Michael Creed (Cork North West, Fine Gael)
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Question 57: To ask the Minister for Finance if he will outline the relationship between the Fiscal Compact and the European stability mechanism; if he will clarify the legal status of the ESM; and if he will make a statement on the matter. [21051/12]

Michael Noonan (Limerick City, Fine Gael)
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The European Stability Mechanism (ESM) Treaty, was signed by Euro Area Member States on 2 February 2012. The original version of the Treaty was signed on 11 July 2011, but it has been modified to incorporate decisions taken by the Heads of State and Government (HoSG) of the Euro Area on 21 July, 9 December 2011 and 2 March aimed at improving the effectiveness of the mechanism. These decisions included the agreement on the Treaty on Stability, Coordination and Governance (Stability Treaty) in the Economic and Monetary Union. The original ESM treaty, signed in July 2011, needed to be updated to take account of the additional flexibilities agreed by the Euro Area HoSG for the EFSF in late July 2011. The recital, or preamble to the ESM Treaty provides at recital (5) that member states concerned must ratify the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union, and implement the balanced budget rule as specified in that treaty within the agreed timeline (one year after entry into force).

The linkage between the ESM and Stability Treaty ratification was accepted in the interests of securing agreement on the ESM and its accelerated entry into force by July 2012. In the negotiations, the Government sought to ensure that it was made clear that the link between ratification of the Stability Treaty and the ESM Treaty applied only to new applications for assistance under the ESM, and that it will not affect the transfer to the ESM of undisbursed amounts under the European Financial Stability Facility (EFSF) for Ireland and other programme countries. The Government also sought to ensure that sufficient time was provided for ratification of the Stability Treaty before the link enters into effect.

The Stability Treaty is part of a broader package of measures aimed at improving confidence in the Euro Area, which include the ESM. It is entirely logical and reasonable that a country receiving the support of its partners under the ESM should be prepared to run sensible budgetary policies as required under the new Treaty. That is the basis of the linkage. We believe the linkage between the Treaties will further contribute to confidence, solidarity and financial stability in the euro area.

In accordance with the terms agreed under the ESM Treaty, the ESM will be established as an International Financial Institution under public international law and will be located in Luxembourg. As agreed by the HoSG on 9 December, Ireland is aiming to ratify the Treaty by July 2012. Primary legislation will be required to enable Ireland to ratify the ESM Treaty and implement its provisions.