, nationalised, backed and owned by a nation in trouble, should rescue a company in great trouble. The suggestion that this nation should rescue someone else is a case of the drowning rescuing the drowning, and that is not feasible in any long-term way. It is indicative of a way of thinking which is not realistic.
Rescuing the Greeks and others is testing the patience, not only of Ireland, where we have done well in rescuing ourselves and are held up as a form template which may not work but under which we have at least made an effort to cut public expenditure, but also of other nations which may get tired of rescuing the badly managed nations of Europe. No one would have missed what happened in France and Germany during this time. There is a real danger that if we keep bailing out nations who get into trouble, break the rules or tell lies about their figures, the paymasters of Europe, the Germans, will get fed up.
It looks perfectly clear that Angela Merkel is sick and tired of some of these Club Med countries. Everyone knows that she was the hard-liner on this issue and she conceded in the end. While we do not have to worry that Greece, Portugal, Spain, Italy or Ireland will be expelled from the euro because there is no mechanism for it, we should worry that Angela Merkel, who lost very badly in the elections held in the middle of this crisis because the Germans in the regions were fed up with bailing out the Greeks, could decide she and Germany are fed up. We should worry that she would pander to German public opinion — that is what politicians do — and decide not to expel those countries but rather to pull Germany out of the euro. That is a real danger, that the euro would break up, not through excluding the weak but through the strong saying they have had enough of the weak, pulling out and going it alone. This is something the Government must be aware of and should take measures to prevent within the European Commission, the European Parliament and the European Council. The real danger is not of expulsion but of withdrawal.
In 1993 at the time of a referendum on the Maastricht treaty I found myself arguing whether this country should consider being part of a future European currency. This issue did not figure in that debate as the main preoccupation was whether the amount of development funds received from the Edinburgh summit was £6 billion or £8 billion. It is unfortunate there was not a debate on such an important decision for the country. That said, the Maastricht criteria are excellent tools for the management of national finances. For the most part we have lived within those criteria. Circumstances in the past two years have meant that the figures of a 3% budget deficit and a 60% debt-GDP ratio have been wildly exceeded. We have found ourselves in the company of a number of other European Union member countries and euro currency member states. This time last year, when trying to seek finance on the international bond market to attempt to claw back the deficit over a six-year period, we were being charged more than Greece. Some of the painful but necessary measures the Government had to take have at least pulled Ireland away from the situation now faced by Greece, Portugal, Spain and, probably, Italy.
Many countries have found themselves with a deficit in borrowing. With this the euro has come under threat from international speculators. While we can argue the reasons behind this, the euro is seen as lacking the coherence of other international currencies such as the US dollar, yet the American economy is $13 trillion in debt and probably far weaker than the combined European economy. That, however, does not seem to be exercising speculators. The ratings agencies which have been discredited throughout this process still hold sway in how the markets behave. This has led to a dangerous situation in Greece.
Ireland has had to deal with a double economic shock caused by international factors and flaws in previous domestic policies that have brought up our borrowing needs, as well as a banking and financial crisis, yet it finds itself in the unusual position of being asked to offer a sizeable loan to the Greek state to cover difficulties which we consider we have at least begun to overcome through our policy decisions. These are difficult days for Greece. Its budget deficit is actually lower than Ireland's, but its national debt is far worse. The measures proposed by the Greek Government, induced by the eurozone working with the International Monetary Fund, IMF, have provoked a reaction in the country. It has something to do with its culture and a Mediterranean temperament that a dangerous situation has developed.
The loan facility is being made available with some uncertainties in the background. This collective action through the loan facility will provide the necessary stability, guarantee and a greater sense of certainty that the money will return. Our capacity to lend in current circumstances has improved because of the policies the Government put in place earlier last year. The money can be loaned, but the uncertainty arises in getting it back. The last European Council meeting of finance Ministers gave sufficient guarantees which underpin the Bill's principles. The overall position, however, remains uncertain. Recent statements by the Greek finance Minister that his country's participation in the euro is not guaranteed in the long term raise further questions. So too do the comments by the German Chancellor, Angela Merkel, about the euro being in crisis. It is important that if this loan facility is to work, it is built on collective action, solidarity and confidence. That is the message that must be sent to the wider financial world.
The underlying statistics are positive. The most recent European Commission forecast for 2010 indicated the rate of eurozone economic growth would be less than 1%, yet Ireland's would be 3%. Ireland is in a better position than it was in the past and can have confidence that it will meet its collective responsibilities in the eurozone and this loan facility.
Achieving a balanced budget figure by 2014 must, however, be strictly observed. Current trends indicate it is still difficult. Last year, while we were dealing with the double shock to the economy, the concern was that when recovery did occur, there might be a double dip, but that risk is now dissipating. The new risk is posed by the instability and uncertainty in the eurozone and the role that will subsequently be played by the Greek, Portuguese and Spanish Governments. The measures adopted by these countries in reducing their deficits have been tough but courageous. That should give Ireland heart in continuing on the road it has chosen. Although there are inherent risks in what we are embarking on in the Bill, the Minister for Finance has obtained sufficient guarantees. This is dealing with an interim difficulty that we can overcome because the European Union and the euro need to do so.
I counsel Senator Boyle against deploying too many ethnographic or cultural explanations for problems that particular countries may face. I understand what he was driving at, but at the risk of engaging in political correctness, Greece's location in the Mediterranean which is part of our Continent is not the full explanation for what has occurred there.
I will be supporting this measure. We all do, even the Minister, with certain reservations.
Some two weeks ago when this loan facility was first introduced, it was suggested it was a godsend that the Government could lend to Greece at a higher rate than the rate it would have to borrow the money. I was glad this argument did not feature in the Minister's speech here or in the Dáil. I was beginning to wonder if that were the case, why were we not borrowing money from the international markets to lend to countries in difficulty all the time and, accordingly, solving many of our own problems. I am glad this argument was abandoned, as no one in his or her right mind would argue this is some process in which we want to be involved.
This loan facility is about showing solidarity among members of the eurozone. It is not the solidarity we had in mind when we joined the euro or the European Union. None of us expected solidarity would require us to dig deep in our own pockets for others. However, that is what has occurred. This solidarity is predicated mainly on a sense of "There but for the grace of God go we". There is a certain vested interest in this solidarity, as we might face the same fate as the Greeks in the future.
This so-called bailout for Greece could be transformative for the entire eurozone. However, we should rise above that particular level of discussion and argument, true and all as it may be, and start to contemplate and consider the real transformation this will likely bring, ultimately, to the whole nature of the European project, to the eurozone and to the mechanisms that have been deployed to date through the Stability and Growth Pact and elsewhere. I would be interested if the Minster of State disagreed, but it appears as if the Stability and Growth Pact is finished as a real mechanism or as a mechanism with credibility in any sense or one which can be restored to any level of credibility. A more complex set of measures must be agreed and imposed throughout the eurozone to achieve the type of convergence and economic co-operation or cohabitation among different economies within what is, essentially, a single currency, but also a unified economic system. There is no doubt that the mechanisms put in place at the beginning have been found wanting and that they appear to have collapsed. I understand there will be a meeting tomorrow of the ECOFIN Ministers to examine the implications for the future of what has occurred and to begin to ask questions about what new mechanisms should be put in place. This must be considered. It should lead to a broader political debate in this country as well regarding what we can expect in future.
Last week, there was a skirmish about sovereignty. People got very excited on the Government side at the point made by the leader of the Fine Gael Party to the effect that there was a threat to Irish sovereignty in respect of several instruments such as corporation tax. We must see beyond a reactive debate when someone makes such a remark. We must all understand there is no question but that the character of the relationship between an individual country and the eurozone will change and there will be a great political battle about this in the coming years.
Let us consider what the Germans are saying and what they wish to see take place and the changes they wish to see brought about. I realise it will be a matter for negotiation but Germany is a very powerful country and it is doling out a high percentage of money in respect of the measure for Greece. We can expect it to seek fundamental change. It may be that fundamental change is necessary. Various types of issues will arise in future. The issues of tax measures or monitoring of budgets by the European Commission are simply the beginning in terms of the demands for change that will be made by some of our partners. We should begin to hold the debate here about how we propose to respond. It is not enough simply to fold our arms and maintain we will not budge on this or that. That is not enough. I do not maintain for one minute that I agree with any of the proposals touted, either by the Germans or otherwise, but they will be the subject of debate. The last thing I seek is for an Irish Minister to go to a Council meeting in Europe, or some other such body, in three or five years time, only to return and announce a package of measures without a proper debate in this country prior to any such undertakings being given or such agreements being reached.
That was part of the problem with the Lisbon treaty. Too much of the discussion and debate occurred, essentially, behind closed doors and before there was an opportunity for it to be ventilated in public. Then we were left in a situation in which people had to defend something about which there was never any real debate in advance. However, I have no wish to go back to that issue. I am interested in the mechanism or methodology of the debate and a consideration of the ways in which this Parliament could be involved now in the debate about how the euro and the eurozone evolve if they survive — I believe they will — and what measures must be taken to ensure the failure to recognise the mismatch of economies that existed at the start of the project is addressed in a credible way and in a way we can support.
We must consider how to go beyond the narrative of fiscal discipline. I do not maintain that I am not in favour of fiscal discipline but this debate is not simply about fiscal discipline. Senator Boyle and other Government representatives referred to the fact that we have performed well, that we have demonstrated to our European partners that we have turned a corner and that we are doing what we are bid do and what is expected of us, to use the words of the Taoiseach last week. That is simply not good enough. As I have stated before, fiscal discipline is a necessary part of what must be done, but as a policy it is not sufficient to be able to say to our European partners when we go to Brussels that we are dealing with the fiscal end of matters. We must have a strategy for growth.
I am very critical of the Government for seeming to reduce the debate about our economic future to how and in what manner we reduce the deficit. That is only one element of what we must do. I am critical of the Commission as well for failing to bring forward a robust set of policies in respect of growth in the eurozone, which is necessary and we constantly maintain as much on this side of the House. That is the way to bring the public along and to bring about some sense of renewed national solidarity in the country. It is not good enough for the Minister to hold that because the people he meets in Brussels maintain he and the Government are doing a great job that somehow it is the end of the matter. The test will be how we turn the corner but not only in the eyes of the markets, ratings agencies or the colleagues of the Minister for Finance when they sit down for dinner tomorrow night. The test will be the view of the people, what they experience in their daily lives and their working lives, if they have jobs. The test will be their view of the future and their considerable desire to be part of the solution to this problem, not simply to continue to be victims of a policy determined elsewhere. This will require a new sense of national purpose. Frankly, I do not believe this will happen without a change of Government.
I do not blame my colleagues on the other side for doing so, but they continue to come to the House and refer to change and green shoots. I have no difficulty with this and I hope there are green shoots; the bigger and the sooner, the better. However, the central element of the political debate in the future, whether at election time or another stage, will not be the extent to which there is growth abroad from which we benefit, but the legacy of what has occurred in the past 15 years. We will continue to have the bill for that. We will continue to have the bills for Anglo Irish Bank and the other banks, whether there is 0%, 1%, 3%, 5% or 8% growth. Even if we return to the heady days of 9% or 10% growth, we will still have to pay that bill. It represents a massive albatross around our necks for the future and there must be a political reckoning about it, how it occurred, why it occurred and who is responsible. No Government spokesperson can get away from that central fact, even if he or she wishes to inform us about the green shoots, which we welcome and which we are greatly pleased to see.
In addition to dealing with the immediate problem of Greece, this Parliament must be part of the debate on the future of the euro and the European project. Although we are a small country and relatively insignificant in terms of numbers and wealth, we must hold the debate. We should be driving the debate and we should attempt to pick up on the type of debate that took place at the very end of the Lisbon treaty debate, due in some part to Senator Donohoe and his sub-committee. This could help to push some life back into such a debate. We must resume that debate and hold a discussion about the perspective we seek for the future, where we fit into this great project and how we will respond to the undoubted pressures that we will come under when the Stability and Growth Pact 2 emerges. There is no question but that the Stability and Growth Pact 2 is coming down the line and I have no wish for us to be a victim of something. We should be a party to the debate on how that will take shape.
I agree with much of Senator White's remarks. We must get involved in this debate and we must take charge of our destiny in that regard. I welcome the fact the European Union has come together in such a way to protect the euro and this should have been done or foreseen, probably when the euro was first envisaged. The need for a support structure and to have a mechanism in place to ensure the stability of the euro should have been anticipated but this was not done. Perhaps we are closing the door after the horse has bolted. That being said, we must accept where we are now. This would probably not have happened were it not for the Greek situation. We see how important it is to support the Greeks.
We have a short memory in Ireland. It is not long since we were supported by the European Community and between €25 or €26 billion came into this country. I hear people bellyaching about our €1.4 billion support for Greece. This is nonsense when one considers the money we have gained from our membership of the European Union. We have been well supported by Europe. The European vision is a very good one. We did not realise we were going to have such a downturn in the world economy and in banking. In our case, we also had to deal with the property bubble. We took three hits in one.
It is important to bear in mind what Senator Mary White said. We must become part of that debate. It is still important for us to ensure we have an independent financial outlook. Our partners, who are supporting the euro, should also have a say in how we ensure stability in the euro area. That means allowing for a certain amount of growth. The 3% budget deficit figure that was set and ignored by the Germans, French and ourselves was an unrealistic way of approaching the control of our budget in this country.
What are the benefits of membership of the European Union? They are stability of the currency, which we are now supporting, stability of our economy and a good export trade into Europe. When we want to ensure our credit worthiness and sell our bonds in the European Community, there are great advantages to membership. It is important we have these advantages.
Where do we stand in the debate? There will have to be changes to the present structures. They are not fit for purpose as we move into a new decade. The difficulties of Greece, Ireland and weaker members of the EU will be repeated. How will we support those members within the structures we have set up? This will be important. The debate will have to centre around the whole European plan. Seán Lemass foresaw the European plan before it was rolled out. He was a man of vision. In that plan, he saw that small countries could do very well within the European Community. Bigger countries were dictating to smaller countries and stifling our markets. I remember when one pound of butter cost four shillings and ten pence in Ireland while the same butter could be bought in the United Kingdom for one shilling and nine pence. That was how we were treated as exporters at that time. We had no choice but to subsidise our butter exports by overcharging on the home market. That is an example which is long gone because of the European Community and the Lemass vision.
I look forward to the larger debate. We are lucky to have a Minister for Finance who has a great understanding of the infrastructure we need to create to protect ourselves within the European Union. I want to ensure he articulates my views when the debate broadens and decisions are taken.
I want to emphasise why it is in the interest of our country to support this measure. There are two reasons. First, the performance of our exports and of the European economy is of great importance to our national prosperity. Any measure we need to take to ensure the stability and credibility of the euro and the eurozone is in our national interest. This measure clearly is. A more immediate reason to support it is that any difficulty that develops in the selling of Greek Government bonds will raise the interest rate on those bonds and will affect the rate of interest we pay on our national debt. It is in our short-term financial interest that the risk being factored into the buying of government bonds in Europe be reduced because it will then cost us less to sell our debt. For those two reasons, this Bill should be supported and we need to see it passed.
It is an uncomfortable measure to see happening. No one, least of all the people in Greece, want to find themselves in a position such as this. Despite how uncomfortable the measure is, we should not be surprised at what is happening. In the broad sweep of economic history, every time a region, or the world, goes through a major financial crisis, especially if it is led by what is happening to the banking structures in different countries, the crisis invariably leads to an issue with the selling of government debt. If debt is moved off the balance sheet of the private sector and put onto the public sector, it inevitably leads to difficulty regarding the financing of that public sector debt. We saw that happen in the 1990s in Latin America where the funding of sovereign debt led to issues. We are now seeing it play out in Europe. The reason it is causing such difficulty in Europe is that we share a common currency. The stresses being created in one country, because it cannot sell its government debt, automatically feed into difficulty in all countries.
We can look at the debate in two ways. We should look to the past and to the future. While I agree with much of what my colleagues on both sides of the House have said in analysing the past, I have one point of difference with regard to the Stability and Growth Pact. The conventional wisdom is that the current difficulty would not be happening if countries had met the criteria of the Stability and Growth Pact. This is mostly true. We must bear in mind, however, that some of the countries that are now dealing with these difficulties did meet the criteria of the Stability and Growth Pact. Spain, for a while, was the poster boy for delivery of the pact's criteria. Italy, France and Germany have had more breaches of the criteria than Ireland or Spain, yet they have managed to circumvent our difficulties.
This points to a second weakness in our evaluation of the economic success of participating countries in the eurozone. We have done so almost exclusively on a fiscal basis. We say a country is doing well as a member of the eurozone if it delivers its budgetary objectives, but gigantic contortions and stresses have been going on behind the scenes in these national economies while they have been delivering the fiscal objectives laid down by the European Union.
Ireland is a classic example but so is Spain. As we examine how we are to move forward, we must broaden the measures by which being a successful member of the eurozone is evaluated. Although it is easy to say this, it is vital that it be said. While, tragically, austerity forms part of the solution to these difficulties, it is not the full solution. That there are countries that were meeting the budgetary criteria but still found themselves in difficulty demonstrates that there is a gigantic lesson to be learned from history.
There are three elements of this debate that we should consider as we proceed. The first is obvious and one with which we in Ireland are grappling. It concerns the fact that we need to find a way to ensure the success of measures for fiscal consolidation. While I hate the phrase "fiscal consolidation", we need to solve national budgetary difficulties.
Individuals, understandably, allocate a lot of blame to the performance of the financial markets. Although their performance in recent months has been reprehensible in many ways, we must bear in mind that they have so much power in the first place because political decisions were made that gave them that power. If the right decisions had been made regarding how much money a country should be borrowing responsibly, we would not find ourselves in circumstances in which the financial markets have power we wish they did not have. We cannot welcome investors when we want their money and blame them as speculators when we find ourselves in difficult circumstances, as we do now. If a country such as Ireland had made the right decisions between 2000 and 2007 and listened to what the European Commission was saying about the national finances, we would not be as much in thrall to the financial markets as we are now.
With regard to the meaning of fiscal co-ordination, I have no difficulty with it being rolled out across Europe as long as we respect the sovereignty of national governments in making crucial decisions on taxation, as was done in respect of the Lisbon treaty. However, we need to be clear that fiscal co-ordination means different things to different people. When we talk about it, it is assumed it means every country must focus on how it should contract its budget and take money away. However, fiscal co-ordination in this case means, crucially, that Germany should make the decision to get consumers spending again. This would allow a crucial export market on which we depend to do better.
I am in complete agreement with Senator Alex White that we must ensure what occurred does not happen again. This will mean sweeping reform of the Stability and Growth Pact. If we are really concerned about preserving our economic security and sovereignty, we should be reasonable, mature and brave about having that debate.
I like the habit that has developed, whereby Senator Donohoe, as always, speaks so much sense. It is very interesting to listen to him. Senators have said that, now that things are going wrong, we realise we did not prepare well enough for the introduction of the euro. It is only now that we realise no one thought about what would happen if a member state wanted to withdraw from it. Apparently, only the Germans have a system under which they can withdraw from the eurozone. None of the other member states has such a system.
This Bill marks Ireland's coming of age in the European Union. Reference was made to the fact that Ireland had always sought a hand-out. Owing to the existence of an EU standard, we refinanced the country and brought it into the modern era, financially, socially, legally and in terms of rights provision, including for minority groups.
Certain people are disgusted with the idea of bailing out Greece considering that Ireland is in difficulty. Although it is hard to raise money and the country can ill-afford to finance another state, it is noteworthy that we are prepared to give money to a country in need. As Senator Alex White stated, "there but for the grace of God go we." We need to recognise this and show solidarity with the other member states at this difficult time. It is important that we prepare the way and pass the Bill.
I listened with interest to what Senators had to say about how leaders, particularly the German leader, had moved slowly in putting together a rescue package because of national interests, thus calling into question the euro's credibility. At times such as these, we need to rise above national considerations and show what is meant by European unity. We should not look to particular national interests, be they electoral or otherwise, but to EU interests. Not all eurozone leaders have been singing from the same hymn sheet in the best interests of the euro and we can see the result in the markets. Senator Donohoe made a very good point on how we had ceded so much authority and power to the markets. We are completely in thrall to them, particularly considering the effect an individual such as the German Chancellor can have on them. We are constantly running to catch up. This is not a good place in which to be. At the meeting tomorrow evening everybody should forget his or her national interests and seek to help each other out.
Senator Ross referred to Chancellor Merkel's comment that it was not instinctive to be helping the most errant player in the euro field. The Greeks are not being penalised for their bad record, unwillingness to adjust and not telling the truth in order to get into the eurozone in the first place. Rewarding somebody for doing the wrong thing is never a good idea, but, as Senators Alex White and Donohoe said, this crisis will force us to examine how the euro works. Senator Donohoe referred to the Stability and Growth Pact. It was not the case of there being a single good measure. Although our conduct has been good under the Stability and Growth Pact during the lifetime of the euro, we are not exactly free from economic problems. Therefore, it is not just a case of a single measure that is best.
I am slightly critical of the contribution of Senator Alex White. I was very interested in what he had to say and did not disagree with a word of it, but words are one thing and action is another. I thought, as I listened with great interest to the Senator's noble words and sentiments, that the failure to act would cause real problems.
The Senator was talking about the European dimension and referred to how we needed to look to the national purpose and consider how we were to turn the corner. I thought to myself that we had a little problem at home, in respect of which the Labour Party was not showing much leadership. I know it is a slight embarrassment to the Senator.
The Labour Party has the opportunity to do what is necessary at home to show the leadership the Senator is seeking. As he said, people are crying out for it. This is how we make sacrifices regarding our ideals or in dealing with sectoral interests.
I hope his party leader shows he is capable of leadership. I served on a county council with him and I have great admiration for him but he is falling short of my estimation of him.
I am sure he will be because I represent many people. I would love to think he will show leadership when he has the opportunity. I listened with great interest to Senator White's contribution and it will mean something if he follows it up by supporting the Croke Park deal.
It is a long road from Athens to Croke Park via Dún Laoghaire. The House is always a most interesting place.
This has been an interesting and substantive debate with some excellent arguments and presentations being made. I was taken very much by Senator Ross's comment about the possibility of German withdrawal from the euro, which may be far-fetched. He argued that people are concerned the euro area could fall apart because of difficulties with the weaker members but he reasoned that there could be difficulty for the euro if the stronger countries such as Germany decided they had enough and withdrew. That may be an outside bet but we need to take notice of that. Yesterday, I read a newspaper article about the current political difficulties faced by the German Chancellor. It is interesting they are being caused within her own party and by her own allies, some of whom believe she may be giving too much leeway to her European partners, which is a little concerning.
The legislation will enable aid, assistance and order to be brought to the Greek economy and it is necessary. While it is disappointing we have reached this juncture, it is much more disappointing for Greece that it is in an economic abyss but we must assist the Greeks to work their way out of these grave difficulties. Senator Butler made a pertinent and common sense statement, on which we should all reflect. Ireland, having done so well out of membership of the Union down through the years and having drawn down essential and useful funding, is being called upon to be generous in its own right and it is appropriate that we do so. No fair minded person will have a difficulty with the legislation.
Notwithstanding what we are doing to aid the Greek people and their economy, the broader picture regarding the euro relates to the confines of the Union and its political system and economic growth and development. While restraint, austerity and savings are necessary in both Ireland and the Union, the bigger picture is growth, development and job creation. That must become the big European political project. We were debating the Lisbon treaty this time 12 months ago. The Lisbon Agenda, which addresses economic growth and development and the job creating capacity of the Union, has not been to the fore of political discourse in Ireland. The formula it proposed has remained under the radar and I am not sure how effective it has been. The follow up to the Lisbon Agenda is the 2020 Agenda. The European Commission is finalising its proposals regarding this document, which is about the future economic development of the Union. There must be a strong focus on this because it is through economic growth, development and job creation that not only will the Greeks find a way forward, but the entire Union and its peoples can move forward in relative economic security and stability. That must be the focus.
A number of Members referred to the fact the Irish position may not have been entirely dissimilar to the Greek position from a financial perspective during certain periods. Our economic picture is improving from a debt management perspective but, on the other side of the economic equation, we face significant despair, unemployment and economic difficulties, which need the attention of governments. The Minister reflected upon the progress made in bringing order to our public finances, notwithstanding the fact they are horrifically out of kilter. He also flagged once again the need for further restraint in the next budget. It is necessary that these matters are brought to our attention and that we have more substantive debate on the options available but we must concentrate much more not only on debts, restraint and cutbacks, even though they are necessary, but on offering hope and putting in place the economic formula to put people back to work.
One of the disturbing features of our economy, which is probably commonplace throughout the Continent, is the significant deposits and savings in banks and the lack of spending and generation of economic wealth. It is a major challenge for governments to encourage people and to assure them it is time again to spend and invest and time for economic activity. I hope in this House and elsewhere we will be able to reflect on that and to encourage progress in that regard over the next few crucial months.
It must be accepted that it is not only inevitable but desirable that we respond through this legislation. The Union must be more than simply a group of 27 countries joined in some sort of economic formula; it must be a family of nations where when one, two, three or four countries are in difficulty, the others must be obliged to come together to provide assistance and support. The Greek people through the budgetary options before them have huge economic difficulties and problems ahead. There will be severe restraint and cutback. At least we are trying to provide some assistance and support through the legislation and I welcome that. From a Greek, Irish and European perspective, we must try to move the debate forward as quickly and as substantially as possible towards wealth and job creation and getting the peoples of Europe back to work.
Much of the debate has been positive and Senators have touched on many of the key economic and budgetary challenges facing us which, as a member of the euro area, we must work to resolve. The debate captured the range of political views on how we should address these fundamental challenges linked to our participation in economic and monetary union. There is, however, a shared understanding of the nature and gravity of these issues. This collective appreciation has helped to enhance the discussion and wider understanding around these issues.
As an active participant in the various European institutions and as members of the euro area, we have a responsibility to provide support and demonstrate solidarity with our partners. In these challenging times this is particularly the case, as the collective strength of the euro area economic bloc underpins our ability to protect the integrity of both the euro area economy and euro currency.
I also wish to reiterate that the strategy which determines this Bill is designed to safeguard the fundamental financial stability of the single currency area. This is an essential prerequisite to secure our economic recovery, but also to protect the standards of living that we all enjoy.
I welcome the fact that most of the Senators who spoke were broadly supportive of the Bill. This, above all, is a time for unity and shared resolve in the national Parliament, as the impact of the situation in Greece on international bond markets in recent weeks clearly demonstrates that what happens to our euro area partners has a large influence on our domestic economic interests. On behalf of the Minister for Finance, Deputy Brian Lenihan, I thank Senators on all sides of the House who have made such a positive and constructive contribution to the debate on the Bill. It is reassuring in times of necessity that we can forge consensus in the best interests of the country and the European Union.
The legislation will provide a statutory basis for our contribution to the euro area financial support facility for Greece. There are understandable questions about the financial implications of the entire funding facility. However, built into the entire process are strong financial safeguards to ensure Irish and European taxpayers will not be financially disadvantaged through these arrangements. It also has the full reassurance of the European Commission that member states' funding costs will be met in full. Adjustment mechanisms are included to ensure a rebalancing in favour of any member state which might incur higher funding costs than those being charged to Greece. Our overall contribution to the euro area loan facility is anticipated to be about €1.3 billion, subject to a precautionary upper limit of €1.5 billion. This will take the form of loans to be repaid as the Greek economy recovers and will not impact upon our general government deficit position. Our assistance, in the form of repayable loans, will be centrally channelled through the European Commission as part of the agreed euro area package, in conjunction with the International Monetary Fund. The loan facility comes with strong conditionality attached and will require the Greek authorities to address their current fiscal and economic problems.
Looking at the impact of the loan facility programme upon the Greek authorities, they have agreed to introduce a fiscal austerity programme, with the aim of reducing the deficit to below 3% of GDP by 2014. Public spending cuts of €30 billion will be implemented during this period. In order to reduce its debt-to-GDP ratio, Greece will be obliged to maintain a primary surplus on its budget of at least 5% for the next decade. It will be subject to strict monitoring and continuous assessment by multilateral agencies as part of the conditions attached to the loans. These are, by any measure, very strict and demanding conditions and Senators can be assured that they will be subject to ongoing monitoring and assessment.
Looking beyond our immediate difficulties, ECOFIN Ministers have decided to establish a European financial stabilisation mechanism, with a total value of up to €500 billion, to be funded by the European Union and the euro area member states. It will be supplemented by extra funding from the IMF. The mechanism was devised in the context of a perceived background risk of contagion from Greece to other member states. It provides for financial support for member states in response to difficulties caused by exceptional circumstances such as those being experienced by Greece. In the context of providing for this wider European financial stabilisation mechanism, it is our understanding that enabling legislation may be required.
In conjunction with the development of the mechanism, EU finance Ministers have committed to ensuring fiscal sustainability and enhanced economic growth across all member states. Linked with this objective, the European Commission has presented various reform proposals to reinforce economic co-ordination, including ones to ensure the budgetary policies of member states are consistent with the economic and financial stability of the euro area. As stated, these will form the basis for further discussion in conjunction with the task force being chaired by EU President Van Rompuy. Ireland will be actively engaging with this group. I allay the concerns to which some Senators have alluded, either explicitly or implicitly, in relation to the proposed budgetary reforms. The proposals mark the beginning of discussions on these issues. They are designed to help member states to be better prepared for future crises and as such, should be welcomed. In common with proposals from the European Commission, the process has been designed to float ideas and stimulate debate. The proposed enhanced budgetary surveillance provision has been designed to improve dialogue in the Eurogroup on such issues and is, of course, subject to the treaty provisions. Any policy proposals arising from this process will have to be ultimately agreed by member states and in this context, should not be misunderstood as a loss of Irish sovereignty.
Other initiatives upon which the Council has decided include regulatory and supervisory reform of financial markets and examining the job of ratings agencies. This is in addition to other proposals will ensure the financial sector will pay its share should there be another financial sector crisis.
As our relations with our eurozone and EU partners have grown ever closer, our prospects as a nation have become more economically, politically and socially interlinked with those of our partners. Essentially, the Bill is about European governments safeguarding the stability of the eurozone. In Ireland we have taken credible steps to address our economic and budgetary problems. We are implementing our own fiscal consolidation measures and sending a clear signal of intent to the international investment community that we will not shirk taking the difficult but necessary decisions to correct the budgetary position. In implementing the decisive expenditure control measures contained in the budget, we are firmly demonstrating our resolve to continue along the path of restoring sustainability to the public finances. Already there are mounting indications that we are beginning to turn the corner and that a hard won economic recovery may be emerging.