Seanad debates

Tuesday, 8 November 2011

Recent Developments in the Eurozone: Discussion with Minister of State

 

6:00 am

Photo of Lucinda CreightonLucinda Creighton (Dublin South East, Fine Gael)
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I welcome the opportunity to update Members on the ongoing situation in the eurozone, a situation which greatly affects us all. The euro area sovereign debt crisis has been going on for almost two years, but has stepped up a gear in recent months, particularly since August. The events of the past week have been particularly disturbing.

It is worthwhile to point out that EU policy has actively responded since the crisis began. That response may not have been adequate but it has been substantial. I refer, among other actions, to the following: the establishment of crisis resolution mechanisms; of the temporary facility, the EFSF; and the more permanent structure, the ESM, which are designed to help vulnerable member states and ensure an improved governance structure within the European Union and particularly the eurozone and the European semester.

Notwithstanding these important developments, the perception has remained that policy makers were playing catch-up with the full scale of the problem. This is not simply a question of perception, but is reality and we have suffered as a consequence. However, a substantial leap was taken at the European summit in the early hours of 27 October. Although the situation remains fragile as the events of the past week have clearly demonstrated, Senators might agree that the co-ordinated approach clearly demonstrates that the EU can unite and work in the interests of all its citizens. It shows the EU is strong and can make significant decisions and the kind of progress that not so long ago would have been regarded as almost unthinkable. The deal of the morning of 27 October marked an important turning point because it was the first time we saw a clear political will to get to grips with the issues we face. I hope everyone would agree that we can take some encouragement from this.

As I am sure Senators will be aware, on 23 October the European Council identified a number of key priorities for internal economic policy to be pursued in the short and medium term in order to achieve smart sustainable and inclusive growth. These include the completion of the Single Market, including the digital Single Market, measures to support SMEs and the reduction of administrative burden. It also called for a stronger focus to be given to growth-enhancing aspects of the European Union's external policies in order to maximise their contribution to growth in Europe and to shape the conditions to attract more inward investment. It is clear that acting in unison to tackle these challenges within the framework of the European Union rather than doing so in isolation makes eminent sense.

Recognising the pressures on national budgets, the European Council also agreed temporarily to increase co-financing rates for EU funds, which will have direct benefits for Ireland and will facilitate us in drawing down EU funding. In this regard, the Heads of State and Government agreed to the Taoiseach's suggestion that, in examining the possibilities for boosting investment in Europe, the European Investment Bank should have a particular focus on countries implementing an EU-IMF programme, which is a welcome commitment.

Over the course of the European Council meeting and euro summit on 26 and 27 October, work was finalised on the various elements of a comprehensive package of measures designed to restore stability to the euro area. The agreement reached covers a number of key issues, including bank recapitalisation, debt sustainability for Greece, firewalls to prevent contagion and improved governance within the euro area. In each area, Irish interests have been fully protected. Measures were agreed that, when implemented, should put Greek debt back on a sustainable footing and would help Greece to start rebuilding its economy which will take quite a long time. It was agreed to extend the capacity of the EFSF, through two basic leverage options, to ensure that we have robust and secure firewalls to prevent contagion into other member states.

Notwithstanding our limited business and financial links with Greece, as a so-called "programme" country, Ireland is more exposed to the fall-out from the Greek situation than other countries might be. Therefore credible and viable firewalls are vital. This will help to reduce the risk of derailing the recent substantial progress we have made. As such, this is to be welcomed.

Measures were agreed to ensure that Europe's banks are adequately capitalised and have access to funding. In addition the Heads of State and Government agreed on ten measures to improve euro area economic governance, including regular euro summit meetings at least twice a year, and regular meetings of the presidents of the euro summit, Commission and the euro group.

President Van Rompuy, working closely with the presidents of the European Commission and of the euro group, will prepare a report for the December European Council on possible steps to further strengthen economic convergence within the euro area, to improve fiscal discipline and deepen economic union. As part of the report, President Van Rompuy will explore the possibility of limited treaty changes. In this, it is very important to bear in mind that no outcome is predetermined. I am convinced there is considerable scope to go further within the parameters of existing treaties and we should exploit that mechanism to the full in the first instance.

Bearing in mind the recent events in Athens, it is important to remember that the Greek situation is a key part of the current difficulties. A credible solution to the Greek crisis is in all of our interests, including for us in Ireland. Of course, the involvement of the private sector in resolving the Greek situation has led to similar demands here. I reiterate what the Taoiseach and Minister for Finance have said when I say that the restructuring of its public debt will be no panacea for Greece. In fact, the very harsh austerity measures and the conditions affecting the sovereignty of Greece, which must complement the new adjustment programme, will have grave implications for the living standards of the Greek people for the foreseeable future. These measures and other conditions are much more severe than anything that we in Ireland have experienced, will experience or wish to experience. This is simply ignored by those who call on Ireland to do the same.

In addition, there is the crucial issue of reputational damage. Reneging on our commitments would have major adverse implications for our international reputation. Such action could seriously damage our prospects of attracting foreign direct investment and trading our way to economic recovery. This brings up a final critical difference between the two economies in this regard and it relates to the importance of international trade. In Greece, exports amount to the equivalent of just 20% of GDP, whereas this figure is more than 100% of GDP in Ireland. I believe that any move towards a default, whether structured or unstructured, would have severe negative consequences for the exports that drive our economy and the long-term health of the country.

Equally important is that any reneging on our commitments would necessitate eliminating the primary budget deficit almost immediately. In other words, it would be disastrous and the effects would be felt by every man, woman and child in this country. I want to be clear in this regard: the Government will not contemplate such an irresponsible approach. However, the Government is acutely aware of the huge burden that has been placed on the shoulders of Irish citizens and we have already done a considerable amount to renegotiate the programme agreed by the previous Government, including the interest rate reductions, which is worth up to €10 billion; the acceptance by the troika of the measures contained in the jobs initiative; and the extension of the fiscal adjustment period to 2015.

Another key element of our strategy involves a strengthening of economic and fiscal co-ordination in the euro area. A set of measures that go beyond recently adopted reforms will be put in place, reflecting the need for greater co-ordination within a monetary union. In general terms, the surveillance of national budgets in the euro area will be tightened. Specifically, among other things, euro area member states will be required to adopt fiscal rules into national legislation to consult with other member states before adopting any policies with potential spill-over effects. More rigorous oversight is envisaged for member states in excessive deficit - in other words, where deficits and-or debt are too high.

A number of important governance improvements were also endorsed. There are many dimensions to this including the following: Heads of State or Government of the euro area will meet at least twice a year at euro summits in order to strengthen euro area governance and ensure closer integration; there will be a president of the euro summit; the EU Commissioner for Economic and Financial Affairs has been given additional functions; and various changes at the level of officials to improve matters are also envisaged.

In my view, governance reform is essential. There is no point in addressing the symptoms without addressing the underlying root causes. In other words, the Government's view is that every appropriate step should be taken to ensure that the difficulties now confronting us do not recur. As such, we are very supportive of enhanced economic governance within the euro area. The lesson from the current predicament is very simple. Being part of a monetary union requires effective co-ordination and surveillance of monetary and fiscal policies, which can only be achieved through an adequate and balanced system of governance.

I will briefly outline some of the main guiding principles regarding our approach to the governance debate as it moves to its next stage.

Ireland is firmly in favour of improved governance that is balanced and offers correct safeguards. We believe it is in all our interests. The urgency of the current situation demands prioritisation of value added measures that can be implemented quickly and, preferably, within the existing treaty. We need to see and then assess in due course any proposals that may require treaty change. We propose that institutional balance must be maintained, avoiding, where possible, excessive use of intergovernmental methods and respecting the role and expertise of the European Commission.

I acknowledge that these are unpredictable and worrying times but a significant amount of progress has been made at European level to deal with this crisis. There is no doubt that further steps need to be taken. The euro has been good for Ireland and has contributed dramatically to its economic growth in the past decade. The euro can be great for Ireland in the future. Ireland's place is in the euro. There is no viable alternative.

Photo of Terry LeydenTerry Leyden (Fianna Fail)
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I welcome the Minister of State, Deputy Creighton, to the House and wish her continued success in her Ministry. As deputy leader of the Council of Europe group, I have found the Minister of State accessible. This is the first occasion on which the Minister of State has provided a briefing for Members prior to the meeting in Strasbourg, which is helpful. It is hoped the Minister of State will be able to continue to provide this service to Members.

The Minister of State, when in opposition and Chairman of the Joint Committee on European Affairs, of which I was a member, brought forward an excellent document in regard to legislation from Europe and its role in regard to the Oireachtas. That document was particularly influential in terms of the second referendum on the Lisbon treaty. Under the Lisbon treaty, the Dáil and Seanad have powers in regard to the referral, postponement or vetoing, in co-operation with other parliaments, of Bills. However, this House has not thus far received any European legislation for scrutiny. While the sectoral committees deal with legislation, they do not, as far as I am aware, have the same powers as the Dáil or Seanad in terms of referral, deferral or revocation of legislation from Europe.

Perhaps the Minister of State will, through discussions with the Whips and the Leader of the Seanad - I know Senator Cummins and members of the Government parties in the Seanad are open to this idea - provide that the Seanad deal once a month with controversial European Bills. There is a wealth of information and talent in this House, an expertise in different fields from the length and breadth of this country, which would ensure Bills in respect of bogs, septic tanks and so on are trashed in a detailed manner. Currently, numerous Bills are being passed without proper scrutiny. The Joint Committee on European Affairs no longer undertakes scrutiny of legislation and the Joint Committee on European Scrutiny no longer exists. Such legislation is referred to sectoral committees. Perhaps the Minister of State will ensure Bills which she deems worthy of detailed discussion are discussed in this House, following which, if considered necessary, such legislation could be deferred or vetoed in co-operation with other member states.

The current situation in Europe is complex and is evolving every hour owing to the situation in Italy and the failure of the motion of confidence in the Italian Prime Minister. The situation in Greece is also complicated. All of this is putting great pressure on the euro and the stability of the European Union and eurozone. On the proposal to introduce a further treaty on integration, support for that would be unlikely given the current experience in Ireland in terms of the recently held referenda. We must defend our 12.5% corporation tax. There is a danger that any treaty seeking a unified tax approach in the European Union would target our corporation tax rate. Our corporation tax rate is the key to our future success. I do not want to take up the time of the House recalling all the decisions and broken promises of this Government. I did not stand for election in the last general election. However, the 58 members of the Fianna Fáil Party who lost their seats must be aggrieved that the public was misled in relation to burning of the bondholders and the statement of the Minister, Deputy Varadkar, that the banks would not receive another cent.

Photo of Catherine NooneCatherine Noone (Fine Gael)
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The Senator's time has expired.

Photo of Terry LeydenTerry Leyden (Fianna Fail)
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I regret I do not have more time. The time allocated has passed quickly.

Senator Catherine Noonne:

It did.

Photo of Michael D'ArcyMichael D'Arcy (Fine Gael)
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The Senator should have spoken faster.

Photo of Terry LeydenTerry Leyden (Fianna Fail)
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I was just getting into my stride.

Photo of Terry LeydenTerry Leyden (Fianna Fail)
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I am delighted to have had an opportunity to put my ideas to the Minister of State. Other speakers will have an opportunity to put their points of view. I ask that the Minister of State take note of my suggestions in regard to European legislation. It would be a great day's work for this House if that were achieved.

Photo of Michael MullinsMichael Mullins (Fine Gael)
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I welcome the Minister of State, Deputy Creighton, to the House and thank her for the update on the situation in the eurozone. As the Minister said, this is an extremely worrying and unpredictable time for everyone. People are frightened and confused and the complexities of the problems are beyond the comprehension of most ordinary people. I am sure many Members of this House would admit to being confused by the complexities of the problem within the eurozone.

There was great optimism and hope following the European Council and euro summit on 27 October in terms of the identification of key priorities for internal economic policy. However, the political chaos in Greece and uncertainty in Italy during the past week has undone much of that good work. People are concerned and confused by the difference of opinion between economists and experts in regard to how to resolve the problems within the eurozone, in particular those in Ireland. Those of us who tune into current affairs programmes are aware how widely experts can differ.

Since taking office seven months ago, this Government has acted responsibly and in the best interests of the country. It had a huge job to do to repair our reputation abroad. Everyone accepts that was a major job of work. The Government has astutely negotiated interest rate reductions of €10 billion, convinced the troika to support job creation measures, secured approval to reverse the reduction in the minimum wage and obtained an extension to 2015 in the fiscal adjustment period. Political stability in Ireland, in contrast to Greece and Italy, leaves us well positioned to attract inward investment when we begin to emerge from the recession. I agree with the Minister of State, Deputy Creighton, that this is dependent on us honouring our commitments and debts.

We must hope that the measures being put in place to put Greek debt back on a sustainable footing, coupled with the extension of the capacity of the EFSF and measures to ensure Europe's banks are adequately capitalised, will have the desired effects. As in Ireland, poor governance and regulation throughout the eurozone is the cause of where we are today. I welcome the tightening of surveillance of national budgets, more rigorous oversight of member states in excessive deficit and the changes at official level. The appointment of a president of the euro summit is welcome. We must never allow what has happened throughout the eurozone to occur again. We should certainly support changes to the treaty if these are necessary. However, like Senator Leyden, I would be concerned about any attempt to alter our corporation tax rate of 12.5% because much of our inward investment is attracted by that low tax rate and we have to fight to maintain it at all costs.

While this is a very worrying time for many people, we have to welcome the progress that has been made, as the Minister of State has outlined. We should all be supporting the Government in its efforts in these difficult times. We need to restore confidence in our economy. We need to get banks lending to small business and we need to help small and medium businesses. We need to encourage multinationals to invest further in our country. We have to reduce the scourge of unemployment and we have to give people back their dignity. We have a strong team batting for us in Europe, led by our Taoiseach, Deputy Enda Kenny and our Minister for Finance, Deputy Michael Noonan and the Minister of State, Deputy Lucinda Creighton. We wish them well as they have a difficult job but they have got off to a good start and significant progress has been made in seven months. I am very confident that if we are back here this time next year, we will be in a much better situation.

Photo of Catherine NooneCatherine Noone (Fine Gael)
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I thank Senator Mullins for his brevity.

Photo of Jimmy HarteJimmy Harte (Labour)
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I welcome the Minister of State to the House. The situation in Europe is very fluid and worrying. I find it difficult to grasp what is happening. As Senator Mullins said, if different economists with doctorates from Harvard disagree on fundamental issues to do with Europe, it is very difficult for an ordinary citizen to discover what is really going on. I noted that this is the longest period in hundreds of years in which Europe has not been at war with itself and this is significant. The European Union, formerly the Common Market, was born out of the ashes of two world wars which claimed the lives of 17 million people in the First World War and approximately 25 million people in the Second World War. Europeans realised that European integration was important and that the biggest scourge for Europe was extreme nationalism which culminated in the Second World War when Hitler used Europe to further his aims.

Europe is now at a very serious financial crisis but the bigger picture shows that Europe is at peace, militarily but perhaps not financially. The generations who went before us suffered massive unemployment and also were the casualties of two wars. I remind the House that 7 million civilians died in the First World War. No matter how bad things are, one hundred years ago in 1911 the rumblings of the First World War were beginning and extreme nationalism took hold of Europe. It almost destroyed Europe and it destroyed many lives. This is a democracy and Ireland and this House should do everything to help ensure that Europe can live in peace.

As regards the immediate financial issue, people suggest that the bondholders should be burned and this is the mantra trotted out when it suits certain politicians-----

Photo of Thomas ByrneThomas Byrne (Fianna Fail)
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It was Deputy Eamon Gilmore who said it.

Photo of Jimmy HarteJimmy Harte (Labour)
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He never used the word, "burn".

Photo of Thomas ByrneThomas Byrne (Fianna Fail)
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He said it was Labour's way or Frankfurt's way.

Photo of Catherine NooneCatherine Noone (Fine Gael)
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Senator Harte without interruption.

Photo of Jimmy HarteJimmy Harte (Labour)
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I would rather Ireland's position in five or ten years time when the IMF has gone rather than be like Greece where the IMF may be there for 20 or 30 years and Greece will face severe austerity in the meantime. We may have difficult times ahead. I am in business and I know how difficult it has been and I know that businesses and families are suffering but when we get our financial sovereignty back that will be a good day. It was given away, whether we like it or not, by a previous Government. I will not go back to that past-----

Photo of Thomas ByrneThomas Byrne (Fianna Fail)
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That is not true.

Photo of Jimmy HarteJimmy Harte (Labour)
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It is true.

Photo of Thomas ByrneThomas Byrne (Fianna Fail)
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It is not true.

Photo of Catherine NooneCatherine Noone (Fine Gael)
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Senator Harte without interruption, please.

Photo of Jimmy HarteJimmy Harte (Labour)
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The problem is there is denial. Hitler said with regard to the big lie to keep it simple and to keep repeating it and eventually people would believe it.

Photo of Thomas ByrneThomas Byrne (Fianna Fail)
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That is what the Senator is doing. He keeps repeating that we lost our sovereignty when anyone who has met the IMF has been told clearly by it that sovereignty is retained-----

Photo of Catherine NooneCatherine Noone (Fine Gael)
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I remind the Senator that the business of the House is statements on the eurozone.

Photo of Jimmy HarteJimmy Harte (Labour)
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We did lose it.

Photo of Thomas ByrneThomas Byrne (Fianna Fail)
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It is just like the accusation that the pension levy was imposed for political purposes.

Photo of Catherine NooneCatherine Noone (Fine Gael)
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Senator Byrne, we are on statements on the eurozone. Senator Harte without interruption.

Photo of Jimmy HarteJimmy Harte (Labour)
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We lost our sovereignty and no amount of denial will solve the problem but we must move on from here. Today we are a little further forward than we were six months ago, even though we are not in a great position. The Minister of State may be better informed than I am about the situation in Greece and Italy as it seems to be difficult to comprehend. I note that Berlusconi has lost his vote but he won the vote on the austerity measures. I do not know if this is correct but the Greek Prime Minister-elect has said he will not agree to the austerity measures so I am at a loss to know to what has happened in the last half an hour. It seems that by tomorrow morning our debate could be dealing again with a problem in Greece or a case where Italy has survived.

On a lighter note, I am pleased that Trapattoni and not Berlusconi is in charge of our team next week.

Photo of Catherine NooneCatherine Noone (Fine Gael)
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My apologies to Senator Barrett as I should have called him before Senator Harte. That is my mistake.

Photo of Sean BarrettSean Barrett (Independent)
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It is always a pleasure to listen to Senator Harte.

I wonder when Europe will have its plan B ready because it is difficult to see much future for Greece under the present arrangements. Perhaps it should never have been admitted to the euro and it should certainly have been allowed to get out because we deprived it of its ability to set its own interest rates and exchange rate. Prolonging the agony of Greece by holding it within the eurozone is a wrong policy. The eurozone has to come to terms with this. The countries which did not join the eurozone, the Scandinavians and the United Kingdom, are the ones which have retained these instruments of economic policy. The design flaws in the euro were that there was no exit mechanism and it is about time we came up with an exit mechanism rather than hold countries in the euro against their long-term interest.

It was assumed that lower interest rates and significant capital flows would solve problems but Ireland is the test case of this assumption. So much capital flowed from Germany into Irish banks that it destroyed asset prices in this country, destroyed the banking system and this eventually undermined the public finances. We were warned back in 2000 of the dangers for Ireland in joining the eurozone when the United Kingdom was remaining outside. We confused the benefits of Europe, the EU, as a free trade area which had operated for 50 years, with the common currency. Ireland is an illustration that this common currency failed because it promoted such unstable flows that it destroyed asset values in this country and eventually the public finances. I am not so sure that having more presidents in Europe is the way to solve that problem. The plan B in Europe will be two currencies, probably one based on Germany and the other based on the Mediterranean. Continuing the experiment when it is causing so much misery throughout the European Union, calls into question just how stubborn do people have to be in continuing with policies which cause so much misery for European citizens. I do not welcome the unprecedented interference in the internal affairs of Greece and Italy in the past number of weeks. These countries are democracies which should be entitled to have their own system of governments.

We ignored strong advice when we joined the euro. It is a relatively small proportion of our trade - about one third of the total. Joining without the United Kingdom was foolhardy. We did not have proper institutions to control the capital flows. As the Minister of State said, we had massive failures of governance in the way we ran banks and in the way the Department of Finance was run. I refer to the sheer lack of economic expertise in the Department of Finance as referred to in the Wright report. Only 7% of the staff had qualifications at masters level in economics.

We did not know what we were doing when we got involved in this and there has been an extremely difficult adjustment period coping with that mistake. Europe must seek not merely to patch the thing up yet again but fundamentally to rethink whether we can retain the benefits of the European Union as a free trader, with all the gains and trade the Minister of State mentioned, in a currency union that is not working. This may require treaty change which would be very difficult to get passed in this country. We rejected treaty changes twice before and as a result referendums were held twice. This did not show the EU being held in great public esteem. When something does not work eventually governments must get together and admit this is the case. The experiment of the euro is now firmly in that category.

Photo of Catherine NooneCatherine Noone (Fine Gael)
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I will take three questions at a time, the first from Senator D'Arcy.

Photo of Michael D'ArcyMichael D'Arcy (Fine Gael)
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I thought I could make a five-minute statement, sharing time.

Photo of Catherine NooneCatherine Noone (Fine Gael)
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Spokespeople have five minutes followed by questions, allowing up to one minute.

Photo of Michael D'ArcyMichael D'Arcy (Fine Gael)
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I believed my time was to be shared.

Photo of Catherine NooneCatherine Noone (Fine Gael)
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I will allow some latitude.

Photo of Michael D'ArcyMichael D'Arcy (Fine Gael)
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I thank the Chair. I apologise for the mix-up.

Photo of Paschal MooneyPaschal Mooney (Fianna Fail)
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I wish to propose an amendment to the Order of Business. This is a farcical situation. Those Members present are here to make a contribution.

Photo of Catherine NooneCatherine Noone (Fine Gael)
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There is time so we will agree to that. Technically, the debate is set up with statements followed by questions and answers. Only spokespersons are supposed to have statement time. We will allow some extra time.

Photo of Michael D'ArcyMichael D'Arcy (Fine Gael)
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As things stand it is not possible for current arrangements to deal with eurozone debtors Spain and Italy, but they can deal with Greece. The combination of both Spain and Italy would come to more than €2.2 trillion in public debt. That is almost twice as high as the proposed €1.25 trillion European Financial Stability Facility, EFSF, vehicle. That latter amount would have only enough fire-power to keep buying Spanish and Italian government debt for approximately two years, assuming €10 billion per week at a purchase rate. This would not be able to cover the full insurance of the bonds and also assumes that no other country would require help.

Given these constraints, it is clear that the only credible lender of last resort is the ECB. That is where we must get to, at some stage. Every other fiscal zone in the world that has its central bank as the lender of last resort, as such, is enabled to print money. The main method of doing this is quantitative easing so that a central bank can buy the country's own bonds. The initial thought of providing 20% to 30% first-clause insurance is completely nonsensical because an investor buying government bonds would naturally expect to get much more back from a eurozone sovereign investment that simply 20% to 30% on the euro. When a sovereign state defaults its recovery value is based upon whatever IMF-sponsored bail-out restructuring can be arranged. I cannot see how it is possible to suggest 20% to 30% insurance could be supplied during bailout recovery if this is being supplied by the same institutions to which we are looking for that bailout.

In the end we saw the ECB stepping up its buying programme to more than €10 billion last week yet the Italian five and ten year bond yields are on a one-way ticket to 7%. The general belief in the market is that the EFSF will simply not have enough fire power to stem the flow. The only way a concerted market short can be tackled is to ensure that those trying to force down the market have no idea of the size of the pool of money against which they are playing. By setting an upper limit on the EFSF the bears know what they are fighting. Were the ECB to have a mandate to print money and buy it would require much less money to turn the market around simply because the bears would be the ones with the constraints on their limits of capacity, rather than the ECB. One cannot beat an unlimited capacity so why try? The problem is Germany and its completely irrational fear of inflation. When we get beyond that we will be all right.

Ireland is not Greece but we must make some comparisons. Greek default equals Greek-style austerity. We have not gone anywhere near that. The last round of austerity in that country required a 15% further reduction in public sector salaries, a €5 billion increase in income taxes, a €5 billion decrease in social welfare payments, 2,000 schools being closed and 30,000 public sector employees going on short-time work before being let go in 18 months. We are nowhere near that sort of position.

I mention some other points. If a nation is impoverished from outside that nation will rise up. The Greeks are being impoverished by the extent of the austerity imposed on its citizens. We seem to have forgotten that it is not so long since some of the 17 countries in the eurozone had military dictators - Spain, in the early 1970s, Greece in the mid-1970s. If we push a nation hard enough - I am not concerned about the people who merely riot, the thugs - and if its middle class is impoverished it will rise up and there will be a revolt. That can happen. We have been looking down our noses at some of the slaughter going on in sub-Saharan Africa but in the last century Europe slaughtered its citizens more than did any other continent.

Are we to continue going down this route because we want to hold true to a principle argued 15 years ago, prior to the establishment of the ECB between the Germans and the French? On that occasion the Germans won and made the ECB entirely independent of political control. At some stage the nations of the Continent must step up to the plate and put in place the structures required to force the ECB to print money. It must happen. Barry Eichengreen, the US scholar, has a view that on every occasion that European ministers or leaders meet they kick the can down the road and make a bad scenario worse. That seems to be where we are getting to but eventually we must bringing this situation to a conclusion and it will be by means of the ECB printing money and putting more money into circulation.

Photo of Thomas ByrneThomas Byrne (Fianna Fail)
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I assume I will be accorded the same time to speak. I compliment the Minister of State, Deputy Creighton, for the work she is doing, but it is rather unfortunate she has been briefed against by her own Government. That appeared to be the case judging from an article published last weekend. It is very fortunate she has support from Senator Terry Leyden on this side of the House, while I have expressed personally to the Minister of State my belief she is doing a very good job. She has a knowledge and interest in the area which she demonstrated in opposition.

Photo of Lucinda CreightonLucinda Creighton (Dublin South East, Fine Gael)
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I thank the Senator.

Photo of Thomas ByrneThomas Byrne (Fianna Fail)
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That does not mean I agree with everything she says.

Photo of Lucinda CreightonLucinda Creighton (Dublin South East, Fine Gael)
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I was waiting for that.

Photo of Thomas ByrneThomas Byrne (Fianna Fail)
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I mean it in a genuine way.

I wish to highlight some points. Many speakers have made statements, including the Minister of State. She stated, echoed by her colleagues, she is very supportive of enhanced economic governance. I am not, nor is my party. Page 8 of the communiqué explains what enhanced governance and surveillance means. It means adoption in member states of rules on a balanced budget. I do not agree with that. If we had those rules on balanced budgets in 2008 when our taxes came over a cliff, we would have been obliged to cut social welfare by up to 40% in that year alone, rather than take in the long period ahead.

There is an invitation to national parliaments to take into account recommendations adopted at EU level on the conduct of economic and budgetary policies. There is now a commitment in this programme to stick to the recommendations of the Commission and of the relevant Commissioner regarding the implementation of the Stability and Growth Pact. For member states in the excessive deficit procedure - which includes us, of course, but also most eurozone countries-----

Photo of Lucinda CreightonLucinda Creighton (Dublin South East, Fine Gael)
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Five or six excepted.

Photo of Thomas ByrneThomas Byrne (Fianna Fail)
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Are there only five or six?

Photo of Lucinda CreightonLucinda Creighton (Dublin South East, Fine Gael)
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Yes.

Photo of Thomas ByrneThomas Byrne (Fianna Fail)
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Exactly. Any country with a deficit higher than 3% is included, thus most euro countries. Under these proposals the Commission and the Council would be able to examine national draft budgets and adopt an opinion on them before their adoption by the Parliament. Therefore, the entire secrecy in the budgetary process would be exempted in order to allow the Commission to decide what would be in our budget. In addition, it would be entitled to suggest amendments. I find much of this very concerning. While others seem to welcome it with open arms and express support for it, I do not believe much thought has been given to it. The language used is: "in the case of slippages of an adjustment programme closer monitoring and coordination of programme implementation will take place". That is what the Government signed up for a couple of weeks ago. It may be necessary in the context of receiving financial aid from other countries but in terms of the normal run of countries, we are ceding even more sovereignty to the European Commission because currently under the EU-IMF arrangement, we have broad capacity to decide what will be in our budget as long as we reach the targets set out in terms of annual deficits. That is the reality and what the IMF said. The Government can do what it likes in the budget as long as it achieves a certain target. The Government has full economic sovereignty over what it wants to do. Even if we were in the bond market and not the IMF, we would have to reach certain targets and our choices would be limited.

I would like to ask the Minister of State about the EFSF bond auction yesterday, which was cancelled last week. What is the Government doing in terms of a contingency plan? It is deeply worrying if the EFSF cannot borrow money on the markets or is only getting a limited demand for the money. What is the Government doing in terms of a fall-back? Are we sitting back and waiting for "Merkozy" or whatever one wants to call them to tell us what is going on because unfortunately, that is what has been happening? When the Taoiseach and the Minister of State came back from Brussels in July with the reduced interest rate, we all welcomed that. They also claimed credit for the extension of the terms of the loans when that very week in the Dáil, the Taoiseach said he was not looking an extension of the terms of the loans. In our interests, the Government must be more actively engaged in what is going on in Europe because it seems we are not doing anything. If this all goes belly up, will we say "Oh no! Merkozy did not work it out"? We must work it out.

I take issue with something the Minister of State said which was also said by the Government earlier this year, namely, the allegation that Fianna Fáil Ministers did not attend European meetings. The evidence suggests the opposite. A study was done in Sweden which found that Ireland was the fifth best attender at European meetings over a ten-year period. The Minister of State, the Taoiseach, the Minister for Finance and the Tánaiste spoke about the tragedy that Ireland did not attend meetings. The table done by Swedish academics shows that we were number five. A very wrong message was sent out. I was certainly annoyed with the previous Government when I heard that but when I checked the facts, the allegation did not stand up.

Photo of Catherine NooneCatherine Noone (Fine Gael)
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We now move on to questions. I call Senator Colm Burke.

Photo of Colm BurkeColm Burke (Fine Gael)
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I welcome the Minister of State. I refer to the availability of money, in particular for small and medium sized businesses. The Minister of State referred to a structure, or a mechanism, to make money available to small and medium sized companies. Will she elaborate on what is proposed in that regard because it is one of the big problems facing this country? To give her an idea of the problems we face, a friend of mine was involved in a project in France costing €20 million and was able to borrow €18 million in Germany at 3.85% fixed for ten years. The project has now finished and is yielding quite a good return. The same facility would not be available in Ireland.

I wish to touch on an issue raised by Senator Terry Leyden and which I have raised on a number of occasions in this House. On the last occasion I raised it, I proposed that two days per month be set aside in this House to deal with legislation and proposals coming from the European institutions. I have a very strong view on that having served in the European Parliament for two years, having seen the volume of legislation with which we must deal and, in particular, because Europe will now have a greater say on the issues affecting our financial planning, whether we like it or not. Will the Minister of State take that proposal on board?

I have seen proposals from Europe go through various joint Oireachtas committees but, unfortunately, those committees do not have adequate time to deal with major issues. It is time we looked at that. This House could play a very useful and constructive role in dealing with those issues. Is the Minister of State with responsibility for European affairs prepared to support that proposal and to see how we could advance it further?

Photo of Paschal MooneyPaschal Mooney (Fianna Fail)
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I welcome the Minister of State and would like to pick up on the point Senator Colm Burke made. The Minister of State was chair of a sub-committee of the Oireachtas Joint Committee on European Scrutiny of which I was a member in the last Administration. She brought forward proposals at that time which would be very much ad idem with what Senator Colm Burke suggested, so perhaps she would have a comment to make in that regard because the new configuration of committees cannot physically, mentally, logistically and in every other way deal with the volume of directives and other proposals from Europe. Senator Colm Burke is absolutely right, so perhaps the Minister of State will have something to say on that.

I refer to some of the remarks made by those on the other side of the House. I would probably say the same if I was on that side. I know the Minister of State will not comment on all the promises and commitments made to the electorate before and subsequent to the election, on the activities in which the Government has been involved, on the quote on 5 February that it is neither morally right nor economically sustainable for taxpayers to be asked to beggar themselves to make profits for speculators, on the statement made on 9 February by the now Minister for Transport, Tourism and Sport, Deputy Varadkar, that not another cent would go to the banks and so on.

The one thing that emerged last week was not so much what was happening in Greece or the emerging Italian crisis but the fact that this Government sanctioned the payment of €700 million to junior bondholders, which was not guaranteed or secured and did not have to be paid. I appreciate there is a moral argument and I understand from where the Minister of State is coming in terms of responding to why we were obliged to pay this money but this Government will find, as the last one found, that public opinion can shift very quickly. It is very volatile.

It is in that context that I ask the Minister of State whether she agrees there is a very real crisis of leadership in the European Union. Is there a need for Ireland to take a lead in the way it did in the past among like-minded nations in Europe to try to build some sort of an alliance for the smaller nations?

Photo of Lucinda CreightonLucinda Creighton (Dublin South East, Fine Gael)
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That is what we are doing.

Photo of Paschal MooneyPaschal Mooney (Fianna Fail)
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I would be interested to hear the Minister of State develop that point. The crisis we now face is not only a financial one but a political one. It has great potential to do very real damage to democracy in Europe, on which the foundations of Europe have been built following the Second World War. It is somewhat apposite that Senator Jimmy Harte made a reference to Hitler. It was in somewhat similar circumstances in the late 1920s and early 1930s that democracy came under threat and we saw the rise of Fascism and of the right in Europe, which is now happening, primarily because, as was said by some of the other contributors, the middle classes are now beginning to be hit more and more. In such cases, they tend to drift more to the right. Does the Minister of State have any views on that? I know she has made public statements on governance and standards in government over the years both as a Deputy and, more recently, as a Minister of State.

There is a very real difficulty for us from a democratic perspective. Has the Minister of State any insight into whether these matters have been discussed by the Council? Are they being discussed at the level at which she is operating? Are they being discussed outside the immediate financial difficulties, namely, the eurozone crisis? Is there a recognition in Europe that there could be a very real threat to the stability of Europe and the democratic institutions on which Europe has been founded?

Photo of Lucinda CreightonLucinda Creighton (Dublin South East, Fine Gael)
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I thank Senators for their very interesting statements, their lively contributions and their questions so far. First, I will address the two questions asked by Senator Colm Burke. On supporting SMEs, I could not agree more with the Senator. The Irish economic model is a good one to highlight the importance of SMEs because we have already seen the upturn in inward investment and exports. That is what is driving the limited growth we will see this year. It is expected that we will achieve 1% growth for 2011. That is almost exclusively driven by exports. It is the domestic level in which we are suffering a general degree of stagnation. This is down to the challenges that have faced small and medium-sized enterprises, SMEs, over the past several years. Even before the crash, the costs of doing business were rising every year with increasing amounts of bureaucracy strangling many SMEs. This came into more focus over the past two years. However, there have been reductions in certain costs for businesses, particularly labour costs, which have made us more competitive. Ireland is now seventh in the world competitiveness rankings but we have much further to go.

The key issue for SMEs is access to credit. The Government, through the Minister of State at the Department of Enterprise, Jobs and Innovation, Deputy Perry, has put in place a commitment to underpin investment in SMEs in cases where the banks are not in a position to lend. This will come into force soon.

The European Central Bank, ECB, has a moral obligation to make available as much credit as is possible for viable businesses and projects in all EU member states. This is a responsibility the ECB's leadership is now taking more seriously than perhaps it had in the past because of the degree of the crisis. At the European Council meeting on 23 November, the Taoiseach made the specific request that the ECB would prioritise programmes countries — Greece, Portugal and Ireland — which was agreed in the Council's conclusions. While we do not have the full details of this yet, it is a substantial commitment. Already, officials from the Department of Finance are working with the ECB and other member states to see how quickly this commitment can be activated.

In July, agreement was reached to relax the co-financing requirements for the drawing down of funding from the Structural and Cohesion Funds. Obviously, the amounts involved for Ireland were much larger 20 years ago but these funds are still relevant. Last Saturday in Cork, I discussed concrete proposals with the regional authority and chamber of commerce which could use Structural and Cohesion Funds. The Minister of State with responsibility for SMEs, Deputy Perry, along with the Department of the Environment, Community and Local Government through infrastructure projects, have roles to play in assisting businesses draw down from these funds and have a direct impact on the economy.

The Government is anxious for the European Commission's Single Market Act to be implemented. It is also a priority of the Polish EU Presidency which I know has suffered a certain amount of frustration when dealing with the European Commission to drive this project. The Single Market Act is the singular most important instrument available to the European Union to drive job creation and economic growth. While it is easy for multinational companies to access capital and credit across borders, it is a major challenge for SMEs. From visiting Paris and Berlin with Irish SMEs getting assistance from Enterprise Ireland, I have learned they cannot get access to venture capital or credit in other EU member states. A very simple tweaking of the rules will make it easier for these SMEs. The Single Market Act is on top of my agenda, as well as being at the heart of the Government's agenda.

I am committed to the Seanad becoming more involved in dealing with EU legislation, a point raised by Senators Leyden and Mooney. I spent my first six months in office prioritising the agenda of reputation-building in the European Union, restructuring how we handle and co-ordinate European affairs in government - in which we have made great strides in the past several months - and elevating the role of the Dáil and the Seanad in scrutinising European legislation.

Having been a member of the European affairs and scrutiny committees with Senators Leyden and Mooney, I believed the scrutiny committee needed to be abolished with the European affairs committee being the more appropriate body to co-ordinate the scrutiny of EU legislation. I am disappointed, however, the Committee on European Affairs has not stepped up to the plate in this regard. I will happily discuss with the committee better ways to implement EU legislation. The sectorial committees must be the vehicle for detailed scrutiny because they have the expertise. The European affairs and scrutiny committees are general committees and Members with general skills sit on them. It is a pointless exercise having them deal with the minutiae of sectorial EU legislation.

There is also a large role for the Seanad to deal with EU scrutiny. I am not suggesting Members do not have much on their plates as they are very busy legislating.

Photo of Terry LeydenTerry Leyden (Fianna Fail)
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We do not actually.

Photo of Paschal MooneyPaschal Mooney (Fianna Fail)
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We can make room.

Photo of Lucinda CreightonLucinda Creighton (Dublin South East, Fine Gael)
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There is an obvious role for this House to scrutinise EU legislation. I have always advocated this and I will speak with the Leader and the Whip to ensure this happens. It is important the potential of the Seanad, as well as the whole of Parliament, is fully realised. I am more than happy to take up this cause.

There is only one case of the Oireachtas issuing a yellow card against an EU proposal under the Lisbon treaty terms. Other EU member state parliaments have had multiple instances of this. There is an onus on Members to utilise the mechanisms given to them by the Lisbon treaty. It is not just about red-carding legislation but actively involving with the Commission. Members, who are always welcome in the corridors of the European Commission and European Parliament, should meet with Commissioners and their officials to see how best our legislative and policy agendas can be synchronised. Ministers, likewise, need to be more engaged with the Commission in this regard. We can agree with that. That probably answers Senator Mooney's first question as well.

Photo of Paschal MooneyPaschal Mooney (Fianna Fail)
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The Minister of State needs to establish a new relationship with the committees. She will get into a turf war because they are already engaging in the process right now, but they are not engaging in it adequately as this House is suggesting. They are currently engaging in that process.

Photo of Lucinda CreightonLucinda Creighton (Dublin South East, Fine Gael)
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That is a positive step. I cannot do the work of committees for the committees but I will happily engage with them. It is also for the committees to ensure that their line Minister comes before them to discuss the issues. If there is a policy issue that is of concern to a committee, whether it is something in the pipeline or coming forward in a tangible, legislative process, it is not for the Minister of State with responsibility for European affairs to hold the hands of committee members and make them address it; it is for the committee.

Photo of Paschal MooneyPaschal Mooney (Fianna Fail)
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What is the role of the Seanad in that context?

Photo of Lucinda CreightonLucinda Creighton (Dublin South East, Fine Gael)
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That is what I am saying; the role of the Seanad is for Senators and the Seanad Committee on Procedure and Privileges to decide and define how it wants the Seanad to operate in that regard. There is nothing stopping the Seanad. I am very supportive of that role being taken up by the Seanad. We do not have any conflict. We are ad idem. I am happy to support the much greater and much enhanced engagement of the Seanad in the scrutiny of legislative proposals coming from the European Commission. There is no question about that.

I agree with the Senator's sentiment on the political crisis in the eurozone and the overall context, and the question of public support for the project. We clearly have a political crisis. I have spoken about it many times since my appointment as Minister of State with responsibility for European affairs. On the one hand some Members have talked about the unedifying intervention or interference in the democratic processes in sovereign member states, but on the other hand we want to see political leadership at European level. One cannot isolate the two. It is all very well to say that what is happening in Italy or Greece has nothing to do with us but at the same time it is very popular and indeed populist in this country at the moment to beat President Sarkozy and Chancellor Merkel over the heads with a stick when they try to get into action mode while at the same time criticising them for months for a lack of action. There is a double standard of which we are perhaps all guilty. It is clear that the engine of the European project has always been a Franco-German one. That is what rose from the ashes of the Second World War. We need that engine to maintain the political momentum and underpin the European project. That is in all of our interests. There is a fine line between that momentum becoming some sort of domination. We must be clear about that. That is where the institutional balance is so important.

The problem with the current crisis is that it was never anticipated. We do not have the mechanisms in place to deal with such a crisis so the French and German Heads of Government have stepped forward. We have insisted that they step forward to take an active leadership role. I was very disappointed with the lack of action from political leaders in the past eight months since my appointment and prior to that. I was critical of it, but I am pleased that at the eurozone summit on the 26 and 27 October we did finally see decisive action from Chancellor Merkel in particular. I give her credit for that. If there were one or two reasons as to why the banking federation agreed to undertake the 50% haircut on Greek debt, which was so important for us, it was because Chancellor Merkel and President Sarkozy demanded that they do so. I for one welcomed that step and I am pleased that it happened.

That does not answer the question about how we go forward and how we deal with this very delicate balance in the future. It goes back to the question of how we want to govern ourselves in the European Union, most particularly how we want to govern ourselves in the eurozone. We have a big process of reflection to undertake. We do not have the luxury or the time to do it right now with the crisis gathering around us like a storm. We must deal with the immediate crisis with the instruments we have available to us but post this crisis, when we resolve the issue in the eurozone, in regard to the EFSF we must address the wider issue of governance. I support entirely Senator Michael D'Arcy's comments on that, the ECB must be the backstop against contagion. It is the only option. I have blogged about that on my website and I have spoken about it in media interviews in recent days. That is an essential element to the current crisis but when we move beyond that we must have a much broader reflection. This country must not alone participate in it but we must lead it. I have been working on developing links with my counterparts and with key stakeholders in all of the member states about how we move forward and find solutions to the governance issue that challenges the European Union in the future. However, now is not the time. Between now and Christmas we must find a lasting and credible solution to the current financial crisis. It is in all our interests to do so. Our very economic existence is at stake. I do not think that is to overstate the severity and the seriousness of the matter but beyond that we must reflect and have a process of engagement with each other where we ask how we want the European institutions to coexist in future with the member states, and how we find a way in which the small member states can be valued and encouraged and have a meaningful role in decision making at a European level alongside the big member states who we need because of their economic and political clout. Those issues are important but I would not like to see us indulge in that type of discussion at this moment when we need a solution to the urgent and serious crisis we face. It is a discussion for another day. Perhaps I could return to the House for a good discussion about it when the time comes.

Photo of Paschal MooneyPaschal Mooney (Fianna Fail)
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Could we be assured that in backing what is the sentiment of the House in regard to discussing and debating European legislation the Minister of State would also promote the provision of resources for that purpose because it cannot be done in a vacuum? Resources need to be provided if we are to take on that role. It is not enough for the Minister of State to say that she supports the proposal and that it is the way to proceed; she needs also to fight the case in terms of resources.

Photo of Lucinda CreightonLucinda Creighton (Dublin South East, Fine Gael)
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I am happy to fight that case.

Photo of Colm BurkeColm Burke (Fine Gael)
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I thank the Minister of State for her response to issues raised by me and Senator Leyden. Given the volume of EU legislation that is coming through, one of the problems is that committees are under pressure. I am a member of the Joint Committee on Health and Children and many issues at a national level are confronting it. The one committee that is working effectively on EU changes is the Joint Committee on Communications, Natural Resources and Agriculture because of the big volume of funding coming from Europe for agriculture. There is a need to bring items that are being discussed at European level into the public arena in this country. Discussion in the Seanad would be a useful exercise, whereas it does not necessarily happen in committees. Putting matters in the public arena at an early stage shows that constructive proposals are coming from Europe.

I saw an appalling article in a newspaper in the past week. We have 12 MEPs but the article said we had 13. It did not get its figures right. It complained about the fact that MEPs are getting €225,000 to employ staff for research on work going through the Parliament and also to disseminate information to the approximately 1 million people each MEP represents. That is less than 20 cent per annum per head of population in each constituency, which is less than one eighth of the cost of one newspaper per day. That issue does not seem to be taken up by the media at all.

7:00 am

Photo of Terry LeydenTerry Leyden (Fianna Fail)
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I am delighted with the delegation of scrutiny of EU legislation to this House. The Minister of State has a busy portfolio and the situation is tense in Europe currently. She chaired a group and prepared a paper on the Lisbon treaty. She put a tremendous amount of work into it. The Cathaoirleach will be involved in the Seanad Committee on Procedure and Privileges. The key legislation will be dealt with by the sectoral committees but there is a need for backup from the committee system - for example the Joint Committee on European Affairs could come to the House in support of the legislation. That would be one way of dealing with it rather than duplicating the work. The Joint Committee on European Affairs has its own role but it has not dealt with any legislation unlike what happened previously. It would be a tremendous role for the Seanad. Under the Lisbon treaty it was specifically intended that parliaments would have an increased role.

I am open to correction but I understand a sectoral committee cannot refer or reject-----

Photo of Lucinda CreightonLucinda Creighton (Dublin South East, Fine Gael)
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It can on behalf of the Parliament.

Photo of Terry LeydenTerry Leyden (Fianna Fail)
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There is delegated responsibility.

Photo of Lucinda CreightonLucinda Creighton (Dublin South East, Fine Gael)
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That is the way it is done in most parliaments.

Photo of Terry LeydenTerry Leyden (Fianna Fail)
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So there will be delegated responsibility. During the campaign I remember attending a forum discussing the role of the Seanad, which is a great resource. If we got one piece of legislation every few weeks at least we could show what can be done in this House in a detailed and comprehensive fashion. Other committees would be agreeable in this regard. I spoke to a colleague a while ago who told me there are approximately 60 Bills before the finance committee, and they are not receiving full scrutiny. Only three or four have been scrutinised and the rest are being sent back without amendment.

I am glad the Minister of State is here today and being constructive. Going through what happened in the past will not help anything. There was a completely unfair article in the review section of the Irish Independent last Saturday about the Minister of State, Deputy Creighton.

Photo of Paddy BurkePaddy Burke (Fine Gael)
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We are not discussing the newspapers.

Photo of Terry LeydenTerry Leyden (Fianna Fail)
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She is a receptive Minister of State who is available to the House. She is a young woman doing an excellent job.

Photo of Michael MullinsMichael Mullins (Fine Gael)
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We should invite her in every morning as she would have a calming effect. I have never seen the Chamber so calm.

Photo of Lucinda CreightonLucinda Creighton (Dublin South East, Fine Gael)
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We are going over the same ground but I restate my absolute commitment to proper legislative scrutiny in the Houses of the Oireachtas. For far too long that has not happened and we have a wonderful opportunity to use this House and the committee structure to make our contribution at a European level much more robust. I reiterate the point that it is important we do not simply go down the road of scrutinising with a view to blocking legislation in a negative sense. We should also look at the policy agenda.

The European Commission is publishing its work programme this month and it will be out within a week or ten days. Across every sector there will be an array of interesting and challenging proposals with opportunities for this House to feed into the process. I would strongly urge that this would happen. I will speak to the Whip and the Leader of the House, making known my support for that proposal, which seems to have all-party consensus in the House. It is an excellent idea and I would love to see it happen. I will engage with the issue again in the weeks and months ahead.

Photo of Paddy BurkePaddy Burke (Fine Gael)
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That concludes the statements. When is it proposed to sit again?

Photo of Michael MullinsMichael Mullins (Fine Gael)
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At 10.30 a.m. tomorrow morning.