Dáil Éireann debate -
Wednesday, 19 May 2010

Vol. 709 No. 3

Euro Area Loan Facility Bill 2010: Committee and Remaining Stages

SECTION 1

Question proposed: "That section 1 stand part of the Bill."

Deputy Richard Bruton

I wish to ask the Minister a few questions about the intercreditor agreement, which is the first item in section 1. I note that under the proposed system, a single member state can block the agreement from going ahead. When an analysis of compliance, by Greece in this case, takes place and comes to the Council for decision, that decision will be by unanimity. In practical terms, what is to happen if one member state decides to block the agreement, even though Greece has been compliant, or the others consider it has been compliant, with the terms? It appears as though an enormous sense of crisis could be created in the markets and elsewhere were a single member state to stand out against the consensus on how Greece, which is under particular scrutiny, was behaving. Hopefully this will not happen but I seek clarification on how the Minister envisages the system will work because it appears to require unanimity.

Second, I refer to scenarios whereby one member state does not participate in the loan. Am I to understand that the only circumstances in which a member state will not participate are when there is a legal impediment within that state itself or when such a state opts not to participate because the cost of raising the money was more extensive? Alternatively, can member states opt out in other circumstances? In such an event, will the contribution of a member state become greater?

I also note that on page 14, the agreement states "All Lenders rank equal and pari passu amongst themselves”. I am afraid my Latin has failed me but “pari” is equal and it sounds like “equal again”. My question is not whether Ireland and Germany rank equal but whether Ireland, Germany and other contributing member states are ranked equal with other investors in Greek bonds. I seek confirmation in this regard but I understand that when the IMF introduces a rescue programme of the sort that has occurred in other countries, it enjoys a preferential status in respect of its lending. My question is whether the contributors to this bilateral loan agreement with Greece will have a preferential standing over and above other holders of Greek debt. I do not mean over and above other member states, which would be unfair. The issue has been raised that effectively, there are a number of different lenders to Greece. In the event of an ultimate renegotiation, write-down or restructuring of Greek debt, how does this block of lending stand when compared with other blocks of lending that have occurred in the past? Does it stand as a preferential creditor related to the others?

The other is issue is Greece's ability to comply. How clear are the tests with which it must comply? To what degree is there a judgment? In any situation of economic evaluation, people do things with best endeavour. Things might happen that were not anticipated and they may fail to meet certain targets that were set. To what extent is this rigid in stating certain numbers must be reached or the country fails, or is there a greater judgment that looks at good faith in trying to deliver if, despite the best efforts, the country failed in one or other area? Is it a black and white situation?

What happens if Greece fails in a quarter, if it simply fails to live up to the criteria? What is plan B, are all bets off, plunging us into a crisis where nothing can be retrieved or is there a yellow card that would allow for time before we reach a situation where the agreements are withdrawn? Understandably, they are trying to design a tight framework to deal with this but, equally, we do not want it to be so tight that small errors cannot be allowed. Even if the Greeks fail to make it, there must be an element of understanding, we cannot immediately let it bring the house of cards down.

If it hinges on fine calls like this, what looks like a well-thought out strategy could fail at a point no one considered. We may create high noon situations for ourselves further down the line that have no proper economic logic. I would like a better understanding of the criteria and who will judge them. Will member states sit around the table and discuss if compliance has been achieved? What is one state is more hawkish than others?

Minister for Finance (Deputy Brian Lenihan)

High midnight rather than high noon has been the norm witnessed in recent months on this subject. It is usually afternoon when we arrive in Brussels and midnight before we resolve the issues.

The first question throws light on the last question. The Deputy asked about the rule of unanimity written into the inter-creditor agreement for each advance to the Hellenic Republic. While unanimity must exist for each advance, it is the Commission, the Central Bank and the IMF that play the crucial role in making the assessment of whether Greece is in compliance with the conditions set. The formal way it would come before Finance Ministers would be on the report of the Commission and the ECB, which both have direct representation at the euro group meetings. I am not sure how the IMF will be accommodated, its report will probably be submitted in writing by the Commission. The Commission and the Central Bank have direct representation at the euro group and will make the assessment. That is the precondition for a finding against Greece, and it sets a limit on the capacity of individual states to take a view on whether an advance should be made.

The Deputy asked what would happen if a particular member state opted out of the funding mechanism, if it would leave Ireland in a position where it had to go beyond what is in the inter-creditor agreement. The answer is "No", the limitation of the €1.36 billion applies, although that sum would be more readily reached if a member state opted out of the funding mechanism. That remains the ceiling for our contribution.

Deputy Bruton referred to the provision that all lenders will rank equal and pari passu among themselves. That of course only relates to the member states that are lending the money, they are in the same position as, for example, depositors and senior debt holders. The more important provision is on page 34 of the Bill, which deals with the more specific question, the priority as against previous obligations. Page 34, paragraph 4(1)(a) states that each loan shall constitute an unsecured, direct, unconditional, unsubordinated and general obligation of the borrower and will rank at least pari passu with all other present and future unsecured and unsubordinated loans and obligations of the borrow arising from its present or future relevant indebtedness. All the agreement provides for on the priority of the loan is that it is in the same position as existing or future creditor obligations. It is not given any priority, but equally it is not postponed to a subordinated category.

The agreement is formulated in that way because both the President of the Commission and the European authorities have made it clear there is no question of a restructuring of Greek debt being contemplated. Hence, the agreement ranks these obligations as ranking equally with those of the other existing and future obligations of Greece.

The Deputy then turned to conditionality and how clear the texts on Greece are. They are specific in terms of the agreed programme for the Greek Government. The monitoring of that is a matter for the European Central Bank and the Commission in association with the IMF.

He asked what would happen if there is a perceived breach of the conditions. In such circumstances, I assume a report would be brought before the euro group by the Commission and the ECB and the breach of the condition would be identified and appropriate action would have to be taken to resolve the difficulty that had arisen. The range of appropriate action under present Community law allows for the possibility of a fine on the relevant member state.

Deputy Joan Burton

Could the Minister expand on his reference to Commissioner Rehn? Commissioner Rehn has created some confusion. I said yesterday that I assume the conditionality for Greece will be monitored by the IMF, which has long experience in such conditionality.

As I stated to the Minister yesterday, when I lived in Tanzania the IMF people, with their gold tipped fountain pens and their lovely leather briefcases, sat by the pools of the swankiest hotels and drew red lines through education for children, particularly girls, and stated it had to go. They did the same to primary health care services.

It is important that the Minister clarifies what he understands to be the thinking of Commissioner Rehn. If he jets in here with a posse of IMF people with gold plated pens, will they tell us that we have to close rural primary schools and all of our rural hospitals? That is what they have done in other countries. Yesterday, I stated that Poul Rasmussen, president of the Party of European Socialists spoke about the austerity programme for Greece being the first time there has been an attempt to waterboard an entire country. The Greek austerity programme is €30 billion of tax increases and cuts over a period of less than four years in a relatively small economy like ours. That is very tough.

The Minister will attend a meeting on Friday. What is the position of the Irish Government when it is at such discussion meetings? I understand that Chancellor Merkel has problems in her country and that the two leading countries of the eurozone — France and Germany — have particular interests and that their banks are quite heavily exposed to sovereign Greek debt. What will be the position of the Minister on behalf of Ireland on Friday? Aristotle, the most famous Greek philosopher, was the person who spoke about the golden mean. If ever there was a need for a golden mean in economics it is now. Too much deflation too quickly in eurozone countries that have problems will result in a repeat of the Hoover programme during the great depression. However, of course one needs fiscal adjustment and public service reform, which will have to be very robust and painful.

Excessive deflation would destroy the euro and Germany would not be a beneficiary of that. The German economy will benefit when the rest of the European economies grow because with the recovery of the European economies demand will grow. The euro will be strengthened and the major beneficiary of a strengthening of the euro in the long run will be Germany, just as it was a major beneficiary of the process of European union in the long run because it saw an end to the Cold War and the reunification of Germany during the time of Chancellor Kohl. It is necessary to take a long-term as well as a short-term perspective.

I hope the Council of Ministers is not completely in thrall to the markets. There was a time when people felt that various countries in Europe were excessively in thrall to religion. Now, we are in thrall to this god called "the markets", and we do not seem to have any will to have a critical view of the markets. They are instruments and not gods. As I stated yesterday, it is crazy that the pension funds of European workers are being utilised to short the euro and, in effect, the European model of welfare provision for retirement. We have a tremendous challenge to sort out this huge economic situation without beggar-my-neighour policies coming from the meeting on Friday.

I do not see how it is possible to waterboard Greece and attempt to knock the stuffing out of the country in terms of the most basic developments in primary health and education, as the structural adjustment programmes did in African countries. Some years later, when there were coups in African countries, the IMF turned around and wondered how it happened. The greatest African example is Robert Mugabe. When he came to power, with the blessing of the IMF he initiated a programme of extensive spending on education and health. In the early 1980s, everybody in Zimbabwe could read. People read newspapers on buses. Some years later, in the middle of the 1980s, the IMF changed its stance and decided to have fiscal retrenchment throughout Africa. Certainly, this was not the only issue that led Robert Mugabe to become the despot he became but it was a critical event on the road.

In the deliberations of the Minister and his fellow Ministers, what chance is there of having a reasonable view of this, and of having sensible policies alongside which seek to make the eurozone recover, as opposed to doing what the Hoover Administration did which made the depression deeper instead of having a Keynesian approach? It is no accident that at present the two economies showing the best signs of recovery are the United States and the United Kingdom, because they have had systematic programmes of stimulus. Both countries have to pay, and the United Kingdom has a serious difficulty, probably to almost the same level as us, with its deficit but nonetheless its job losses, as with those of the United States, have been nothing as severe as ours or as they will be in Greece.

On Friday, the Minister will really have to try to persuade his fellow European ministers with regard to fiscal rectitude of a type that would kill Greece. If Greece is destroyed by this programme, it will default. Why would it not? This would be a disaster for the eurozone. With regard to the package accompanying this, I appeal to the Minister to try to persuade his fellow Ministers that one cannot kill the economies of the countries in difficulty.

The United Kingdom and other countries which have their own currencies can have a competitive devaluation. We have no control over our monetary policy. The value of the euro is falling and this is of some potential benefit to us. What happened with regard to Greece was too little too late. Now, some European countries will have to bite their lip and state that not only do they expect Greece to have a reform austerity programme but that they also see a programme to allow Greece to grow economically and not destroy it.

Hedge funds and private equity people are gambling on the markets. George Soros, who later rethought many of his policies, made a vast killing on shorting the pound sterling in an earlier age. The meeting of ministers on Friday is entirely about appeasing the markets. This will not work because people have already made money on shorting Greece. Unless there is a serious prospect of recovery in Europe, they will continue to short it.

I wish the Minister well on Friday but he must have not only a menu of fiscal reform but also of recovery in employment and innovation in particular. The Minister needs to explain to Irish people what exactly was Commissioner Rehn speaking about.

Was he talking about the fact that he is proposing to add the €8.3 billion that the Minister gave to Anglo Irish Bank — it is a useless black hole on St. Stephen's Green, although I hear it is moving to the Burlington Road or a more salubrious address where it will be free from demonstrators and the prying eyes of the public — just before Easter and which will be added to our deficit? He gave €2.6 billion to the other worthless institution, Irish Nationwide.

Is the Minister telling me that one of the implications of what Commissioner Rehn said was that €11 billion will be added to our deficit for 2010? If that is what will happen the markets will definitely look askance at that. On the list of the euro countries produced by the Financial Times Greece’s deficit for last year is 13.6%, Spain’s is 11.2% and Ireland’s is 14.3% because of the €4 billion the Minister put into Anglo Irish Bank in 2009.

Deputy Brian Lenihan

The markets understand and know this.

Deputy Joan Burton

The Minister is a bit naive about the markets. I have lots of quotes from him about how well funded our banks were and I will read some of them out for him. Do not be naive about the markets; they glance at the bottom of the screen in regard to Ireland for a short period of time.

Can the Minister explain Commissioner Rehn's remarks as they relate to Ireland? If he is planning more austerity for this year, never mind the adjustments which are required next year on top of what people have already given this year, perhaps his colleague, the Minister, Deputy Ó Cuív, when he threatened old-age pensioners with the removal of their contributory pensions, knew something which the Minister has not shared with the rest of us yet.

Deputy Richard Bruton

I listened to the Minister's benign interpretation of what Commissioner Rehn said in his summary but it seems that he was a good deal more specific. He said in the coming weeks he was examining Ireland's specific position and that further retrenchment could be possible this year. If that is what he is considering and he has not notified that to the Department of Finance or the Minister it is a little bit high-handed of the Commission because to be respected it has ensure people such as the Minister have an reasonable understanding of what is coming down the track towards us.

Notwithstanding that, I would like to get a fuller response from the Minister to the question of promissory notes and how they will be handled. I understand that the Government did not expect the money given to Anglo Irish Bank in 2009 to be included in the deficit. It was included and that pushed our deficit to the highest rate in Europe. A similar treatment of promissory notes, which we presume would be €1 billion per year for ten years, would suggest that will add to the deficit. On a fairly straight line interpretation of what the Minister has committed to with the Commission, it would suggest that each year we have to find €1 billion more in cuts than had been anticipated. We need a fairly clear understanding of what it is that the European Union has agreed to in respect of the handling of that.

Deputy Brian Lenihan

I will deal with Deputy Morgan's questions. There are a lot of questions which deserve an answer. I will deal with Deputy Burton and then Deputy Morgan, if that is acceptable to the House.

Deputy Burton raised a number of issues but she started with Commissioner Rehn, which is not a bad place to start. She referred to the Financial Times. It is worth reading it today to see what Commissioner Rehn said about his views in regard to the eurozone and the Stability and Growth Pact. He said he did not want to see excessive reductions in expenditure which would damage European economies. That is what he was reported as saying in the Financial Times today. He was reported in an Irish newspaper as stating that he was looking at the position of Ireland. As I understand it, he was questioned by Irish journalists after his general conference specifically on the position of Ireland.

A review of every member state is taking place, which will be completed at the June Finance Ministers meeting.

Deputy Joan Burton

He suggested that there would be further cuts this year.

Deputy Brian Lenihan

No, he did not.

Deputy Joan Burton

Did the Department get clarification from him? That is what he is quoted as saying.

Deputy Brian Lenihan

No he did not. The Deputy would want to read the report. He said, "may". He cannot preclude his options because he is doing a review of every member state which will be concluded and reported on at the meeting in June of the Finance Ministers. It is not a review which is unique to Ireland, rather, it is a review of all of the member states and that is on what he will be reporting in June, as I understand the position. His comments, while reported in an Ireland-specific way, do not specifically relate to Ireland. He would have given the same answer for any member state at the present time because he will not prejudge the completion of his review and I understand that.

It must be emphasised that he also indicated in the course of his comments broad support for what Ireland had done already. The question of the relationship between the additional funding which was required for Anglo Irish Bank and the Stability and Growth Pact was not referred to by him at all in the course of his contribution yesterday. We should stick to the facts of what Commissioner Rehn has to do. I met him soon after his appointment and he expressed satisfaction with the steps we have taken. He agreed with their broad orientation and he said he is reviewing Ireland in the same way he is reviewing every other member state. Naturally, I will have an opportunity to discuss these matters with him in the context of that review.

On the basis of what Ireland has already done and the stabilisation of our revenue receipts, which was evident in the April returns, and our expenditure, I believe we are in a strong position going into this review, although I accept we would be better to examine the picture at the end of June before we make any more definitive assessments about the current year.

I understand the position, as far as Commissioner Rehn is concerned, is that he is not referring specifically to Ireland at all. His answer in regard to Ireland is the same as he would give in regard to any member state, and that is how I interpret what he said. I welcome the fact that he indicated in the Financial Times interview — his particular remarks were not reported in our local newspapers — that he would be concerned that excessive expenditure reductions would damage the prospects of a European recovery, something with which I agree.

There is, as Deputy Burton indicated in the course of her contribution, a very fine balance to be struck. It is very easy to talk about Hoover economics. Deputy Burton spent a long time last year talking about President Hoover and deflationary economics. In fact, what the Government did last year was correct and has been vindicated by events. The Deputy's reference to Hoover was inaccurate. However, that does not mean——

Deputy Joan Burton

No, it was not.

Deputy Brian Lenihan

If we had not taken those steps——

Deputy Joan Burton

The Government's biggest spend last year was on Anglo Irish Bank.

Deputy Brian Lenihan

Sorry, Deputy. I am allowed to——

An Ceann Comhairle

Deputy, please hear the Minister out.

Deputy Brian Lenihan

The burden of the Deputy's criticisms of the Government last year was that it was Hoover economics and was deflating the economy, when the reality——

Deputy Joan Burton

Some 400,000 people are unemployed.

Deputy Brian Lenihan

——is that what the Government did last year has stabilised the economy and put it back on the road to recovery, something the Deputy's policies would not have done.

Deputy Joan Burton

The Minister must be joking.

Deputy Brian Lenihan

The policies advocated by the Deputy would have left us in the same position this spring in which Greece found itself. That is the reality.

Deputy Joan Burton

Is the Minister arguing that having more than 400,000 people unemployed is a success?

An Ceann Comhairle

Deputy Burton, resume your seat please.

Deputy Brian Lenihan

I have listened to a lot. The Deputy should at least have the patience to listen to a little bit of my contribution. I agree with her that there is a danger of erring too far on the side of excessive expenditure reductions. We did not so err last year and I do not accept that we erred in that direction. The vindication of our position internationally is very obvious to everyone at this stage.

On the balance of which the Deputy speaks, I agree that it is an important balance and it is an issue which I will raise on Friday at the opening meeting of the conference which will examine how the Stability and Growth Pact can be strengthened. I take the Deputy's point in that regard — it is important and we must have regard to it at Friday's meeting.

It is not simply a matter of fiscal controls. However, it remains the fact that the fiscal mechanism we had, the Stability and Growth Pact, did not address the difficulties this country encountered because it was compliant with the Stability and Growth Pact throughout the period of its euro membership. Under previous Governments, the Stability and Growth Pact was adhered to but despite that, serious structural imbalances emerged in this economy in regard to our competitiveness, our banking position and the volume of our public expenditure. All of these structural difficulties developed notwithstanding the fact the State was in strict compliance with the obligations it faced as a result of eurozone membership. Clearly, the current arrangement is inadequate if it does not contain adequate precautions against that.

There are speculators on the markets and I agree with Deputy Burton there are those who take bets on the markets. However, the markets also give indications. They are not totally arbitrary. They are based on informed assessments of difficulties that have emerged in particular states at a time of acute economic distress. For example, in Greece, the increases in expenditure were way ahead of the rate of inflation in the eurozone. A similar phenomenon took place in Ireland. Unlike in Greece, there was no statistical falsification of these increases in Ireland, so the process was more transparent. However, it is that volume of increase above and beyond the inflation rate in the eurozone that creates resentment in other eurozone countries that some countries are profiting at their expense. That is entirely understandable. That is not a problem invented by markets. That is something markets see and make an assessment about.

In regard to our position on the markets and the concerns Deputy Burton expressed in respect of the funding of Anglo Irish Bank, yesterday we had a highly successful bond auction at a time of acute international difficulty in money markets. That is a tribute to the work of the National Treasury Management Agency and the work it has done to explain to the markets the precise nature of the mechanisms being used by the Government to work out the problems of the two institutions to which Deputy Burton referred. Clearly, the markets understand what the Government is doing in that regard and accept it will not impose an undue burden on the State. I am quite prepared to agree it is an unacceptable burden but the markets are saying it is not an undue burden and is something we can sustain.

It is no accident that as a result of the careful briefing by the NTMA to the rating agencies that the markets understand the difficulties we face and how we are addressing them and they are not distracted by the kind of headline figures the Deputy read out because they know they relate to statistical adjustments. I accept it is part of the Exchequer borrowing requirement but that is understood on the markets as well. The markets do not deceive us in regard to this issue and it is no accident that yesterday's bond issue was more than three times over-subscribed. That is a measure of the international confidence that has been built up in this country and we need to sustain that confidence. We can and should have our own domestic arguments about banking but that element of confidence has been built up because the strategy is considered to be credible and that is why the markets buy Irish bonds and why they were not buying Greek bonds.

In regard to the meeting on Friday, as I outlined already, the position of the Government is that it will examine any proposals, in a constructive way, that seek to ensure what has happened in the case of Greece is not repeated and that the system of budgetary surveillance is such as to ensure that is the case.

However, as Deputy Burton rightly said, wider structural issues are of fundamental importance as well. One cannot simply revise the Stability and Growth Pact to ensure there are bare fiscal targets in regard to borrowing that are complied with. Any assessment of the risks associated with borrowing must take into account the structural position in the particular member state. This is an issue of particular importance in these discussions.

As I said earlier when replying to Second Stage, where economies have profound structural problems, clearly that must be factored into any assessment in regard to their borrowing and repayment capacities. In the case of Greece, the conditions agreed do not relate exclusively to meeting financial targets or reducing volumes of expenditure, there is also a series of structural measures involving administrative reform, innovation and competitiveness written into the agreement. That is important to note because as Deputy Burton rightly said, unless Greece is in a position to pay and the Greek economic is in a position where it is a sustainable economy capable of yielding these receipts and capable of making these repayments, then obviously we will be in a far more difficult position in three years' or four years' time than we are now with Greece.

Deputy Burton mentioned the whole subject of recovery in Europe, which is an important one. There was the Lisbon Agenda and it is clear one of the issues that must be addressed in Europe is how we put together a framework that will facilitate recovery. However, such a framework must include elements of liberalisation in regard to the factors of production and their freeing up, their movement and their competitiveness. It is difficult to see how one can have recovery if one does not have those conditions present and clearly that is one aspect that must be examined. Investment in infrastructure and innovation is also of great importance for the future.

I am sure all of these matters will be raised and discussed in the conference which begins on Friday. I will be very pleased to forward the concerns of all sides of the House because I do not believe there is as much between us on those issues as there may be on certain domestic issues.

Deputy Bruton asked a question about the promissory note mechanism. The issue here is with EUROSTAT, the statistics office. It is a classification issue. To date, it has not been raised by the Commission as a Stability and Growth Pact issue. If, in the course of my discussions with Commissioner Rehn leading up to the June meeting, it is raised, I will report to the House on that but to date it has not been raised by the Commission as a Stability and Growth Pact issue. It is a statistical issue which is being handled by EUROSTAT.

Deputy Arthur Morgan

I regret I was missing yesterday for the Minister's Second Stage speech. I was caught at the Select Committee on Enterprise, Trade and Innovation. I had tabled amendments to the Competition (Amendment) Bill 2010, so it was unavoidable. I hope the Minister enjoys the pressures of a very small parliamentary party with a very small number of colleagues in the very near future as it would be a good experience for a while.

The Minister itemised a number of terms and conditions attached to the loan for Deputy Burton. In his conclusion on Second Stage he said the loan facility comes with strong conditions attached and requires the Greek authorities to address their current fiscal and economic deficit. Does that include military spending because he did not mention it when itemising some of the terms, including administrative reform?

I refer to a very reliable report which states that the Greeks are being pressurised by the French to buy six FREMM frigates worth €2.5 billion. I wonder if its military budget comes within the terms and conditions of the loan. Germany is also putting much pressure on the Greeks, including to purchase what is described as a diesel electric submarine which in test trials after so-called refurbishment was listing so the Greeks would not purchase it. There is a whole series of military hardware which the Greeks are being forced to buy from the French and Germans and all sorts of nonsense which were itemised earlier by my colleague, Deputy Ó Snodaigh. Is it reasonable for Greek public services to be cut or for Irish taxpayers to offer loans when France and Germany continue to pressure Greece into this huge military expenditure? Would it not be reasonable for the Minister to intervene when he discusses these matters on Friday with a view to introducing a little common sense before we completely lose the run of ourselves?

Does the Minister agree with his party colleague that the 5% return on this loan represents good value? Should we equate ourselves with the bondholders who Deputy Burton described as predators feasting on whatever soft prey they can find? The prey is Greece at present but it may be Ireland, Spain or Portugal next. Perhaps the Minister will indicate whether profit is a motivating factor.

Is it the Minister's opinion that international bondholders are now free of all market pressure? There appears to be no such thing as failure in the market for them because they will always be bailed out. Where do we stand on that issue?

Acting Chairman (Deputy Charlie O’Connor)

My instruction is that I should call Deputy Kieran O'Donnell before allowing the Minister to reply.

Deputy Kieran O’Donnell

Does the Minister wish to reply to Deputy Morgan?

Deputy Brian Lenihan

I gave Deputy Burton a separate reply and I was about to facilitate Deputy Morgan.

Deputy Kieran O’Donnell

I can wait.

Deputy Brian Lenihan

The Deputy is good at answering questions.

Acting Chairman (Deputy Charlie O'Connor)

I will ignore my instructions.

Deputy Brian Lenihan

I thank the Acting Chairman. I understand the ceilings apply across the board for Greece and relate to military as well as civil expenditure. Many EU member states engage in extensive military expenditure. We are fortunate that we do not carry that burden because our military expenditure is very limited. I am not sure whether Deputy Morgan noted that the main parties in the recent elections in the United Kingdom, or at least the main parties at this stage and the Labour Party at all stages, supported the Trident submarine programme. I understand the opposition by the Liberal Democrats to the programme has now been diluted in the context of the agreed programme with the Conservative Party.

Deputy Arthur Morgan

The UK is not Greece just yet.

Deputy Brian Lenihan

It is not but what are a few frigates compared to a Trident submarine?

Deputy Arthur Morgan

It is €2.5 billion.

Deputy Brian Lenihan

I am not in charge of Greek military expenditure——

Deputy Joan Burton

Do not involve us in a war.

Deputy Brian Lenihan

——but ceilings have to be imposed on military as well as civilian expenditure. Greece has a socialist Government.

Deputy Arthur Morgan

Would one frigate not suffice?

Deputy Brian Lenihan

That is a matter for the Greek Government. Greece has a considerable number of islands but I will not comment on how it should deploy its military forces.

Deputy Arthur Morgan

If it is spending €2.5 billion and we are providing €1.3 billion, the Minister will be aware of the point I am making.

Deputy Brian Lenihan

It is required to reduce expenditure across the board. Perhaps it will have to purchase four rather than five frigates. I do not know the nature of Greece's military requirements.

Deputy Arthur Morgan

I am concerned about the finance element.

Deputy Brian Lenihan

That is a legitimate concern but we have managed to keep our military expenditure low compared to other countries. I am simply pointing out that other EU member states have not been as successful as us, including ones which have a strong socialist presence in government.

Deputy Arthur Morgan

Greece is evidently being pressured by Germany and France to proceed with these purchases. I ask the Minister to use his considerable political weight to ask Germany and France to end this pressure.

Deputy Brian Lenihan

I will point out that just as Germans are concerned about the size and character of Greek pension arrangements, Irish people are concerned about excessive military expenditure. These are matters for the Greek Government, however. We cannot attend an international conference at which we propose to retain for our Parliament the primary role on budgetary matters if we also give lectures to Greece on how it should spend its money, even in the context of a conditionality agreement. It retains some residual power in that regard. If Deputy Morgan is suggesting some sort of link between this loan and the purchase of military equipment, I will certainly examine any evidence he can provide.

Deputy Arthur Morgan

To clarify, I am not suggesting that the Minister should tell Greece how to spend the money. However, I am asking him to intervene with France and Germany so that they ease their pressure on Greece to purchase this military equipment. Evidently, Greece does not want to purchase these frigates and other armaments but it is under pressure from the two big states to do so.

Deputy Brian Lenihan

We do not know the preference of the Greek people in this matter. I am sure Greek naval personnel take a certain view of their requirements because they will crew these ships. Those who demonstrate in Athens may take a different view. I am not in a position to judge between the various opinions being expressed in Greece.

In regard to the return on our loan, it is a commercial arrangement in the sense that Ireland will not be at a loss but it is not an optimal arrangement from our point of view. I would not describe it as simply a good commercial bargain. As Deputy Burton noted yesterday, the facility was introduced in an act of solidarity with other EU member states.

Deputy Morgan referred to a category of international bond holders. As there is freedom of movement for capital and bonds in the European Union, I do not know who he intends to single out with the word "international". Many of these bonds are used as investments by pension funds but there are other reasons for purchasing bonds, such as secure returns over a period of years.

The Deputy asked whether investors are free from all prospect of default when they invest in financial institutions. It is the case that banks in the eurozone have not been allowed to fail in the current crisis. This means that the system of regulation will have to be stricter than what we have witnessed in recent years. That is the considered judgment of the European Central Bank and of governments. I understand it was a particular boast of the outgoing British Prime Minister that he did not allow financial failure of that scale to occur. He claimed that as one of his specific achievements in his valedictory address. His political view appears to be shared by the larger member states.

While the arrangement with Greece is an act of solidarity because it allows it to make structural changes to its budgetary arrangements, an incidental benefit is that it avoided the collapse of a string of financial institutions. The consensus view within the European Union on the political level seems to be that default on senior debt is not considered a serious political or economic option because of the consequences of it, and that view appears to be endorsed by the European Central Bank. An important point tends to be overlooked when discussing this issue in an Irish context, namely, that in strict law, the position of a bond holder who is a senior debtor is the same as that of a depositor. It is a simple banker-creditor relationship. A bond is simply a deposit that can be transferred to a bearer. A person cannot transfer his or her bank deposit to someone else, and neither I nor the bank can do so on his or her behalf. However, in the case of a bond, the deposit can be transferred; that is the simple character of a bond. In the eye of the law there is no difference between the character of the obligation promised in the bond and the character of the obligation owed to the ordinary depositor. It is possible in bank protection schemes to draw a distinction in advance and to say one will only guarantee——

Deputy Arthur Morgan

Is the Minister saying bonds are risk-free?

Deputy Brian Lenihan

No, they are not risk-free because the sum payable on the bond — or coupon, as the markets call it — is a fixed sum. It is not risk-free in the sense that inflation and monetary changes can devalue the instrument, as has happened throughout history since bonds were invented. There is a risk in the purchase of the item, but it is free of the risk of default if it is senior, as distinct from subordinated, debt. In modern Europe and throughout this crisis, such debt is viewed as risk-free. Were we to go down the restructuring road in regard to a sovereign state or an individual bank institution, it would cease to be risk-free because the restructuring would mean that a reduction in the value of the instrument would be provided for.

I am outlining the objective political and banking factors that exist in Europe today and have existed in Europe throughout 2008 and 2009. Both the European Central Bank and the individual member states have set their faces strongly against the idea of a default on senior debt or sovereign default. It is reasonable to ask why. One reason is that the economic consequences of default are generally more catastrophic than the alternative of avoiding the default. For example, defaulting on senior bonds would have a major implication for the value of pensions, thus depriving workers of their pensions or of a substantial element of the return promised, depending on the discount applied. There are other implications in regard to enterprises that give employment which may have raised finance through bonds or obtained bonds in order to finance themselves.

All of these matters have led Governments to the conclusion that the consequences of default are more horrendous than the consequences of avoiding default. There is certainly scope for a great deal of argument on this subject. Not all economists agree with Governments in this regard, and opinions have been expressed by various commentators on the subject. I am simply drawing attention to the views I am hearing expressed strongly both within the European Central Bank and among other member states.

Deputy Kieran O’Donnell

Given the Minister's lengthy responses, I anticipate that we will not get to most of the amendments. Therefore I propose to draw his attention to some specific issues. Section 4 of the Bill provides for an annual report on the loan facility to be given by the Minister to Dáil Éireann. However, Article 10.3 of the inter-creditor agreement, as set out in Schedule 1, provides that: "The Commission shall report to the Lenders on the outstanding claims and liabilities under the Loan Facility Agreement on a quarterly basis." It would be entirely consistent for the Minister to report to the Dáil on a quarterly basis. That report should provide, in addition to aggregate information, specific information relating to the individual loan given to Greece by Ireland, the terms and conditions thereof, the amount outstanding on specific loans, the redemption schedule, the interest rate payable by the borrower, the funding cost to the State and so on.

These proposals are set out in amendments Nos. 3, 4, 6, 7, 9, 11, 13, 15 and 17. I note amendments Nos. 3 and 17 are grouped. It is unlikely we will get to discuss these reasonable amendments in any great depth, but I hope the Minister will take them on board. As I said, the report from the European Commission under Article 10.3 of the inter-creditor agreement is provided on a quarterly basis. It makes sense that the Minister would report to the Dáil within two weeks of receipt of that report rather than merely reporting on a yearly basis.

There does not seem to be any provision in the inter-creditor agreement, as set out in Schedule 1, to provide for a situation where there is not unanimity among member states. Yet there is a requirement for unanimity, under Article 4.2, on each tranche of the loan to be paid to Greece. What will happen if unanimity is not achieved? Article 2.7 of the inter-creditor agreement provides that the parties may "at any time unanimously decide to extend the Availability Period" and to increase the commitments. However, from what I can see, the additional loan facility will come entirely from the KfW in Germany. Will the Minister clarify that?

Acting Chairman (Deputy Charlie O'Connor)

I will now take Deputy Bruton, followed by——

Deputy Joan Burton

If we are moving amendments, I have several to discuss.

Acting Chairman (Deputy Charlie O'Connor)

We are not moving amendments. We are still discussing section 1.

Deputy Joan Burton

Is the Acting Chairman taking some general comments about the amendments?

Acting Chairman (Deputy Charlie O'Connor)

The amendments cannot be moved but I have allowed some general reference to them. I remind Members that it is almost 6.50 p.m. which means there is only ten minutes remaining in this debate.

Deputy Joan Burton

May I comment briefly on my amendments?

Acting Chairman (Deputy Charlie O'Connor)

The Deputy may do so, but I remind her that we are discussing section 1. The Chair does not have any authority to amend procedure. I ask her and other Deputies to be brief so that the Minister has time to respond. I have no choice but to put the question at 7 p.m.

Deputy Joan Burton

My amendments are generally designed to ensure we have more information, on an ongoing basis, in regard to this loan. Like Deputy O'Donnell, I propose that the information be laid before the Dáil on a quarterly basis. I draw the Minister's attention in particular to my amendment No. 2 which provides that the loan would be subject to the freedom of information regime. One of the greatest mistakes made by all the institutions concerned with finance in this State related to lack of freedom of information. I refer to a statement made by the Minister, Deputy Brian Lenihan, on 4 July 2008, before the collapse of the banking system. Speaking to the Public Affairs Ireland conference on the topic, "Government and the Financial Services Sector", shortly after his appointment as Minister for Finance and presumably having been heavily briefed by the Department of Finance, he stated:

There are however real reasons to have strong confidence in our financial services sector and their future.

First, on the back of years of solid economic growth, the assessment of the Central Bank and Financial Services Authority of Ireland, reinforced by the OECD's Economic Survey of Ireland, is that Irish banks are well-capitalised, their mortgage books are diversified and well secured and average loan-to-value ratio in regard to housing lending is low.

Second, the structure of our regulatory system is well up to best practice internationally — this is not just our view, but that of the IMF. Within one organisation, the Central Bank and the autonomous Financial Regulator operate together, complementing each other in oversight of financial stability and monitoring of financial soundness of individual institutions.

As he was hardly a wet day in office, the Minister probably made this statement hand on heart, with total belief and based on what the various groups of advisers told him. I had grave doubts then, as did others, and expressed them on several occasions. If there had been freedom of information in this country, as per the legislation introduced by the Labour Party, which was spancilled and dismantled by one of the Minister's predecessors, Mr. Charlie McCreevy, while we may not have totally avoided the calamity, we would have significantly mitigated thecrisis.

Can we not have freedom of information, even as a small start? The Labour Party, Fine Gael Party and Sinn Féin can, in any case, obtain the information on this loan from the international markets. It would be a principled start by the Minister to recognise freedom of information as being important in creating a future with some financial stability. Moreover, the Department of Finance, Central Bank and others could no longer tell us that everything is wonderful and the financial fundamentals are sound, the mantra parroted by the Minister following his appointment. I say this to remind the Minister of what he said in early July 2008.

Deputy Brian Lenihan

The Freedom of Information Act with its tried and tested mechanisms applies here. There is no question of issues of commercial sensitivity having been invented by a predecessor of mine as Minister for Finance. The original legislation included that as something which has to be taken into account in examining the documentation which will be generated by this legislation. However, this documentation is capable of being the subject matter of a freedom of information request and any information will be dealt with under the freedom of information legislation, taking account of the various safeguards and balances inserted in that Act. Deputy Burton's party was in government at the time of the legislation's enactment. The amending legislation of 2003 did not affect that issue.

Deputy Joan Burton

It closed it down.

Deputy Brian Lenihan

It does not affect this issue. The application of documentation under this legislation will be considered in the same way as it would have been in 1998.

On the issue of the transactions, which were raised by Deputy O'Donnell, in effect what the Deputy is asking for in respect of each expenditure, annual and cumulative, is that additional information be provided.

Deputy Kieran O’Donnell

The key feature of the amendment is to require quarterly information.

Deputy Brian Lenihan

Deputy Burton also tabled an amendment seeking quarterly information. Ireland's initial contribution will be made as part of the next loan disbursement during the third quarter of 2010. Deputies Burton and O'Donnell both propose that the annual reports be submitted quarterly. The granting of loan disbursements to Greece would at all stages be subject to its compliance with the conditionality requirements. In the circumstances, I am satisfied that an annual report will provide full and timely information on our contribution. If there were unforeseen developments in relation to the loan facility, I would report sooner and the information would be in the public domain. The multiplication of this requirement above and beyond what is in the agreement is excessive.

Deputy Kieran O’Donnell

With due respect, given that the administrative provisions of the agreement state that the European Commission will report to the Government on a quarterly basis, why should the Government not report to the Dáil at the same interval? It is a simple matter.

Deputy Brian Lenihan

As two Deputies have raised the issue, I will examine the matter in the context of a possible Seanad amendment. I will have to consult other member states on the issue.

Deputy Kieran O’Donnell

It is in the agreement in black and white.

Deputy Brian Lenihan

I will consult other member states.

Deputy Kieran O’Donnell

Is Ireland not a sovereign country? Can we not make our own decisions on these matters?

Deputy Brian Lenihan

When we enter international arrangements there are always implications for the implementing legislation.

Deputy Kieran O’Donnell

Will the Minister consider reporting on a quarterly basis?

Deputy Brian Lenihan

Yes. On the substance of the Commission quarterly report to the lenders, which Deputies Burton and O'Donnell also raised, it would not be prudent for me at this stage to attempt to legislate in detail regarding the information which it would be appropriate to put in the public domain in respect of aspects of the bilateral loans which are provided for in the intercreditor agreements. However, I will request my officials to engage with the Commission and our colleague member states in regard to the appropriateness, confidentiality and possible market sensitivity of certain aspects of the information sought.

The loan agreements are based on quarterly disbursements to Greece. It is not possible to provide an expected schedule of future moneys at this stage. Overall, as I stated, the expenditure over the three year period cannot exceed €1.5 billion under the terms of the Bill. The intention is that as conditions improve Greece will be in a position to return to the markets.

Deputy Richard Bruton

On the issue of Murphy's law, in the event of a breach or problem occurring, have the Commission and European Ministers considered how the process would work through the necessary correction and the time given to get back on track? Has anyone examined a genuine economic assessment of the Greek position to ascertain whether it can meet the conditions while driving the export led recovery that will be necessary to make the loan facility viable and ensure the country's GDP does not shrink, its debt increase and its problems of funding become bigger as time goes on?

Deputy Brian Lenihan

There has been a very intensive engagement between Greece and the European Central Bank and European Commission, respectively, in recent months. Finance Ministers have heard the reports of this intensive engagement, which has surveyed not only the balance sheet issues, if one likes, of the sums involved but also the structural defects in the Greek economy. The conditions laid down for Greece include specific conditions on the country's structural problems. The first and most fundamental structural defect which led to all the difficulties was the compilation of inaccurate statistical information by Greece. That matter is often treated as something false and unfortunate that happened whereas it betokened a far deeper malaise within the Greek administration. Structural reform of the public administration in Greece is essential for the implementation.

Deputy Joan Burton

I understood Goldman Sachs, the Minister's advisers, helped Greece with the figures.

Deputy Brian Lenihan

Who is Goldman Sachs advising exactly?

Deputy Joan Burton

The company pops up as Fianna Fáil advisers. It assisted Greece in its misrepresentations.

Deputy Brian Lenihan

There are many who have been alleged to be in that famous tent but I never heard of Goldman Sachs being there. I understood the company has been chaired for some time by a person who is historically more associated with the principal Opposition party, although I do not decry the party for that in any way since the person in question has done the State some service in recent times.

Acting Chairman (Deputy Charlie O'Connor)

As it is now 7 o'clock, I am required as Chairman to put the following question in accordance with an Order of the House today: "That in respect of each of the sections undisposed of, that the section is hereby agreed to in Committee, Schedules 1 and 2 and the Title are hereby agreed to in Committee, that the Bill is, accordingly, reported to the House without amendment, that Fourth Stage is hereby completed and the Bill is hereby passed."

Deputies

Votáil.

An Ceann Comhairle

Will the Deputies claiming a division please rise?

Deputies Caoimhghín Ó Caoláin, Aengus Ó Snodaigh, Arthur Morgan and Martin Ferris rose.

An Ceann Comhairle

As fewer than ten Members have risen I declare the question carried. The names of the Deputies dissenting will be recorded in the Journal of the Proceedings of the Dáil.

Question declared carried.