Vol. 746 No. 3
29 Deputy Michael McGrath asked the Minister for Finance if he will explain his logic for opting for a budget adjustment of €3.8 billion in 2012; if he intends to adjust the scale of the fiscal adjustment during the year if the economic growth target of 1.6% is not being achieved and the data indicate that a greater fiscal adjustment is required to achieve the 8.6% deficit; and if he will make a statement on the matter. [34882/11]
The terms of the EU-IMF programme require Ireland to achieve a general Government deficit of no more than 8.6% of GDP in 2012. Based on the macroeconomic and fiscal assessment set out in the medium-term fiscal statement, a €3.8 billion adjustment is therefore required in 2012 to meet this deficit target. My Department set out its latest forecasts in the medium-term fiscal statement. GDP growth of 1.6% is projected for next year. The Reuters consensus forecast for the end of October was 1.5% for 2012, broadly in line with my Department's views.
Given the current uncertainties in the global economic and financial environment, chapter 5 of the medium-term fiscal statement is dedicated to analysing the risks to the economic and budgetary outlook. This chapter also provides estimates of the impact on both the general Government balance and general Government debt of lower and also higher rates of economic growth. Clearly, if growth is weaker than currently anticipated, this will make the achievement of the 2012 deficit target more difficult, all else being equal. Generally speaking, taking account of the inherent uncertainty in macroeconomic and fiscal forecasting, the Department's current working assessment is that the risks to the outlook are broadly balanced.
That said, I am not going to speculate here, in mid-November, about an eventuality that may or may not arise. The Government's focus now is on delivering a budget for 2012 which will implement a set of measures in as fair and equitable a manner as possible that will allow for the achievement of next year's deficit target. The Government is committed to ensuring that the deficit target of 8.6% of GDP is achieved.
I thank the Minister for his response. We all hope the tentative recovery in our economy that we are witnessing takes root and develops further in 2012. The forecast for 2012 is for an adjustment of €3.8 billion, yielding a deficit of 8.6% on the button. There is therefore no room whatsoever for slippage on the outturn for 2011, on the income and expenditure side for 2012, or indeed on the growth side for 2012. What might cause alarm is the fact that the European Commission has predicted that growth in Ireland next year will be 1.1%, which is a full half percent less than what the Department of Finance estimates. If that were to materialise — and we hope it does not — it would result in the need for an extra adjustment of about half a billion euro to bring the deficit within 8.6% of GDP. Is the Minister concerned that we may still be too optimistic on the growth side for 2012? If we are being overly optimistic, and that becomes clear in the early part of next year, is he committed to achieving a deficit of 8.6%, come what may?
Forecasting is always an inexact science. What we have to do is to use the best information available to come to a judgment on what growth rates may be in the following year. It is generally recognised in the European Union that Ireland has now returned to significant growth rates which are at present in advance of those of most of our colleague countries in the EU. The Deputy is probably aware that the CSO revisited the growth figures for the first quarter of this year and it now agrees that growth in the first quarter was 1.9%, which is significant. Last April we were looking at growth, on the basis of reasonable forecasts, of 2.5% for next year. In preparing the budget we have marked that down by 0.9%, which is a significant amount. Writers who tabulate the various forecasts have pitched a mid-range figure of 1.5%, and we are in line with that. I hope we will actually beat these figures, but I can assure the Deputy these are the forecasts produced by the forecasting section of the Department of Finance, with no political input, and we think they are prudent and the risks are balanced. One could cite risks on the down-side, but one could also cite risks on the up-side, so I think they are balanced.
I am sure the Minister will agree that the pattern in recent times from the Department of Finance has been to be overly optimistic in its growth projections. Unfortunately, that is what we have seen. We all hope the projections will not transpire in 2012 and that growth surpasses what it has predicted, but it has predicted a level of growth for the Irish economy in excess of three times what the European Commission is forecasting for Europe generally. We are trying to achieve an export-led recovery but since many of our main trading partners in the European Union are experiencing sluggish growth, to say the least, this poses a real threat to the prospects of an export-led recovery. The key question is how sacrosanct is getting to a figure of 8.6% on the button next year. If growth does not materialise — we hope it does — will there be a requirement for adjustments mid-year to ensure we come in on target?
I do not agree with the Deputy that the Department of Finance has erred on the side of optimism in recent years. It has been close enough to the average in its forecasts. Sometimes it has been slightly above and sometimes below. It predicted a growth rate of 0.8% in 2011 and it has now marked up this rate to 1%. This makes it easier at year's end because if one considers the correction made in the CSO figures of 1.9% in the first quarter and 1.3% in the second quarter, one would need it to come back significantly to get it down to 1% for the full year.
The anecdotal evidence suggests export-led growth is continuing through the third quarter. As I have stated already, this is rather inexact and we must work on the best information available to us. We should be cognisant as well that other forecasters are at work, some of whom are more pessimistic and others who are more optimistic. Those in the ESRI have always tended to be more optimistic than the Department of Finance and, historically, they have proven to be correct. They are more optimistic on this occasion. Let us hope they are right.
30 Deputy Pearse Doherty asked the Minister for Finance if he has received the report from the Financial Regulator regarding the additional powers required to force banks to pass on ECB interest rate reductions to customers; if so, if he will outline the contents of this report; if he will proceed with the necessary emergency legislation on this matter irrespective of whether the regulator requests additional powers or not; and if he will make a statement on the matter. [34880/11]
I welcome the decision by the majority of lenders to reduce their standard variable rates following the recent announcement by the European Central Bank and I encourage all lenders to follow suit. Such a reduction will be of benefit to home owners struggling with mortgage payments.
The Government wants the lending institutions to pass on the interest rate cut for several reasons. In particular, the interest rate cut will be of assistance to those mortgage holders struggling to pay their mortgages. Following a request from the Taoiseach, Mr. Elderfield, the Deputy Governor of the Central Bank, forwarded a report regarding mortgage interest rates on 11 November 2011. The Deputy Governor acknowledges that the Government is not unjustified to have concerns for some particular banks regarding the widening of the spreads by which their standard variable rate exceeds their cost of funds and how they are still so far above the prevailing rates of their industry peers. However, the Deputy Governor states that the power to exercise close regulatory control over retail interest rates is not sought by the Central Bank at this time. He has indicated that the Central Bank will, within its existing powers and through suasion, use existing processes to engage with specific lenders which appear to have standard variable rates set disproportionate to their cost of funds.
In his report, the Deputy Governor states that, while the standard variable rates of mortgage interest for Irish banks reached historically low levels in early 2009, several forces have contributed to the subsequent increases in such rates. First, the access of the Irish banks to wholesale funding from the market was sharply curtailed, especially from mid-2010 and there was a sharp increase in the interest cost, including the guarantee fee mandated by the EU Commission of what market funding was secured. Second, while the ECB policy rate is only 0.25% higher now than it was in 2009, the total cost to the banks of some of the sizeable drawings they have made on Central Bank funding, inclusive of guarantee fee, is significantly higher than the policy rate. Third, the banks appear to have increased, at different times and to different degrees, the spread by which the single variable rate exceeds their cost of funds.
Additional information not given on the floor of the House
The Deputy Governor goes on to say that the third issue is the one on which the current debate is focused. He has indicated in his report that a somewhat wider spread of new loans could be rationalised on the basis of the bank's belated realisation of the credit risk that may be involved in mortgage lending, although this can be limited by prudent loan underwriting practices and risk reduction mechanisms such as low loan-to-value and loan-to-income ratios. A significant widening of mortgage interest rate spreads has been happening in other countries as well. The Deputy Governor comments that it is less clear that retroactively applying a risk-spread to existing loans is fully consistent with fair practice, given that standard variable rates have, in the past, generally moved broadly in line with the cost of funds and given the current situation where most borrowers have limited alternatives such as re-financing or prepaying.
In his report, the Deputy Governor states that the Central Bank has two concerns. The standard variable rate contract has operated for decades during which the reasonable assumption has been established that it would generally track the cost of funds to the lender. The exercise of the currently heightened market power by some banks in increasing rates for existing standard variable rate borrowers would be an abuse contrary to public policy. The Central Bank comments that from the point of view of prudential and consumer legislation, it is possible that the deleterious effect on the mortgage arrears situation arising from large increases in the standard variable rate could result in a net worsening of the banks' prospective profitability, while at the same time adding to the financial difficulty of hard-pressed home owners. The Deputy Governor has indicated that experience of interest rate controls in the past and in other countries does not encourage the Central Bank to believe that such a regime would be advantageous in net terms as the banking system recovers its normal functioning. Binding controls tend to reduce availability of credit and channel it to the most creditworthy customers, starving smaller and less secure customers from credit. The Deputy Governor indicates that this could have a chilling effect on the entry of sound competitors into the market. By absolving banks from their responsibility to price risk accurately, binding interest rate controls would, especially during this recovery phase, impede progress towards the re-establishment of bank management practices that can ensure a healthy and free-standing banking system no longer dependent on the Government for bailouts.
I welcome the report from Mr. Elderfield which will be examined to see what further action, if any, is required. My initial reading of his report is that the Deputy Governor is not seeking emergency legislation. Taking into account the advice of the Central Bank, I do not intend to recommend to Government the introduction of emergency legislation as requested by the Deputy. The Deputy Governor has also commented that competition policy issues may arise in this area. I will bring a copy of his letter to the attention of my colleague, the Minister for Jobs, Enterprise and Innovation for any further requirement in this regard.
People on the street who are in mortgage distress or are in danger of slipping in it, particularly those who have mortgages with Bank of Ireland, want to know what the elected Government of this State is going to do to enforce its stated policy, namely, that banks pass on the ECB interest rate decrease. We are not talking about a Government interfering in the private market. The bank is subject to billions of euro of taxpayers money, liquidity from the ECB which is guaranteed by the State and a State guarantee which is likely to be extended by the Government at the end of next month. The bank would not exist if it were not for the support of the State.
The Minister of State, Deputy Brian Hayes, described the decision of the bank not to pass on the interest rate cut as pathetic. It is pathetic that the Government has not used the powers it could introduce in the House to force banks to pass on the ECB interest rate cut. We have the report of Mr. Matthew Elderfield. Will the Minister or Government do anything about the fact that Bank of Ireland now receives money at a reduced cost but is unwilling to pass that on to mortgage holders?
As the Deputy will be aware, the ECB is not the only source of funding for banks in this jurisdiction. A lot of their funding comes from their deposit bases and they provide a variety of interest rates to attract deposits. If one looks at the logic of this, the only reason the ECB reduces interest rates is that it fears Europe may be sliding into recession and as a consequence it wants to put more spending power into the pockets of European consumers. That is why the interest rates have been reduced in Frankfurt. It is logical that banks in other jurisdictions should pass on the interest rate reduction because, if they do not, they are frustrating the macroeconomic policy of the ECB when it introduces reductions in interest rates.
The current position is that all lending institutions in Ireland who lend for mortgage purposes, with the exception of Bank of Ireland and Ulster Bank, have passed on the reduction. The action of the Taoiseach in calling the banks in and discussing their lending policies was arranged prior to the interest rate reduction. He took the opportunity to raise it with them. The Deputy Governor, Mr. Matthew Elderfield, also has an approach. He said he prefers to use the powers he has, together with his powers of persuasion which are considerable, to affect the interest rate.
We hope Bank of Ireland and Ulster Bank will do what their peers have done and pass on the interest rate cut, and consequently comply with ECB and Government policy. Ulster Bank is a subsidiary of the Royal Bank of Scotland and, therefore, a lot of its funding comes through sterling and the Bank of England although it can and does access funds the ECB. Bank of Ireland is an Irish bank but the State now only owns 15% of it.
I will repeat the question because Bank of Ireland knows Mr. Matthew Elderfield and the House do not have the powers to force it to reduce interest rates. The chief executive of Bank of Ireland rubbed the noses of the Government in it when he was invited to a meeting with the Taoiseach. The Minister of State, Deputy Hayes, called the decision pathetic. The question on behalf of struggling mortgage holders who have mortgages with Bank of Ireland, which survives because of the good will of the State, is what the Government and Minister are going to do to enforce the passing on of the ECB interest rate cut. Is the Minister going to do nothing about it?
Sinn Féin historically has a different approach to getting people to do what it wants them to do than our party would have. The Deputy Governor set out his position——
He is not elected.
He is also independent in the exercise of his functions, which is important to remember. We will continue our contact with the Deputy Governor. It has proved very effective up to now. He has a range of powers at his disposal. He said he is not seeking new powers at the current time. We will see how the situation develops over the coming weeks.
31 Deputy Stephen Donnelly asked the Minister for Finance with regard to his assertion in Dáil Éireann last Wednesday that he had concern about the collapse of the EU-IMF programme were the bond due to be paid by the former Anglo Irish Bank last week not paid, and his warning that if the programme collapsed we would have to make the full adjustment in one year, if there is any record of threats to this effect made by the troika, other than the comment by the late Brian Lenihan, then Minister for Finance, quoted by the Taoiseach last Wednesday; if so, the details of these threats; his views, in view of the fact that a programme has been successfully put in place, that a non-payment of bondholders would lead to the collapse of that programme; and the way that this might happen. [34878/11]
It has always been my position in regard to the payment of unguaranteed unsecured senior bonds that, given the significant cost of the Irish Bank Resolution Corporation, IBRC, formerly known as Anglo Irish Bank, to the State and the taxpayer, that the burden of the debt should be shared with bondholders. However, if we were to suspend payments to creditors in IBRC this would have a significant impact on both the bank and ultimately the State. This senior debt, unsecured as it is, is an obligation of the bank. If the bank does not meet such obligations, it would lead to a default and, following that, most likely, insolvency. Insolvency would result in a significant increase in the cost to the State to resolve IBRC
As I stated after my meeting with the President of the ECB, Mr. Trichet, and the Commissioner for Economic and Monetary Affairs, Mr. Rehn, last month, our European partners expressed strong reservations about burden sharing with senior bondholders in IBRC. Mr. Trichet voiced his opinion that he is against such actions for two reasons. First, private sector involvement carries very significant contagion risk and may be inconsistent with encouraging private investors to return to markets. Second, he said Ireland had done particularly well over the summer. He mentioned the narrowing of bond spreads and indicated his view that anything to do with senior debt burden sharing might knock the confidence of the market in the absolute commitment of the Government to take, once again, its place in normally functioning markets. The result of that might be a further widening of bond yields and a loss of the ground we have gained.
Mr. Trichet's views were echoed by the Commissioner, Mr. Rehn. The positive international commentary on Ireland has been created by the Government's successful renegotiation of the memorandum of understanding, the introduction of the jobs initiative, the sizeable reduction in the interest rate on the EU-IMF programme and the reduction in the cost of the banks to the taxpayer. The value of support, present and future, we receive from our European partners far outweighs any short-term gain from imposing burden sharing on these bonds in the face of European opposition to such a move. For example, some €110 billion of funding is provided by the ECB and the Central Bank of Ireland to the Irish banks at a cost below which they could borrow in the market. This is in addition to the €85 billion set out in the programme with the troika.
The Government's aim is to ensure the overall cost of resolving IBRC and the difficulties in the banking sector generally are kept to a minimum. I will consider the future payment of maturing bonds in IBRC in this context and in terms of what is best for the overall position of the State. However, Irish credit institutions access ECB liquidity under the same rules and subject to the same conditions as credit institutions throughout Europe. The ECB has given very large amounts of liquidity assistance to Irish banks and maintains a keen interest in the Irish banking sector. In this regard, I point to the statement of the ECB on 31 March last to the effect that against the background of the recapitalisation of the banks "the Eurosystem will continue to provide liquidity to banks in Ireland". Together with other decisions announced on this date, the ECB was and is clear about its support for Irish banks. I am not aware of anything to suggest otherwise.
The Minister has given more or less the same statement that he gave in the House last week. Relative to the question I asked, it is nonsense. Both the Minister and the Taoiseach stated unambiguously in this Chamber last week that if we did not pay the senior bondholders at Anglo Irish Bank, the EU-IMF programme would stop. The Minister said that he would therefore have to make an €18 billion budgetary correction this year. He used very emotive language and suggested to the people of Ireland that the deal was contingent on paying Anglo Irish Bank bondholders.
The question I asked was what record the Minister has, other than his reference to the late Brian Lenihan's assertion in this regard, to indicate that a failure to pay the bondholders would result in the cessation of the IMF programme. The reason I ask is that at the time of that assertion by Mr. Lenihan, the Minister and his party, in opposition, suggested that they would burn the bondholders. Now, however, the Minister is using information from Fianna Fáil from last November, which he ignored during the election, to justify his actions. What he said last week amounts to a serious allegation. I will repeat my question. What information does the Minister have, on record, that states that the EU-IMF deal will be withdrawn if we do not pay the unsecured senior bondholders of Anglo Irish Bank?
Most of what the Deputy said is not correct. Our position, in reply to questions such as this, has always been to set out various hypotheses. The hypothesis I set out last week was that if the EU-IMF deal was withdrawn by the European authorities and the IMF, we would need to make an adjustment, which at present will take more than five years, all in one year. That is where the €18 billion came up. That needs to be remembered by people who advocate very robust action. If one is risk adverse, one would not take the kind of risk that would have one back in the House introducing a budget that took €18 billion out in one fell swoop, which is a reasonable position.
As I have said on several occasions, in my view my predecessor in office, the late Brian Lenihan, was an honest and honourable person. When he said he was given to understand what I read into the record last week, I believe him. That was the position as was stated then at approximately the start of the programme. No threat has been made to me in all the meetings I have had in Brussels either by European colleagues or by officials of the bank, the IMF or the Commission. They have all been very supportive. Everybody in this House realises how dependent we are on external aid. The Deputy will know that the money is released to us every three months on the basis of fulfilling conditions in the memorandum of understanding, which runs right down to minor conditions that need to be fulfilled.
If the Minister believed the statement the late Brian Lenihan made here, then coming up to the general election he should have told the people: "I believe Brian Lenihan. I believe the IMF deal is contingent upon us paying the bondholders. Therefore if you elect us into government, we are going to continue to pay the bondholders." If the Minister believed what he said, that is what he should have told the people but he clearly did not tell them. I do not think the Minister believes it — I certainly do not believe it because it is not credible. It may have been stated during the negotiations but there is nothing in the agreement. What is important is that we are being held to the agreement.
I thank the Deputy. I am going to call on the Minister to reply.
I have a supplementary question. Another of these bonds for €1.2 billion will come up in January. What does the Minister believe will happen if he keeps to the people's understanding of his election promise, which was to burn these bondholders or in this case secondary speculators who now own the bonds?
The Deputy is like other Opposition Deputies who always insist on half-quoting me. I never said it was Fine Gael policy in government to burn bondholders. I said it was Fine Gael policy in government to burden-share or burn bondholders provided we got the consent of the European Central Bank to do so. I campaigned on that basis right through opposition and through the general election campaign. I challenge the Deputy to find any occasion when I did not qualify my commitment on burden sharing with bondholders by saying we would not do it unilaterally, but would always do it with the consent of the European Central Bank.
The Minister should check his banking policy.
That bank's consent was not forthcoming. It is as blunt as that. No one is trying to hide anything from the Deputy. The European Central Bank's consent was not forthcoming.
What does the Minister believe will happen in January?
In answer to what I believe will happen, I was here for five months listening to people shouting to me that we would never get a reduction in the interest rate, but we did. Negotiation with the European authorities is a lengthy process that goes inch by inch. We are moving it forward inch by inch. My present objective is to seek a reduction in the overall burden of the debt on the shoulders of the taxpayers. There are various approaches and various ways in which that could be delivered, of which working on the promissory note for Anglo Irish Bank is just one. I believe it will be a medium-term project rather than an immediate one.
32 Deputy Michael McGrath asked the Minister for Finance his views on the potential impact here of the ongoing eurozone debt crisis, in particular, on Ireland’s prospects to have a successful export-led recovery, on the planned return to the international sovereign debt markets late next year and on Ireland’s overall debt sustainability; and if he will make a statement on the matter. [34883/11]
GDP data for the first half of 2011 confirm that recovery is under way. Growth is being driven by the traded sector, with exports of goods and services increasing by more than 6% on an annual basis in the first quarter and, despite weaker levels of activity in our main trading partners, by close to 5% in the second quarter. These strong levels of export growth partly reflect the very significant price and cost adjustment that have taken place and which are testament to the flexibility of the openness of the Irish economy. Given the openness of our economy, we will not escape unscathed from what is happening overseas. That said, the acyclical nature of some Irish exports and further competitiveness improvements will have some mitigating effects. Exports are still expected to grow by 3.8% in 2012.
There is no doubt that the external environment is becoming less benign and that this is a cause for concern. Uncertainty surrounding global growth prospects has increased since the middle of the summer, while the eurozone sovereign debt crisis has intensified. As a result, international organisations are in the process of revising down their short-term macroeconomic projections for many economies, including our main trading partners. This obviously has implications for Ireland's growth prospects. Consequently, in the medium-term fiscal statement published earlier this month, the Department of Finance revised its forecast for GDP growth in 2012 to 1.6%, down from 2.5% at the time of April's stability programme update. From our perspective, and that of the euro area as a whole, it is crucial we move forward as quickly as possible with implementing the decisions announced by the euro area Heads of State or Government on 26 October. Swift implementation will instill confidence and underpin the euro area recovery.
As regards Ireland's return to sovereign debt markets, based on the forecasts set out in the medium-term fiscal statement, the State has access to financing to cover its needs for the next two years. Nonetheless, it is the aim of the National Treasury Management Agency to return to borrowing markets at some point in 2012. To ensure that we can regain access to sovereign debt markets, it is vital that we continue to deliver on the terms of our EU-IMF programme of financial support. This means proceeding with the budgetary adjustments that will bring our deficit back to a sustainable level while continuing to implement the necessary reforms that will improve the economy's competitiveness. In doing so, we will create the correct conditions for fostering jobs and economic growth, which will, in turn, benefit the fiscal position and reinforce the sustainability of the State's debt.
I thank the Minister for his response. There appears to be no end to the crisis in the eurozone. The markets do not appear convinced the new Governments in Greece and Italy will deal seriously with the problems being experienced by those countries. Elections are to be held in Spain this weekend and elections are on the horizon in Germany and France. Most people are forming the conclusion that the crisis poses an ominous threat to our economic recovery. People are now fearful that Ireland's place in the euro or, the euro as we know it, may not be as secure as we all believed it to be.
The medium-term funding of this State will need to be clearer this time next year. That would be the advice of the National Treasury Management Agency, NTMA. In light of the ongoing developments in the eurozone and given the exceptionally challenging external environment, what is the latest advice of the Minister from the NTMA in regard to when Ireland is likely to return in a meaningful way to the sovereign debt markets for long term borrowing to meet this State's long-term funding needs?
The Deputy is correct to point to the volatility of the situation in Europe, a situation that has been volatile for some time now. This obviously has an adverse effect on economic growth, real and forecasted. It is hoped that as things proceed there will be a settlement. The Deputy is correct that the situation remains volatile, which is disappointing from Ireland's perspective given we are fulfilling all of the objectives of our programme and are working hard to get out of the difficulties we are in.
In regard to when we will return to the markets, the NTMA remains of the view that Ireland will return to the markets during the second half of 2013.
2012.
It plans to enter the markets earlier than that but with a view to testing the market rather than being fully funded. The Deputy will note that the secondary market is volatile and responds with reasonably large movements to small levels of purchasing or selling. It is difficult to know what will be the appropriate bond price for Ireland until such time as the market has been tested.
Has the Minister received a commitment from the European Central Bank, ECB, that it will use its powers to purchase Irish sovereign debt on the secondary markets in order to ease our passage back into the markets? Does the Minister envisage this will happen in a meaningful way? Given the downgrading of exports by the Irish Exporters Association and, as the Minister has acknowledged, the market conditions remain exceptionally turbulent, what level of borrowing does he anticipate the NTMA will be able to engage in next year, in order to ease our passage back to the markets?
I have not sought any commitment from the ECB about the secondary market. Because we are not in the primary market at this stage it would be premature to have any such discussions. The NTMA is of the same view it has held for the past number of months that it will be possible to get back into the market around the date I indicated and it has not changed its position in this regard.
33 Deputy Pearse Doherty asked the Minister for Finance in view of recent events in Greece and Italy and the news that the French and German Governments are actively considering a radical restructuring and re-sizing of the euro, if he is actively preparing for the possibility of a collapse of the euro or any attempt by France and Germany to exclude indebted states from the euro or to impose significant transfer of fiscal and macro-economic powers on indebted states as a precondition for remaining in the euro; and if he will make a statement on the matter. [34881/11]
The scenario to which the Deputy refers is a purely hypothetical one and I will not add to speculation in that regard. Indeed, I note that over the weekend there was clarification from Germany and France that they are not proposing any break-up of the euro area but rather are talking about making the euro area work better.
However, it is abundantly clear that we are at an important juncture. The intensification of the crisis since the announcement of a referendum in Greece and the subsequent increase in Italian borrowing costs are, of course, a matter of concern. While the situation is fluid, the recent political developments in both Italy and Greece are helpful in terms of easing the uncertainty that existed over the past week or so.
I wish to emphasise the considerable progress that has already been made in terms of improving the functioning of the EU and the euro area in particular. I refer to the EU semester; strengthened surveillance via the so-called "six-pack" of governance measures; support for vulnerable economies via the EFSF and the EFSM; a permanent crisis resolution mechanism in the form of the ESM; the Euro Plus Pact to inter alia improve competitiveness; and strengthened financial regulation.
These are all important developments and demonstrate that the EU can unite and work in the interests of all. This shows that the European Union can make significant decisions and progress which, not so long ago, would have been seen as almost unthinkable. I take great encouragement from this.
I refer to the comprehensive package announced by the euro area Heads of State and Government on 26 October. This is essentially a five-point strategy involving a credible solution to the Greek situation; boosting the effective capacity of the EFSF; recapitalising Europe's banks; enhancing surveillance; and improving economic governance in the euro area.
I wish to assure the House that work is continuing on implementing these important decisions. It is in all of our interests that we move forward as rapidly as possible in that regard.
Additional information not given on the floor of the House
Not surprisingly, some have suggested that greater surveillance and enhanced governance somehow implies an unacceptable loss of national sovereignty but I do not agree. The Government's view is clear; we are in a monetary union with other member states and therefore, more co-ordination of policies is essential. In fact, it must be recognised that the lack of co-ordination among member states in the past is one of the main reasons we find ourselves in the current predicament. It is, therefore, important to tackle the root causes of the problem. We simply cannot have a currency union without further integration and greater co-ordination. In these circumstances, putting in place, albeit retrospectively, the appropriate institutional architecture, is crucial.
Of course, enhanced policy surveillance and governance must be sufficiently balanced, and in this regard, the Government sees an important role for the Community-based method as it balances the interests of smaller member states. The Government also takes the view that as much as possible should be achieved at the level of the EU 27. However, it is also recognised that the level of integration and co-ordination will be necessarily higher for countries participating in a monetary union than for those outside it.
Finally, I wish to stress that the benefits of monetary union should not be forgotten. For instance, the deepening of trade and investment links between participating states has been of significant benefit, while consumers benefit from lower prices and ease of travel. In addition, we are receiving significant support from the ECB during our current economic difficulties.
I thank the Minister for his reply. The Minister regards this as a hypothetical situation and he does not wish to add to it but none of us wants to see the collapse of the eurozone or of the euro. However, we need to realise that decisive action must be taken that is different from the current type of action. The eurozone is like the Titanic and the damage is so great that unless it is patched up very speedily it will slowly sink. The Minister's job as Minister for Finance is to ensure that there are enough lifeboats and that they are operational in order to get the Irish people to dry land. The Minister says he does not want to add to the speculation but the German finance Minister is able to say when questioned that the Germans are developing contingency plans for a collapse of the euro. He told one media outlet: "We would be a horrible government if we did not think through what it needs to do if things go wrong." If the German finance Minister can talk about developing these contingency plans, why do we not do the same?
I have one supplementary question. The Minister knows fine well the position of Italy, Spain and France. He replied to a question of mine on a previous occasion by saying the Department of Finance is discussing these matters. I ask if he is developing plans. Is there any co-ordination between other Ministers for Finance in other states, some of whom are developing plans?
The Deputy referred to the German finance Minister. I would refer him to a very long interview that minister did with Le Monde, published on Sunday, in which he gave an absolute commitment to the future of the eurozone. He stated his ambition was for the euro to grow to be the most significant reserve currency in the world, that he was confident of its future and that we needed greater fiscal consolidation and a financial transaction tax. The Minister dealt with a variety of other issues, as recently as Sunday. Any suggestion that at either leader or finance Minister levels the authorities in France or Germany are planning the demise of the euro is entirely incorrect. There is no such intention. Obviously, we are aware of the ongoing debate and are keeping in very close contact.
I wish the Minister would answer the question. He spoke of being wrongly quoted. Nobody claims that France and Germany are planning the demise of the euro. That is ridiculous. No European leader wants that. However, other finance Ministers are taking action. I again quote the finance Minister of Germany——
No quotations, please.
——to the effect that it would be a horrible government that did not make such plans. Those countries have got their act together — have we? Are we developing contingency plans for the eventual break-up of the euro, something I am sure nobody throughout Europe wants to see? However, it could happen and we would be a horrible Government if we did not prepare for the impact on our citizens if such a situation were to transpire.
I am glad to see the Deputy pledging support for the euro after his party campaigned against it in the Maastricht and Lisbon treaty referendums——
The Minister should answer the question.
——and in every other treaty that advanced the European cause. I am very pleased by that.
We have great structures as a result of those treaties.
The Deputy quoted the German finance Minister as evidence but that utterance could apply to anybody in government, any time, anywhere. It would be a very bad government that did not plan for the future. That is all the Minister said. We take the same position.
He said he has contingency plans for the break-up of the euro.
It would be a very bad government that does not plan for the future.
