Seanad debates

Wednesday, 18 November 2015

Finance (Miscellaneous Provisions) Bill 2015: Committee and Remaining Stages

 

Sections 1 to 4, inclusive, agreed to.

NEW SECTION

10:30 am

Photo of Sean BarrettSean Barrett (Independent)
Link to this: Individually | In context | Oireachtas source

I move amendment No. 1:

In page 6, between lines 22 and 23, to insert the following:"5. Where the burdens of bank recovery and resolution impose excessive burdens on a member state of the eurozone an agreed re-introduction of a national currency and a flexible exchange rate regime shall be a permitted alternative to the bank recovery and resolution measures of Part 2 of this Act.".

As always, I welcome the Minister of State at the Department of Finance, Deputy Simon Harris, to the House. He informed us on Second Stage that "this Bill is very much of a technical nature and is designed primarily to address certain national and international obligations arising from a number of issues associated with the EU financial services legislative and transposition agenda". The purpose of the amendment is to address this issue. It provides that where a bank recovery and resolution imposes excessive burdens on a member state of the eurozone, an agreed reintroduction of a national currency and a flexible exchange rate regime should be permitted as alternatives to the bank recovery and resolution measures set out in Part 2.

The austerity agenda, as it is known, the bank collapses and rescues and the major burden that every Member of the Oireachtas has borne and substantially dealt with over the past four years could all have been alleviated if a measure such as that proposed in the amendment had been available. I am seeking to have included in the Official Report of a Parliament of a member state of the eurozone confirmation that an alternative exists by providing that countries must not stick rigidly to a fixed exchange rate and make those on the receiving end miserable forever. I specifically have in mind Greece, its fixed exchange rate vis-à-visGermany and all the trouble and turmoil Greek people have endured. If Greece had a separate exchange rate - the Minister for Finance referred to this on one occasion when he used the example of feta cheese - it could have varied the exchange rate to increase the number of German holidaymakers and exports of goods.

It is a design fault of the euro that it does not provide an exit mechanism and instead provides for a lobster pot means of making economic policy. It is very easy to join the euro but impossible to leave it. It the case of some eurozone member states, for example, Italy, Portugal and Greece, it would be easier to reintroduce a devalued national currency than to have the relentless imposition of austerity that has been associated with rigidly maintaining a fixed exchange rate, regardless of the underlying economic conditions. Greece and most other countries are not Germany and the single currency is not essential to the operation of the European Union. Countries outside the euro include Denmark, Sweden and large member states such as the United Kingdom and Poland.

The exchange rate benefits of the euro may have been exaggerated. What we lost on joining the single currency was the ability to use the exchange rate and interest rates as instruments of economic policy. Colm McCarthy described it, in his inimitable way, when he compared the exchange rate to the canary in the coalmine and stated that the EU shot the canary, meaning we did not have danger signals emerging from the types of policies that were pursued. The excess flow of capital in massive quantities and the tsunami of capital from German and French banks into Irish banks were promptly used to undermine the economy. The major inflow of bank funding was the start of the property bubble and we have all been required to participate in the rescue of the banks.

Irish banking dates back to 1783 and Grattan's Parliament. Since then, there have been approximately 20 massive shocks to the system, none of which bankrupted the Bank of Ireland. They included the Famine, revolutions and two world recessions. The bank was bankrupted, however, by the decision to join the euro in 2008. We were warned against joining the single currency by people such as Milton Friedman who noted that without an exit mechanism, we had locked ourselves in and thrown away the key.

As the Minister of State indicated on Second Stage, the Bill involves an element of retrofitting. Last November, a bank resolution mechanism finally came into operation for a currency that had been in place for the best part of 20 years. There is a respectable economic view that much of this would not be necessary if we had not been so rigid about the fixed exchange rate. Keynes described Churchill's decision to restore the gold standard in the United Kingdom as crucifying an economy on a cross of gold. There are also design faults in the euro currency. In addition to the loss of the interest rate and exchange rates, one also has weak bank regulation, which was only remedied last November, and the absence of an exit mechanism.

While it may be most unwelcome to Mr. Trichet, Mr. Draghi and others, there are still parliamentarians in the member states who think for themselves and propose alternative policies. It seems particularly strange that they will hang themselves on the absence of an exit mechanism, even where the policy of fixed exchange rates between the Deutschmark and all the other countries does not work. Some of this arrogance spilled over in the statement to the Minister for Finance that if bondholders were burned, a bomb would go off in Dublin. We need to address the problem of countries being stuck at the wrong exchange rate.

The purpose of the amendment is to place on the agenda the message that in at least one member state parliament, there are people who do not see the euro as the be-all and end-all of economic policy. There are alternatives to the regime of austerity. We threw away some without properly considering them, while others caught us unawares. The tsunami effect of the massive flow of capital into the Irish banking system imposed costs on the economy which it had never borne in the 217 years between 1783 and 2000. When we had policy discretion we used it wisely.

The purpose of the amendment is not to annoy the Minister or undermine his work.I want to get across that when we go to Brussels and Frankfurt there must be a discussion of equals about whether fixed or flexible exchange rates are correct and whether the one-size-fits-all policy, which is part of the Franco-German alliance, applies to peripheral countries, rather than what has been done heretofore, which is blaming people in peripheral countries for being lazy or incompetent and refusing to talk to them in a parliamentary context and being pretty patronising to them in the European Parliament. A very rigid alternative has been chosen. Many economists would have chosen something different, and I have tabled the amendment to show that in the world of learning which is the subject of economics, it did not have to be this way. It was chosen and we were locked in, but it did not have to be as immutable as it has been made. We should have discussions every time a policy comes from Brussels or Frankfurt, because it is not inevitably and inextricably the correct one. We must use our own thinking caps in the interests of this country.

Photo of Simon HarrisSimon Harris (Wicklow, Fine Gael)
Link to this: Individually | In context | Oireachtas source

Far from annoying me, I always enjoy Senator Barrett's view and very much accept his sincerity on all of these matters. We had a chance to speak about this, and I believe the Senator will understand that regardless of my views or his, I am not in a position to accept the amendment, as Part 2 does not provide for the bank recovery and resolution measures available to Ireland. Its purpose is simply to ratify the intergovernmental agreement to enable the operationalisation of the Single Resolution Mechanism. The recovery and resolution measures are covered by the European Union (Bank Recovery and Resolution) Regulations 2015 which transpose the EU bank recovery and resolution directive, and also by the EU Single Resolution Mechanism regulation. It also would not be possible to introduce a legislative change for members of the eurozone through national legislation. I know the Senator knows this and that he feels strongly about wanting to make the point, but for the reasons I have outlined I am not in a position to accept the amendment.

Photo of Sean BarrettSean Barrett (Independent)
Link to this: Individually | In context | Oireachtas source

I thank the Minister of State for his contribution, as always.

Amendment, by leave, withdrawn.

Sections 5 to 7, inclusive, agreed to.

SECTION 8

Photo of Sean BarrettSean Barrett (Independent)
Link to this: Individually | In context | Oireachtas source

I move amendment No. 2:

In page 8, line 24, to delete "stand" and substitute "stands".

This is a small amendment on grammatical matters, and I will leave it to the Minister of State to handle it on Report Stage.

Photo of Simon HarrisSimon Harris (Wicklow, Fine Gael)
Link to this: Individually | In context | Oireachtas source

I pay tribute to the Senator's attention to detail, but we have consulted the Office of the Parliamentary Counsel on this point and it has indicated that while it can appreciate, as can I, where the Senator is coming from with his proposed amendment, its view is that it matters little in practice because it is difficult to see how whichever word we use, be it "stand" or "stands ", can be interpreted as other than what is intended. In other words, it unambiguously refers to a situation where there is no money left in the legacy fund, no matter which word is used. While one can contend between "stand" and "stands", and I take the point the Senator is making, the Office of the Parliamentary Counsel has advised me it will make no material difference, and because of the urgency in passing this legislation to ratify the agreement, I do not propose to accept the amendment.

Amendment, by leave, withdrawn.

Section 8 agreed to.

Section 9 to 11, inclusive, agreed to.

SECTION 12

Photo of Sean BarrettSean Barrett (Independent)
Link to this: Individually | In context | Oireachtas source

I move amendment No. 3:

In page 11, line 11, to delete "2 weeks" and substitute "1 week".

This is taken from the note supplied by the Oireachtas Library and Research Service that the ECB might like a faster period of reimbursement, hence the proposal of one week rather than two. The Department of Finance told the Oireachtas Library and Research Service this was being discussed and it might have been included by the Minister of State at this stage. I will leave it to his discretion. There is literature on whether one week or two weeks is correct.

Photo of Simon HarrisSimon Harris (Wicklow, Fine Gael)
Link to this: Individually | In context | Oireachtas source

The Senator is quite right to raise this matter, and I am happy to provide clarity on it. Under section 8 of the Financial Services (Deposit Guarantee Scheme) Act 2009 as it stands, the period for repaying the Central Bank for a short-term advance it has provided is three months. We have consulted the European Central Bank on the matter and I can inform the House it is satisfied that two weeks is a sufficiently prompt time which does not create any monetary financing concerns for it. We sought the opinion of the ECB and it is happy with the two-week period. Therefore, I do not propose to accept the amendment.

Photo of Sean BarrettSean Barrett (Independent)
Link to this: Individually | In context | Oireachtas source

I accept the point made by the Minister of State.

Amendment, by leave, withdrawn.

Section 12 agreed to.

Sections 13 to 21, inclusive, agreed to.

NEW SECTIONS

Photo of Sean BarrettSean Barrett (Independent)
Link to this: Individually | In context | Oireachtas source

I move amendment No. 4:

In page 17, between lines 23 and 24, to insert the following:"22.The Minister shall submit to both Houses of the Oireachtas an annual report on the regulation of the Insurance sector including solvency, premium increases, competitiveness and all matters included in Part 4 of the Finance (Miscellaneous Provisions) Act 2015.".

I have a number of concerns in this regard, including a bill for €92 million for Setanta which was supposed to operate in Malta, massive losses in Quinn and, before that, in PMPA and the Insurance Corporation of Ireland. Such matters were within the province of the Minister for Industry and Commerce, the portfolio having had various changes of title since. In its 2015 report, the National Competitiveness Council stated the Minister should present reports on financial regulation, which now includes insurance. We have a bad record in this field, with insurance companies going bankrupt, and a bad record of high claims and high costs, and people such as Mr. Conor Faughnan have referred to this recently. As this legislation will put insurance firmly in financial services rather than in its previous location, there is a need from the point of view of national competitiveness for us to call the sector to account.

I do not know how Setanta, being registered in Malta, is an Irish cost. The other companies were obviously not very well supervised. I understand Setanta is also the Catalan word for 70, so I do not know whether we could have transferred it from Malta to that part of Spain. Insurance has been a nuisance and a high cost in the Irish economy for a long time, and the National Competitiveness Council recommends it should be part of a report on the financial sector. Something seems to be wrong as its costs are increasing, claims are excessive compared with jurisdictions with which we compete such as the United Kingdom, much higher rates of damages are paid and we have much higher incidence of whiplash. Of course, a constant mantra is the much higher level of legal costs. If we do not regulate the insurance sector thoroughly, which is the purpose of the amendment, it will be a burden on the rest of the economy.

Photo of Simon HarrisSimon Harris (Wicklow, Fine Gael)
Link to this: Individually | In context | Oireachtas source

I thank Senator Barrett. On Second Stage we had an opportunity to discuss the issues relating to Setanta and the importance of ensuring we have enhanced monitoring through the market intelligence on freedom of services firms in the Central Bank. I was pleased to be able to assure the House that since the issues arose with Setanta, the Central Bank has enhanced its market intelligence on freedom of services firms and will maintain regular contact with the regulators of those insurance firms about which it has concerns. The Central Bank will also conduct more on-site inspections of intermediaries and manage general agencies which distribute products underwritten by freedom of services insurers. In addition to this, we will have the underlying framework regarding the insurance industry which will be strengthened with the introduction of Solvency II from 1 January next year.

With regard to the amendment, my colleague, the Minister for Finance, is responsible for the development of the legal framework governing financial regulation, and the Central Bank of Ireland as the regulator is responsible for prudential supervision of insurance companies. This is the division of roles and responsibilities. Under the Central Bank Act 1942, as amended, the Central Bank of Ireland is accountable to the Oireachtas in the exercise of its regulatory functions and is required to prepare an annual statement for the Oireachtas relating to its performance in regulating financial services.Further, I would highlight that section 33AM of the Central Bank Act of 1942 provides for certain staff of the Central Bank, including the head of financial regulation, to appear before a joint committee of the Oireachtas responsible for examining matters relating to the bank and provide that committee with such information that it requires, subject to certain conditions. This provision was introduced under the Central Bank Reform Act of 2010 and is quite a useful and important provision available to Members of the Oireachtas in terms of obtaining information and providing a degree of scrutiny. The head of financial regulation at the Central Bank can be called upon to appear before a joint committee of the Oireachtas, presumably the Joint Committee on Finance, Public Expenditure and Reform.

The Central Bank also publishes insurance statistics annually. This includes a large amount of data relevant to the insurance sector operating in Ireland, including the life, non-life and re-insurance sectors. This information is a summary of the life assurance and non-life-insurance returns made to the Central Bank pursuant to the European Communities (Life Assurance) Framework Regulations of 1994 and the European Communities (Non-Life Insurance Accounts) Regulations of 1995. The most recent report was published on 30 September regarding business written during the year ended 31 December 2014. Therefore, for the reasons I have outlined in terms of the current provisions already available to the Oireachtas and its committees and the information being provided by the Central Bank, I am not in a position to accept the amendment.

Photo of Sean BarrettSean Barrett (Independent)
Link to this: Individually | In context | Oireachtas source

The recommendation from the National Competitiveness Council is that the Central Bank and the Department of Finance should continually review and monitor the accuracy and proportionality of financial services regulation, which, as the Minister of State has said, now includes the insurance sector. The money involved for Setanta was €92 million, while Quinn Insurance lost €905 million in 2009 and €160 million in 2010. There is the 2% levy, and we have statements from the Personal Injuries Assessment Board to the effect that insurers should be asked to explain price hikes. There is a serious problem in this area and I do not question for one second the Minister's commitment to dealing with it; in doing so, he will have the support of this House. That said, we have a bad record here. This issue requires more attention from parliamentarians and those who have responsibilities in this regard. Having underlined that point, I will not press the amendment.

Amendment, by leave, withdrawn.

Photo of Sean BarrettSean Barrett (Independent)
Link to this: Individually | In context | Oireachtas source

I move amendment No. 5:

In page 17, between lines 23 and 24, to insert the following:“22. The Minister shall not issue a direction to the National Treasury Management Agency when advised by the Agency that such a direction will reduce the value of its portfolio.”.

This amendment seeks to remove doubt as to whether it was correct to overrule the NTMA and compel it to buy shares in Anglo Irish Bank. My preference is that if the NTMA were to do that again, we would support it, because it cost €30 billion the last time. The Minister should have regard to what is happening to people's pension funds when good advice is being offered. In fact, I praised the NTMA for doing that. We found at the banking inquiry that the NTMA was one of the few organisations within the wider public sector to diagnose what was happening at Anglo Irish Bank. It advised the former Minister for Finance, Deputy Brian Lenihan, that it would not be prudent to put any of the funds from the National Pensions Reserve Fund into the bank but he issued an order compelling it to do so. My concern is that a mistake that happened in the past could happen again. The advice from the NTMA was good and I commend it on that. There were failures of regulation, particularly of Anglo Irish Bank, which ended up costing us €30 billion. That said, I do realise that this is part of the wider scheme in which the Minister has to operate. I take the view that sometimes a financial institution should be allowed to fail because the cost of rescuing it is out of all proportion to any benefits that might accrue. The banking inquiry will show that around 25 people accounted for the loss of €30 billion. Why did the other 4.5 million people have to bear the cost, with the pension fund reduced by €30 billion? It is a matter of balancing and I would have thought that some acknowledgement that the NTMA was right the last time might be worth putting on the parliamentary record. Measures to prevent a recurrence of such events are worthwhile. Maybe there should be better liaison between the NTMA, the Minister for Finance and departmental officials, lest we have a repeat, because nobody in these Houses wants a repeat of the scenario whereby €30 billion from a pension fund disappears into a bank which proves to be worthless.

Photo of Simon HarrisSimon Harris (Wicklow, Fine Gael)
Link to this: Individually | In context | Oireachtas source

I do not propose to accept this amendment on the grounds that it is not intended to revisit the operation of the NTMA or the Ireland Strategic Investment Fund at this time. These will continue to operate in the manner prescribed in the NTMA (Amendment) Act. This section of the Bill operates as a technical amendment and does not change the effect or the operation of section 37(a) of the NTMA (Amendment) Act or alter the ability of the Minister to issue directions to the NTMA. It is a clarification to ensure that section 37(a) of the NTMA (Amendment) Act of 2014 operates in the manner intended by the legislature at the time of the enactment of that Act. It aims to ensure there is no ambiguity in terms of ensuring that the way the Members of these Houses intended the NTMA to act in 2014 is the way it can continue to act.

Photo of Sean BarrettSean Barrett (Independent)
Link to this: Individually | In context | Oireachtas source

I thank the Minister of State for his response and will not be pressing the amendment. However, I would prefer an intention not to put another €30 billion into a dud bank. I am highly unlikely to ever have to make such a decision, whereas the Minister is, so I will bow to that superior knowledge. A system of checks and balances to make sure that it does not happen again would be very useful in terms of public policy making. I thank the Minister of State and will not press my amendment.

Amendment, by leave, withdrawn.

Section 22 agreed to.

Schedule agreed to.

Title agreed to.

Bill reported without amendment, received for final consideration and passed.