Máirín Quill
Question:8 Miss Quill asked the Minister for Finance his views on published criticisms of Ireland's fitness to qualify for Economic and Monetary Union; and if he will make a statement on the matter. [15226/95]
Ceisteanna-Questions. Oral Answers. - Economic and Monetary Union.
It is not clear from the Deputy's question to which published criticisms she is referring. As the Deputy will be aware, both in 1994 and this year, the European Commission adjudged Ireland to be among the very small number of member states not to have an excessive deficit as defined in the Treaty on European Union. The Government is committed to ensuring that Ireland continues to meet the Treaty convergence criteria for movement to Economic and Monetary Union.
The excessive deficit procedure is set out in Article 104c of the Treaty. Briefly, it provides that the European Commission will prepare an opinion where a member state does not fulfil one or both of the following requirements, namely that
— the ratio of the general Government deficit to gross domestic product, GDP, should not exceed 3 per cent or, if it does, that the ratio has declined substantially and continuously and reached a level close to 3 per cent, or the excess over 3 per cent is small, exceptional and temporary;
— the ratio of general government debt to GDP should not exceed 60 per cent unless the ratio is sufficiently diminishing and approaching 60 per cent at a satisfactory pace.
Ireland's general Government deficit has been below 3 per cent of GDP every year since, and including, 1989. In addition, our debt-to-GDP ratio has been reduced from over 116 per cent in 1986 to under 92 per cent in 1994 and will decline significantly again in 1995. In view of these factors, the European Commission did not prepare an opinion on Ireland under the 1995 excessive deficit procedure because, as in 1994, the Commission rightly considered that Ireland does not have an excessive deficit.
Ireland also comfortably meets the other convergence criteria which require member states to maintain low inflation, low long-term interest rates and exchange-rate stability.
I imagine Deputy Quill is referring to German question marks over Ireland's likely eligibility for Economic and Monetary Union membership.
Is the Minister happy that these convergence criteria are a fair reflection of Ireland's eligibility, having regard to the fact that there is a significant difference between GNP and GDP in Ireland and that while GDP has been chosen, much of the difference in GDP and GNP in Ireland is volatile and mobile money which might not be there in the long run?
Second, would the Minister indicate whether the reasoning behind the convergence criteria would not also require us to take into account the extent to which transfer payments from the European Union improve our figures artificially and cannot be relied on to persist after 1999?
Those criteria were selected by all the member states in the run up to the formulation of the text of the draft treaty, subsequently ratified by them. One could dissect the criteria and contend, within the Irish context, there is a gap between our GNP and GDP, but I am informed, in so far as this can be measured in percentage terms and attributing part thereof to transfer pricing, the gap would be less than 1 per cent. Whether one takes GNP or GDP, our gross figure is very satisfactory.
On the question of transfers — I presume Deputy McDowell is referring to Cohesion Funds, from which all other member states receive substantial transfers — the bulk of the European Union federal budget, if I might describe it as such, is confined to expenditure on the common agricultural policy, of which Ireland receives a substantial amount, but in volume terms not anything like other member states. If one takes the debt ratio criterion incorporated in the Maastricht Treaty and compares Ireland's total obligations with those of, say, Luxembourg, on paper Luxembourg would appear to have little or no debt. However, if one then includes the debt exposure of the Luxembourg Treasury to its unfunded pension sector — as the National Treasury Management Agency did in its most recent annual report — one discovers that that single figure debt in Luxembourg soars to somewhere between 60 per cent and 70 per cent. I should say I am speaking here from memory. We can all go behind the criteria and begin to interpret what it really means for individual member states but, in terms of savings and pensions provision for the future, Ireland's real exposed debt is very much more favourable than the stated figure and brings us comfortably onto centre ground.
It is somewhat polemical and adversarial to pick those less favourable and ignore those more favourable factors than the external figures would suggest. At the end of the day, we must remember these are provisions of the Maastricht Treaty and it was agreed categorically, albeit at an informal meeting held in Valencia, there would be no revisiting them. These are the criteria of the Treaty which will be enforced rigorously and adjudicated on fairly in all cases.
Finally, the people who adjudicate on those criteria are not the Germans, the Italians or The Financial Times but the members of the Commission itself. Subjected to that rigorous examination, we have been found to be compliant.
In relation to one of the measurement units deployed in this matter — the general Government deficit — in what sense does that differ from the public sector borrowing requirement? For instance, with regard to the proposal to sell off local authority loans, are we not skating on thin ice? For example, if these were sold to a semi-State agency such as the National Treasury Management Agency or a semi-State bank, would that not involve an increase in the public sector borrowing? In what sense are we taking advantage of very narrow terminological escape routes in order to prove compliance with the 3 per cent limit this year?
As he always does, Deputy McDowell has raised a very pertinent question. An excessive Government deficit, as distinct from the Exchequer borrowing requirement, does necessitate our excluding the proceeds of the sale of assets. This means that, in the current and preceding years, our Exchequer borrowing requirement has been assisted by the sale of different assets. This year our Exchequer borrowing requirement is on target to be 2.4 per cent but, if one were to include the proceeds from sales of assets — as the Commission has done in this and previous years — the figure would be approximately 2.7 per cent. I say that subject to the receipt of the final figures. However, it will be closer to 2.7 per cent than 2.4 per cent. Self-evidently, that is more than the Exchequer borrowing requirement, but remains below the 3 per cent figure evaluated and adjudicated on by Brussels.
While we have had quite a good debate on this overall topic of Economic and Monetary Union today——
Even though at Question Time.
——the continuance of which I look forward to, I was glad to hear the Minister confirm that it will be the Commission that will adjudicate on these matters. Would the Minister agree that all evidence appears to indicate it is possible that a stricter interpretation of all the criteria laid down in 1993 will be applied? Would he also agree that, as a people and an economy, we would be fooling ourselves if we continued to believe we will be able to interpret them as loosely as had been thought heretofore?
I believe that Deputy Quill, in the question she tabled, was referring to the substantial level of transfer of funds from the European Union to Ireland. This relates to an earlier point of mine to the effect that we should be making provision in anticipation of that well drying up. Would the Minister agree, therefore, that we must endeavour to ensure that we maintain this very strict financial growth.
I do agree and believe we should take stock of the progress we have made under successive Administrations, in the credit for which all five parties in this House can share.
And in the blame.
——or part of the blame. It behoves the international media to recognise the facts. There is always a question mark over whether Ireland will be a participant in Economic and Monetary Union, yet nobody asks whether Belgium will be a participant, the automatic presumption being that Belgium will be one of the core funding group even though its debt is over 100 per cent of its GDP. I am speaking now from memory, subject to verification, but I think I am correct in stating that at present most countries' debt ratio is rising whereas ours is falling. It is 92 per cent of the 1994 outturn figures and, subject to the final outturn for the current year, is anticipated to fall again by between 4 per cent and 5 per cent.
While most other member states are well above 6 per cent.
Precisely. We must take courage from our progress to date and say to anybody wishing to challenge our bona fides in this respect that, at the end of the day, it is the Commission that will take these decisions and it is on record as having taken its decision in respect of Ireland's performance. Clearly, then, opinions or posturing by different financial journalists or other domestic commentators should be examined within the context of who is saying what and why. In our case the facts speak for themselves.