Thursday, 14 October 2021
Finance (European Stability Mechanism and Single Resolution Fund) Bill 2021: Second Stage
I welcome the Minister for Finance, Deputy Paschal Donohoe, to the House after what I am sure was a very busy 48 hours. In fact, it is exactly 48 hours since he rose to his feet to start his budget speech. He is very welcome to the House once again.
The purpose of this legislation is to seek the approval of the Oireachtas to ratify two amending agreements agreed by the Eurogroup last November, with the objective of strengthening the crisis resolution capabilities of the euro area. In summary, the two amending agreements provided for the reform of the European Stability Mechanism, ESM, as well as the introduction of the common backstop to the Single Resolution Fund, SRF, from January 2022, two years ahead of schedule. I will provide more detail on the content of the amending agreements, as well as the Bill, during the course of my opening statement. This represents a significant political development following protracted political discussions and is a substantial milestone in the development of economic and monetary union.
The background is that the ESM treaty was originally signed on 2 February 2021, establishing the ESM as an international financial institution to be funded by capital contributions from ESM members. Our participation in the ESM was approved by the Oireachtas in 2012. The direct recapitalisation instrument was designed at the height of the euro area crisis when the banking union was still in its infancy. As the House is aware, this instrument has never been used and has to a great extent become outmoded due to the development of the bank resolution legal and institutional framework.
On 18 December 2013, Ministers agreed on the need for a common backstop to the SRF. At the euro summit of June 2018, Heads of State and Government agreed the ESM would provide the backdrop to the SRF itself. Leaders then asked the Eurogroup to continue with work on this. This is what we did and, leading on from that, in December 2018, the terms of reference for the common backstop were then agreed by Heads of Government.
What is in this proposed treaty reform? There are four complementary and mutually enforcing building blocks. The centrepiece of ESM treaty reform is the establishment of a common backstop to the SRF, with the ESM as the provider. It will be available as a last resort to support effective and credible crisis management within the Single Resolution Mechanism, SRM. Loans from the backstop to the SRF will be repaid via contributions from the European banking sector. There will be no use of taxpayers' money. The size of the credit line will be aligned with the level of SRF funds, which is set at 1% of the deposits in the banking union, with a cap of €68 billion.
The second element is the early introduction of a common backstop. The Eurogroup agreed to the entry into force of the common backstop two years ahead of schedule, at the beginning of 2022. This is a very significant development and an important step towards completing banking union.
The intergovernmental agreement established a transitional period of eight years, during which time national contributions would be progressively mutualised into a common fund. In other words, in the early years of this agreement, levies collected nationally were to be ring-fenced, applied for the benefit of institutions from the relevant States that are making the contribution. These are referred to as national compartments. These compartments are being steadily mutualised and will be fully mutualised by 2024. A point to note is if there is no recourse to the backstop during the remaining term of the transitional period, there will, in effect, have been no substantive change to the resolution framework.
Following the November agreement, EU ambassadors signed the amending agreements to the treaty in January 2021. My Department received legal advice that the legislation that implemented the original agreement should be amended. That is why we are in the Seanad today. The early introduction of the common backstop will bring real benefits and real stability to the European banking sector. It will protect taxpayers' resources. The size of the contribution that will be supplied by each member state was estimated in November 2014. Ours will be, or was at that point, €1.815 billion. However, following a review of risks in the European banking system our contribution was revised downwards to €815 million.
The second element is the reform of the precautionary conditioned credit line, PCCL. This involves the modernisation of the ESM's financial assistance toolkit. This credit line is being reformed to enhance its effectiveness in order to prevent minor crises from developing into more serious ones. This is fundamental to any ESM member whose economic and financial situation is fundamentally sound, but could be affected by a shock that may end up being beyond its control.
The third element of treaty reform provides for a stronger future role for the ESM in the design, negotiation and monitoring of future financial assistance programmes. The existing treaty allocates the various tasks in the ESM's operations to the European Commission, the European Central Bank, ECB, and the International Monetary Fund, IMF. The reality is the IMF, over time, has stepped back from this work. The treaty amendment regarding the enhanced role of the ESM is, therefore, necessary so there is certainty regarding the roles of the institutions should a member state require assistance.
The fourth and final element of ESM treaty reform concerns the debt sustainability framework in the context of ESM financial assistance. A key principle of the ESM since its establishment is that financial assistance should only be provided by the ESM to member states whose debt is considered sustainable.Three improvements are being made. First, a new common methodology for conducting the debt sustainability analysis of a prospective programme country has been jointly developed by the European Stability Mechanism, ESM, and the European Commission. The second is an improvement to the debt sustainability framework via the introduction of single-limb collective action clauses. This allows for changes to the terms of the bonds to be made subject to a vote by the holders of the bonds. If a majority approves a change, it becomes effective for all the bonds. The final improvement involves changing the role of the ESM to facilitate dialogue between a member state and its private investors.
I will quickly address the content of the Bill. Section 1 deals with definitions in the legislation. Section 2 provides for the approval of the ratification of the agreement amending the treaty establishing the European Stability Mechanism by the Oireachtas. Section 3 provides for an update of Ireland's paid-in capital to the ESM following the end of the temporary correction periods for three of the founding ESM members, Malta, Slovakia and Slovenia. This section also provides for amendments to the European Stability Mechanism Act 2012, including a new definition of "Treaty".
Section 4 provides for amendments to the European Stability Mechanism (Amendment) Act 2014. Section 5, titled "Approval of terms of Intergovernmental Agreement", provides for the approval of the ratification of the Single Resolution Fund intergovernmental agreement amending agreement. Section 6 provides for amendments to the Finance (Miscellaneous Provisions) Act 2015 and redefines "Agreement" in the legislation. Section 7 provides that any expenses incurred by the Minister in the administration of this Act shall be paid out of moneys provided by the Oireachtas. Section 8 is a standard section defining the short Title of the Bill.
There are three Schedules in this Bill, each composed of two parts. Schedule 1 is the amending agreement to the Treaty establishing the European Stability Mechanism. Schedule 2 is the text of the treaty. Schedule 3 is the intergovernmental agreement.
As I mentioned at the outset, the purpose of this Bill is to seek the approval of the Oireachtas to ratify two amending agreements agreed by the Eurogroup last November. That agreement to reform the ESM treaty and to bring forward the common backstop to the Single Resolution Fund is an important step forward. When the agreement is implemented early next year, it will make our monetary union more resilient, will boost confidence in tour ability to quell a crisis before it develops and will strengthen the crisis resolution capabilities of the euro area, should they be required. I will conclude my opening remarks here and look forward to the debate.
I thank the Minister for his very detailed and comprehensive opening statement. I remind Members that, while all group spokespersons have eight minutes, this should be considered a maximum rather than a target. The Minister has covered a lot of the detail of the Bill but Members may, by all means, engage in debate on it.
The Minister is very welcome here today. I congratulate him on a very busy 48 hours. That is a very short time but I know the Minister put in a lot of work previously. Well done on the budget and best wishes for the future.
We are here today looking at amendments to the Eurogroup agreements that were signed off on last November. These relate to the European Stability Mechanism and the common backstop to the Single Resolution Fund, which is to come into effect in January 2022. Ireland has certainly been to the forefront and very proactive in making sure that the euro is sound and that there is competitiveness and great stability. It is a great breakthrough that we are looking at this two years earlier than was expected. The Minister is to be complimented on managing to get a reduction for Ireland. No state will be able to borrow if not considered able to pay those funds back and that is to be welcomed. The Minister said that this is not going to cost the taxpayer any money. That is really significant because there was some misinformation out there. I welcome that.
Much of the Bill is technical but the early introduction is certainly to be welcomed. We are now to pay €815 million where we were to pay €1.815 billion and the Minister is to be complimented on achieving that reduction because it took an awful lot of work on behalf of Ireland to negotiate those terms. The Minister and his team have worked tirelessly to put forward Ireland's case. I wish this Bill all the best. I also wish the Minister all the best in his endeavours.
I welcome the Minister and thank him and my colleague, the Minister, Deputy Michael McGrath, for a very exceptional budget, at the heart of which was the common good and fairness. The poorest 30% of families will see the greatest gains from Tuesday's budget. That goes to show that fairness was at the heart of that budget.
The Bill before us today is rather technical. We will be supporting this Bill, which ratifies the amending agreements on the European Stability Mechanism treaty, the Single Resolution Fund and the intergovernmental agreement. The agreement reforming the European Stability Mechanism, ESM, treaty signed in January is a crucial stepping stone on the path to reinforcing economic monetary union and is a significant accompaniment to our efforts to support economic recovery which will boost confidence in the euro area's ability to quash crises before they escalate. All euro area members are required to ratify both amending agreements in order to implement the Eurogroup agreement from November 2020 with regard to the ESM treaty reforms and the introduction of the common backstop two years ahead of schedule, which has to be welcomed.
Most of the issues have already been covered but the agreement will make the ESM more effective and flexible, including by providing a common backstop to the Single Resolution Fund by means of a credit line at the beginning of 2022 which is, as I have said, two years ahead of schedule. This decision, taken by the Eurogroup, regarding the early introduction of the backstop recognises the considerable efforts by the European banking sector, supervisors and member states in significantly improving all risk reduction indicators in recent years. The common backstop will help to ensure that banking failure does not harm the broader economy or cause financial instability. It will be financed by contributions from the banking sector and not the taxpayer, as the Minister has outlined, thereby reducing the link between banks and sovereign states in the banking union. The ESM treaty reform will expand the ESM mandate with a new task and responsibility. It will equip it with more accessible precautionary credit lines and give it a stronger role in financial assistance programmes for crisis prevention. Together with the early introduction of the common backstop, this will help to ensure the euro area is capable of handling challenges as they arise.
The European banking sector is in a far stronger and more resilient position today than it was ten years ago. This was never more obvious than during the pandemic crisis, when it was able to maintain financing to the economy. We have benefited from that. I could probably list a page's worth of financial supports this Government has been able to give society and businesses to help them survive the pandemic but this was all made possible by the work of the banking union since 2021. The decisions being enacted now are another crucial step in this regard. With the ESM treaty reform and the introduction of the common backstop, we strengthen the safety net we created for our European citizens. This Eurogroup is committed to continuing to work on the completion of the banking union and the further development of the European Union monetarily.
The Minister is very welcome. I welcome the opportunity to speak on behalf of my party on the Finance (European Stability Mechanism and Single Resolution Fund) Bill 2021. This follows the agreement reached by the Eurogroup in November 2020 in respect of the ESM reform package and the signing of amending agreements to the treaty establishing the European Stability Mechanism and the Single Resolution Fund inter-governmental agreement in January 2021. The primary purpose of this Bill is to ratify these amending agreements in order to implement the Eurogroup's agreement on ESM treaty reform and to provide for the coming into force of the common backstop to the Single Resolution Fund by 2022. The European Stability Mechanism was set up in 2012 with the superficial objective of providing loans to financially distressed eurozone countries in order to safeguard the financial stability of the eurozone member in question and of the broader eurozone. As we all know, the assistance provided by the ESM was subject to strict conditionality. During the financial crash and subsequent crisis, it was often extended with strict conditions of austerity and structural reform, recipes for societal pain and hardship that are now recognised by many not only to have harmed citizens but also to have hampered economic recovery and deepened recession. It is no surprise, therefore, that the ESM remains toxic and feared in many member states. At present, €1.27 billion of contributions has been paid into the ESM, with a capital subscription of €11.1 billion. The ESM can provide to members in instances such as loans within a macroeconomic adjustment programme with austerity conditions.
I will not revisit our European Financial Stability Facility programme, which began in December 2010 and concluded in December 2013. Instead, my focus is on the provisions of the Bill. The Bill responds to reform proposals arising from the Eurogroup agreement in November 2020, that is, addressing a gap in the banking union by allowing the ESM to act as the common backstop to the Single Resolution Fund amending the ESM's precautionary financial assistance instruments and measures aimed at changing the operations of the institution itself.
On the first, under the changes the ESM will become a common backstop to the Single Resolution Fund, the agency responsible for resolving failing banks in the event the fund does not have sufficient funds. The stated purpose of this is to prevent governments from having to rescue large banks at the expense of taxpayers, with any money lent by the ESM being repaid by the banking sector. On the second, there are proposed changes to the preventive and precautionary features of the ESM, with the stated objective of making it easier for members to access credit lines. Finally, on the third, there are proposals to strengthen co-operation between the Commission and the ESM.
Sinn Féin is on record in respect of our opposition to the structure and operation of the ESM, which has in the past placed strict conditions of austerity and hardship on member states, with serious harm inflicted on workers, families and households during the period following the financial crash. This legislation is wide in its scope and proposals, with significant implications for the operation of the ESM and the SRF. We will listen carefully to the contribution of the Minister with regard to its provisions and look forward to further scrutiny of the Bill in the Seanad and the Dáil. There are open questions as to whether these changes will require a referendum before being given effect, and I ask the Minister to respond to that point. In addition, are there plans to end the austerity conditionality of the ESM's credit lines which, as we now know, are a failed experiment that policy elites now regret?
We will not oppose the passage of the Bill to Committee Stage but look forward to further scrutiny of its provisions.
I thank the Minister. It is good to have him in the House. The idea of a common response and common action in respect of financial and fiscal threat is something everybody supports. The idea of the common backstop and a stability mechanism is, of course, important but there is much to discuss in the detail. Significant mistakes have been made in the past and it is not clear how they have been learned from.
It is important that we be clear that the Eurogroup is separate to our EU institutions and is not one of them. The EU, as a collective, comprises the Commission, the Council and the Parliament. One issue, which is cross-cutting and which we saw play out over the period of austerity, relates to what was perhaps an excessive influence of the Eurogroup, as a separate set of common aligned actors, on our actual collective structures, which were put in place so substantially by our treaty systems, and on the operations of the European Union. I am concerned also about how the ESM is likely to be engaged with, something I will come to presently.
Another concern relates to the criteria attached to the precautionary conditioned credit line. This credit line has never been used and was, effectively, designed in a way that made it unusable because the eligibility criteria for access were not achievable. When I spoke to officials in the Minister's Department, they told me that prior to the Covid crisis, only nine countries in Europe would have been eligible to avail of it. The precautionary credit line is meant to function for the European Union and all European countries to ensure that if there is a crisis in banking, it will not spread. If that tool is applicable to only nine countries, we are not doing a proper job of having a precautionary safety net that will work throughout the Union.
That was the case prior to Covid. When I engaged with the Minister previously on this issue, he pointed out that many of the fiscal criteria had been suspended in regard to the credit line and the credit that had to be provided during Covid. That too, however, points to the fact the precautionary credit line and the tools we had were inadequate and that additional and different approaches needed to be taken in respect of the Covid crisis. What we want are tools that will work in whatever crisis comes. We know a climate crisis is coming - that is one we can anticipate - but there are many others we do not know about, and we want tools that will work.
The concern is that in these new reformed mechanisms for the European Stability Mechanism, the exact same fiscal criteria are proposed to be reintroduced, such as a general government deficit not exceeding 3% of GDP and a government structural budget above the country's specific minimum debt benchmark where the debt-to-GDP ratio is below 60% or with a reduction in the differential in respect of 60% over the previous two years on average. We need not get into them, but those criteria did not simply contribute to the precautionary credit line not working in the past. They overdetermined policy throughout the EU for a period with a devastating effect.
I engaged actively with the European semester process. When the process became about the fiscal criteria and not about, for example, the Europe 2020 vision of smart, sustainable and inclusive growth, a very long, resourced and collective vision of what it might mean to have inclusive and sustainable growth throughout the EU, we lost ground. Europe has failed across the board to meet its targets under the Europe 2020 vision of smart, sustainable and inclusive growth because there was a prioritisation of short-term balancing of the books.
When we discussed this before the summer, the Minister indicated he understood that some of the fiscal measures needed to be adopted and that we were returning to using the tool, although it would be changed. In respect of the budget, however, there was a contribution in the Seanad from a Minister of State who talked about the fiscal rules being exactly as they were, even though they did not apply during this budget and even though we know they led to bad decisions in the past. One such bad decision, which was in the news last week, related to the fact those fiscal rules were invoked and the fact that having to act off the balance sheet was being invoked to explain why we were leasing instead of building for a decade. In this budget, however, when those rules do not apply, we are still leasing. Some 2,600 of the houses that are coming will, apparently, come through leasing schemes. We are still channelling money that is bad value into short-term leasing instead of into long-term assets, even though we have the space. That is the impact of these fiscal criteria.
The Future of Europe process, which is under way, involves the Commission, the Parliament and national parliamentarians, and I am lucky to be one of those parliamentarians who will be involved in that process. I sometimes sense there is an Overton window in this context. There was a moment when we could make different kinds of investment but with the fiscal controls before it and a two-year window where they were suspended, and then they came back.I do not believe it can be an Overton window; it needs to be a reframe.
I have some questions on practical matters. Could the Minister state what the firewalls will be regarding engagement with private investors in terms of the ESM? I would be concerned if, on the one hand, the Minister were seeking to play an active role within the European Commission on its implementation of its policy functions – there is a policy ambition that is concerning in this reframe – if, on the other, there were a plan to segue in respect of private investors. How will we firewall these two parts of the process? How will we be clear on what exactly the Commission is doing by comparison with what the ESM is doing? Could the Minister clarify the position on the precautionary credit line?
On the banking aspect, because ultimately this is also about banking recovery, why on earth are we not imposing a banking levy on Ulster Bank and KBC next year? Why are we rewarding them for leaving the State by telling them they will be exempted from the banking levy?
If those are the kinds of policies coming through on how we approach banks in this budget, how can we have confidence in how the stability mechanism will engage with banks and hold them to account in the future?
I welcome the Minister to the House. This is actually a very important debate. I commend Senator Higgins on her contribution. The backdrop is that the European Commission will publish next week its economic impact statement on the effect of the pandemic on the European economy and its implications for member states. I am acutely conscious that there are differing ideologies in this debate but, to be fair to the Minister for Finance, he has been steadfast in his approach and held a steady line. Our country has benefited accordingly. I commend the Minister for his stewardship and work on the budget. It is important that we support the common backstop and stability mechanism.
This debate should be had in the context of Brexit and the Covid-19 pandemic. We should consider what has happened in the world since the eurozone was created in 1999. None of us could have predicted what transpired owing to Brexit and Covid-19. We have had three reviews of the euro. Senator Higgins is right about the review but let us not have a debate in which it is argued that we can print money ad nauseam, borrow at will and have a three-card trick like Sinn Féin can have, with each-way bets on all sides, because we cannot.
I have been struck by the debates on the US budget in the US Houses of Congress and the associated negotiations therein. The US President, Mr. Joe Biden, made a very simple remark that resonates with many of us; he said America pays its bills. Translated for us, we must pay our way as well. To be fair, the Minister for Finance, in his Budget Statement and pronouncements to date, has always made the point that we will access credit and borrow but not borrow ad infinitumand forget about the future. That is why the rainy-day fund should be commended. The Minister and former Minister, Michael Noonan, should be praised for having had the foresight to have the rainy-day fund when they were criticised by many.
When I hear Members speaking about contagion and austerity, I note that we forget one thing: if Ireland were not a member of the European Union, where would it get the money to keep afloat for a decade? I remind Sinn Féin's Senator Gavan, in particular, that the current Government, its predecessor and the coalition Government of Fine Gael and the Labour Party had to scrape to put the pennies together to keep our country going. That is the reality. I am a proud European, and I am a proud advocate, as is Senator Higgins. It is important to have these debates.
I refer Members to Article 12 in terms of the principles in the Bill, which are important. Mentioned is the issue of safeguarding the financial stability of member states and providing stability support. I encourage Members to examine Articles 14 to 18, inclusive. Has the European Union got everything right? Of course not. Have we? No. We live in an imperfect world. To be fair to the Minister, however, he has striven to seek an approach that is inclusive and mindful of our deficits and that we are part of a European Union that has put in place supports and buttresses for member states. The treaty reform is welcome. A debate is necessary but, at the same time, access to credit and to finance is equally important for us. Although we will never have a unified approach, we need commonality. We are better to be in the middle than not. I commend the Minister for his work and thank him for being here today.
I welcome the Minister to the House to discuss this topic. It is important legislation. I wish the Minister well with it and congratulate him and the Ministers in the other member states for getting this work done two years ahead of time.
The Title of the Bill, the Finance (European Stability Mechanism and Single Resolution Fund) Bill 2021, says it all. It is all about confidence and stability. This is what this Bill is about. It is complicated and technical, and its language makes it very difficult for the ordinary person to understand it. When dealing with the Bill we must reflect on the hardship we went through since 2008 or 2010, and probably right up to 2016 or 2017. We saw banks closing and there were no credit lines, including for businesses. We saw the loss of businesses and cuts to wages, pensions and so forth. As a nation, we had more difficulties than probably any other European country during the period in question.
This Bill is what all the great heads in Europe came up with when they put their heads together. They have come up with a strategy for people within the eurozone so confidence and money can be supplied to nations or banks that get into difficulty. That is my understanding of this Bill. We do not have our own currency so we cannot regulate our own currency. We cannot adjust our currency because of our debt.
We must reflect on the fact that when we were in trouble, it was not just the banks that were the problem. We were living beyond our means and we could not bridge the gap between what we were spending and what we were taking in as a nation. We could not regulate the currency so we had nowhere to go. Therefore, we suffered greatly as a nation. I am delighted that this Bill is in place and that the great heads in Europe have brought this mechanism about and put it in place.
As I understand it, if the country is in difficulty, or if the banking sector or a section thereof within the State is in bother, the fund can kick in. Is it true that funds can be acquired by the banking sector or the nation itself? What is the case if the nation itself is living beyond its means? Can it have access to the funding being put in place?
Ireland's contribution to the fund is over €800 million. Is that an annual contribution or a once-off contribution? If the latter, is there an allowance for inflation and depreciation? Ireland was taking in €52 billion in 2012 or 2013; now the annual budget is over €90 billion. The amount has nearly doubled. Therefore, in five or ten years, the fund may not be worth what it is today. I ask the Minister to clarify how much we are paying in. Can the nation itself access this type of funding?
We are on the right track. Europe is on the right track in this regard.We have seen how the nations of Europe with their own currency had a great advantage over countries that were in the eurozone so this legislation is very welcome.
I thank the Senator for his remarks. It would be remiss of me not to acknowledge that the Minister has been appointed President of the Eurogroup. It is great honour for him, and for Ireland, to hold the position. As no other Senators have indicated a wish to speak I invite the Minister to conclude the debate.
I thank the Acting Chairperson and I thank the Senators for their contributions.
I wish to emphasise the two overriding objectives of this legislation in my concluding comments. The first one is the priority of trying to ensure that if there is a further banking difficulty, the taxpayer is protected from that, and the money that the banking sector contributes into what will eventually become a mutual fund is the source of support and intervention for European banks as opposed to what happened in the past where it was the taxpayer who had to make the first intervention and, indeed, in most cases, all of the interventions to prevent even greater financial and banking difficulties. So that is the first priority in all of this. It is to protect the Irish taxpayer and the European taxpayer in the event of us having to confront further acute banking difficulties in the future.
The second objective is the changes that have been made to the operation of the ESM to provide support to countries in the event that they encounter further very high levels of economic difficulty. While this legislation is, and Senator Burke made the fair point, very dense and full of schedules, actually the two key features in it are simply how can we handle banking difficulties better in the future, and what would we be able to do differently, and better, if a member of the European Union found itself in the situation where it was facing really exceptional financial difficulty.
I heard many of the different points that Senators made and thank Senators Maria Byrne, Casey, Gavan, Higgins, Buttimer and Burke. In most of the contributions that were made, and the vast majority of them, there was an acceptance of the role that Europe has played in our economic prosperity and our current level of development. There was also an acknowledgement from everybody, and from me, that during the last crisis there were clearly things that could have been done differently. That has influenced the development of this legislation. It is looking to find a new way of dealing with banking and financial difficulty that countries could face. I believe it is a significant step forward in how we can strengthen the governance and the strength of the euro area. Very simply, the euro area is that group of 19 countries with whom we share a currency. Anything that can strengthen the resilience and the strength of the euro in the long run is to the benefit of Ireland because we are a small country and because we are such an open economy inside the euro area.
I shall deal with some of the particular questions that have been put to me. Senator Gavan made a point about the austerity of the past. What I would say about that is however one could describe the budget that I and the Minister, Deputy Michael McGrath, announced on Tuesday, one could not describe it as an austerity budget. This goes back to some of the points that Senator Higgins made. This is despite the fact that we have incurred an additional €34 billion worth of debt. At any other point in our economic history if we, either on our own or with other countries, incurred that level of debt it would have had an immediate and total effect on the next budget brought forward. While many in the Opposition will say we should have done more and, indeed, there were some in the Government who will sometimes argue that we should do more as well, any fair-minded person would not look at a €4.7 billion budget and say it was an austerity budget. It tried to make progress on things that are really important in our society and in our economy. That did not happen on its own. It happened because during the height of the Covid pandemic the European Central Bank and the European Commission made decisions that were completely different from where we were a decade ago to help us in the funding and financing of that debt. Of course, what was also different was that all countries were confronting that crisis at the same time with the crisis being a health crisis.
In the debate that is to come regarding the fiscal rules, and Senators Higgins and Gavan again made their views clear on that, I think we should begin that debate by acknowledging that however one could describe the current budgetary policies that are being brought in, after a surge in Government debt, one could not describe them as being policies of austerity. That points to the fundamental change that is already happening regarding how we are trying to lead out of the terrible health crisis that we are trying to put behind us.
As to the specific points that Senator Higgins put to me regarding the role of the Eurogroup, she is correct that the Eurogroup is not an institution in the same way as the European Central Bank or the European Commission. On the other hand, it is the only grouping within the economic policy-making architecture of the European Union in which elected governments are directly represented. They are not represented in the Parliament. They are not represented in the Commission and they are not represented in the ECB. The point has been made that the Eurogroup is an informal group. It may well not have the official status, as the Senator correctly said, of the other institutions but it is the only group within which the ministers, who are elected directly or appointed directly by national parliaments, have a direct say and that is another form of legitimacy that I believe is incredibly important.
A further charge that is sometimes made about the work of the Eurogroup is that when we are dealing with issues like this it excludes non-euro area countries. That overlooks the fact that when the Eurogroup is dealing with banking union we sit in inclusive format. In other words, the non-euro countries are in those meetings as they were in the meetings that led to this agreement.
As to the point that Senator Higgins made about the fiscal rules, and they are referenced here within legislation, we will, I suspect, be having a broader debate with Senators regarding the role of conditionality and how conditionality is designed. The overall point I would make about conditionality is, the Irish taxpayer is now a contributor to, for example, the budget of the European Union in a way we never have been before. On a per capitabasis we are now one of the highest contributors to the European Union.
Regarding the people who look to this Oireachtas - the people who elect us both directly and indirectly - one of the things that they will always ask us to do is ensure that the money they pay in their taxes is efficiently and fairly used. Yes, there is conditionality in the different funds that we discuss here but that conditionality is directly driven by the taxpayers who pay into funds wanting their governments to be able to tell them what that money is used for. I think in the debate around the design of conditionality there is a principle beyond that and that is worth acknowledging.
Regarding the points made about the design of conditionality and what it could be in the future, it does to a degree feed into the fiscal rule debate that is approaching. When I engaged in this discussion with Senators a year ago I am sure that I did say that the general activation clause of the fiscal rules would be triggered for 2022, and that has happened.During that period, we will have a discussion regarding the nature and design of the fiscal rules across the European Union. There is, as Senators know, a variety of views about fiscal rules and their future. However, I expect that the Commission, later in October, will relaunch the consultation regarding fiscal rules, within which governments and parliaments will be able to make their views known.
The Senator also put to me a point about the semester process. It is worth saying that even though the Stability and Growth Pact is referenced heavily in the semester process, many other non-fiscal issues are also referenced. The bigger question will ask what will be the future of the semester process, given the processes that are now in place and the recovery fund. These are debates and questions to which I am sure we will return on Committee Stage. I thank all the Senators for their questions and views, and for their support for the Bill, in most cases. This is an important Bill about the long-term resilience of the currency we use and share. I commend it to the House.