Vol. 731 No. 1
35 Deputy Richard Boyd Barrett asked the Minister for Finance the position regarding the pact for the euro agreed at the recent meeting of EU heads of State; the implications for member States in terms of their ability to decide their own economic policy; and if he will make a statement on the matter. [6645/11]
On 25 March the European Council adopted a package of measures to respond to the crisis, preserve financial stability and lay the ground for sustainable job creating growth. The euro area Heads of State or Government also adopted the euro plus pact to complement these measures to further strengthen the economic pillar of EMU and achieve a new quality of economic policy co-ordination, with the objective of improving competitiveness and thereby leading to a higher degree of convergence. Bulgaria, Denmark, Latvia, Lithuania, Poland and Romania joined all of the euro area member states in adopting the pact.
The primary focus of the euro plus pact is on areas that fall under national competence and which are of key importance in increasing competitiveness and avoiding harmful imbalances. As pointed out by the European Council, competitiveness is essential to help the European Union grow faster and more sustainably to produce higher levels of income for its citizens and preserve member states' social models. The pact rests on four guiding rules. First, it will be in line with and strengthen the existing economic governance in the Union, while providing added value. Second, it will be focused and action-oriented and will cover priority policy areas that are essential for fostering competitiveness and convergence and concentrate on actions where the competence lies with the member states. Third, each year concrete national commitments will be undertaken by each Head of State or Government and progress will be monitored on a yearly basis. Fourth, the pact will fully respect the integrity of the Single Market.
In practical terms, the central element of the pact is that every year each member state will be responsible for choosing the specific policy actions that it considers are necessary to achieve the goals of fostering competitiveness, fostering employment, contributing further to the sustainability of public finances and reinforcing financial stability.
The euro plus pact is a positive development for the European Union and Ireland. We are a member of the European Union, particularly the euro area, and benefit significantly from such membership in many ways. The Union and Ireland will benefit further from co-ordinated efforts to improve competitiveness and sustainable economic and employment growth. While encouraging best practice and benchmarking, the pact is predicated on each member state taking ownership of and responsibility for its commitments and presenting the specific measures it will take to achieve the goals I have outlined. That is a sensible way to proceed and will benefit us all in the future.
The Government has rightly and justifiably criticised the previous Government for its policy failures and actions which contributed to the property bubble and crash, the banking crisis and so on. However, while the Government may be able to excuse itself from what the previous Government did, it is signing up to a pact which will be as destructive of our democratic right to control our economic policy as the IMF-EU package. The pact, essentially, hands over control of economic policy in this and every country in the European Union to the European Commission and gives it power to decide on an annual basis what it calls "country specific" policies through which it will set out in key areas of economic policy what we must do. We will have to do what is proposed and the Commission will impose penalties on us if we do not. Is this not a handing over on a permanent — not just a temporary — basis of control of key economic issues? Is it not amazing that we are doing this in a situation where the general outline of the economic priorities set out in the euro pact perpetuates the same failed economic doctrine that led to the financial crisis in Europe — a constant obsession with what Mr. Nyberg rightly called in his report the "naive belief in the efficiency of markets"? It is still all about us being forced to accept the efficiency of markets model to dictate what happens to the economy, which means austerity, cutbacks and privatisation.
I do not think the Deputy and I will have a fruitful interchange because our philosophical positions are diametrically opposed. The European Union is good. In general I agree with the policies being pursued and believe the future of our citizens lies in being at the heart of the European Union. I am not alone in thinking this. The Deputy will have noticed that when the socialist experiment failed in eastern Europe, everybody there queued quickly to join the European Union. They have now all joined. The same is happening in North Africa where we have the Arab spring and democracy is breaking out at long last in Arab states. The secondary objective is to have democratic governments and join the European Union or have trade relationships with it as quickly as possible.
I do not agree with the premise that underpins the Deputy's question. The objectives I set out are ones to which we should subscribe because they are the route back to full employment, economic growth and a good lifestyle for the people.
I supported the revolution that led to the overthrow of the dictatorships in eastern Europe and support the democratic revolutions in the Arab world. It is precisely because of my commitment to democracy that I am worried about the pact for the euro, on which the Minister has not responded. This is not about his view of my ideological position but about whether there is a recognition on his part or on that of the European Union of the key responsibility for a particular economic philosophy that let the banks to run riot and cause the economic crisis. It is not me who is saying this but Mr. Nyberg who said the financial crisis resulted substantially from the naive belief in the efficiency of markets. Why are we signing up to a pact that will lock in and copperfasten the naive belief in the efficiency of markets to the economic perspective of the European Union and which will force us, regardless of what the Government or the people think, to subscribe to that doctrine, particularly given its role in causing the financial crisis?
The Minister has said the Government supports the pact for the euro. Does he support wholeheartedly the pact which states the European Commission will impose financial sanctions on member states which cannot meet the debt to GDP ratio? Has he asked his Department to carry out any risk assessment of the cost to the State if we cannot meet the targets set under the pact? Under the pact debt sustainability will be monitored and if it is recognised that a country is not on the pathway to debt sustainability, creditors will be engaged with. Twelve days ago the Minister rightly was bullish when Irish sovereign debt yields — the Irish sovereign debt ten year bonds — were starting to decrease. However, he must acknowledge that the percentage figure is now at 10.4% or 10.5%. It is higher than it ever was. The markets are telling us that we are on a collision course with debt unsustainability. Should we not look at the pact and seek to have our debt renegotiated now, instead of waiting to post the date set down in the pact? Has the Minister carried out that assessment of the financial sections?
The Deputy has introduced a different set of issues. The pact has four objectives. It wants to foster competitiveness; I see nothing wrong with that from a citizen's point of view or from the economy's point of view. As its second objective it wants to foster employment; I do not see any problem with that. Does anyone in the House see a problem with that?
Was competitiveness not responsible for the banking crisis?
An tAire without interruption.
The third objective is that the pact will contribute further to the sustainability of the public finances. Every time Deputy Doherty gets up to speak he lectures me on sustainability so I cannot see how he could have any problem with that objective of the pact.
The fourth objective of the pact is to reinforce financial stability. I cannot see why everyone in this House cannot sign up to the four objectives of the pact because they seem to be very reasonable objectives.
People's wages.
Achieving them might be a harder day's work but as objectives they should be fine by all of us.
36 Deputy Michael Colreavy asked the Minister for Finance the job description and scope of work given to each of the public interest directors appointed by the State to banks which have received State assistance; and if he will make a statement on the matter. [9668/11]
As the Deputy will be aware, under the terms of the Credit Institutions (Financial Support) Scheme 2008, domestic credit institutions benefiting from the State guarantee were required at the direction of the Minister for Finance to appoint up to two non-executive directors to promote the public interest. The legal position is that any director appointed to the board of the covered institutions, whether under the CIFS scheme or otherwise, is subject to the requirements of company law in the discharge of his or her responsibilities as a company director. As such, the director is legally bound to act in what he or she believes are the interests of the separate legal entity that is the institution itself. These are the director's so-called fiduciary responsibilities.
I understand that in addition to their other experiences, the public interest directors currently on the boards of the covered institutions were nominated by my predecessor on the basis of the Minister's assessment of their civic mindedness and sense of where the public interest lies to inform their view of what was in the institution's interest. I am advised that the Department of Finance held generic briefing sessions on the CIFS scheme in general and on the fiduciary duties of non-executive directors for individuals on the panel from which the covered institutions appointed public interest directors but that there was no job description or scope of work set out for them as this, as I have outlined, was determined under company law. In addition, for this reason public interest directors did not have a formal reporting relationship to the Minister or to the Department of Finance.
In light of the foregoing and the scope for actual and perceived conflicts between the fiduciary duties of the directors of financial institutions under company law and the wider public interest in circumstances that those institutions have received huge financial support from the State, it is essential to bring legal clarity not just to the role of the public interest directors but to that of the entire boards of those institutions. Section 48 of the Credit Institutions (Stabilisation) Act, therefore, provides that the overriding duty of directors of the covered institutions relates to the public interest as set out in the Act. As Minister for Finance, I am strongly committed to ensuring that the boards of the covered institutions act at all times in a manner fully consistent with key public interest objectives for the banking sector. This will be a major element of my assessment of the board renewal programme that I have recently sought from the covered institutions.
Gabhaim buíochas leis an Aire for his response. Has he personally spoken to any of the public interest directors in the banks covered by the State guarantee and that are being supported by State funds? In particular has he called in the AIB public interest directors to ask them what they were doing when they allowed a package to be signed off under their watch allowing Colm Doherty to get a €3 million golden handshake? Does the Minister believe that Dick Spring, one of those public interest directors, is fit for the job to which he was appointed by the previous Minister for Finance?
Will these public interest directors be reviewed in the same way that the other bank directors will be reviewed? The Minister should at least call them in and ask them to be held accountable. As the Minister said their primary interest is the public interest. Has he questioned them as to how they fulfilled the public interest when they agreed to sign off on the type of severance package handed over to Colm Doherty?
The primary duty and responsibility of the public interest directors as well as all the other directors are to ensure that the institution on whose board they serve is run properly and appropriately. Their primary responsibility, regardless of their title, is to the institution on whose board they serve. Is Dick Spring a suitable person to be the director of a board in the public interest or otherwise? Of course he is. Dick Spring has a very long record in this House. He has a very strong record as a Minister and as Tánaiste, and he has a very strong record in business and as a member of the legal profession. He is well fit to be——
Was Colm Doherty's severance package——
Deputy, please.
He is well fit to be a member of the board. Have I called in public interest directors and talked to them separately? No, because it would be inappropriate for me to do so. They do not report to the Minister for Finance or to the Department of Finance. Their responsibility under company law is to the institution on whose board they serve. I work with these covered institutions through the chairpersons of the boards and that is my point of contact. If I want to see the board or individual directors, I will meet the board in its totality. I will not pick out individual directors and call them in for some kind of reprimand when I do not have a legal leg on which to stand to make any suggestion to them whatsoever.
I believe it is inappropriate to go after individuals. We do not know what position the former Deputy, Mr. Spring, or any other director took on any particular issue at the board. The Deputy should be careful not to make statements even under privilege of the House unless he is sure of the position.
I asked the Minister to state his position as to whether he believed the public interest directors in AIB were fit for their position, because under their watch they signed off on a severance package that allowed the taxpayers to pay Colm Doherty €3 million. As the public interest directors have a different role from that of the other directors of the bank, does the Minister for Finance, as the person who will appoint public interest directors in the future, have the power to call in these public interest directors to ask them what is happening with severance packages in the bank?
The Minister has made it clear that there is no formal or informal reporting relationship in place between the public interest directors and the Minister. Many people will find that strange. Does he have no direct contact whatsoever with those public interest directors as individuals and if not does he intend to introduce more formal arrangements between him, as Minister, and these directors who were appointed to represent the interests of the State and the citizen?
My predecessor appointed all the public interest directors and he had the same relationship with them as I have. Their job under company law is to bear in mind the interest of the institution on whose boards they serve. That is their priority, but there is no reporting back. When they are considering a particular issue at board level, as well as making the decision in the interest of the bank they are obliged to ask what would be in the interest of the public. However, they are not subject to direction from the Minister or the Department on that. They are independent, as are all directors in accordance with company law. That is their fiduciary position.
Deputy Doherty's very legitimately asked how long the directors would remain in place and what is the situation for appointments. First, I will seek a renewal programme from each of the chairpersons and I have asked in the first instance to bring that up to the night of the infamous guarantee in 2008. That will be one part of it. The regulator, Mr. Elderfield, is writing or has written to all directors and effectively advised them that he will adjudicate on their suitability to be directors based on their knowledge of banking and financial affairs. That process will terminate in January 2012. What I am doing takes it up to 2008 and what he is doing takes it into the area of the new directors. We will wait to see what happens.
With the exception of Bank of Ireland, the State is now the majority shareholder in all the other banks. As majority shareholder, I can instruct how shareholders vote at the annual general meeting. If all else fails, I can refuse to exercise the voting rights of the shares to put any director back in place at the AGM.
Does the Minister have the power to call in the public interest directors?
That concludes Question Time.
Written Answers follow Adjournment Debate.
