I welcome the opportunity to speak on this important Bill, which will play a crucial role in the future of the country. Since the EU leaders finalised the agreement of the fiscal compact in late January, Fianna Fáil has consistently argued that the people of Ireland should be consulted on the issue via a referendum. We will campaign in favour of the treaty on 31 May as a significant step in facing up to the fundamental challenges facing the eurozone. Yesterday I had the privilege of being appointed Fianna Fáil director of elections for the upcoming campaign and I look forward to a vigorous few weeks on the trail engaging with voters. However, this is only a step on the long road and other critical measures must be taken.
The role of the ECB should be fundamentally reformed and expanded, fiscal union must be established and pan-European banking regulations should be fully set out. The fundamental design flaws of the euro must be addressed in order to get Europe's economy moving again. Public discourse on this treaty must be fully informed and the wider issues of what must be ultimately done to stave off the euro crisis and to place economic growth on a sustainable path should be kept at the forefront of public debate.
Fianna Fáil has a long and proud history as a pro-European party. We take pride in having led Ireland into the European Economic Community, EEC, in 1973, and that historic moment broke the reliance of this country on the UK, marking a defining decision and our place in world history. The role of Europe in the economic and social advancement of this country has been richly beneficial for all sections of Irish life with the ongoing role of the EU in supporting the Northern Irish peace process and our agricultural industry, providing open markets for our exporters and infrastructural development, as well as facilitating ease of travel for citizens across the Continent and the free flow of capital. All these aspects of our involvement with the EU have shaped how we live across the island and the quality of life we enjoy, which would have been unimaginable in previous generations.
From the European Coal and Steel Community to the Treaty of Rome to the current fiscal compact treaty, the European project has transformed the Continent, a landscape which was devastated by war, populated by people ravaged by poverty and ruled by nations locked into continuous conflict. It has changed utterly to one of the most peaceful and prosperous corners of the world in human history. The acrimony of the feuding which bloodied the pages of European history has been supplemented by an era of co-operation, economic growth and rising living standards. The European Union represents a project of transnational co-operation on a historically unprecedented scale. The Single European Act 1986 guaranteed freedom of capital movement, goods and services and altered national boundaries on a scale that no other inter-state organisation has attempted. The rich benefits of markets and borders open for business, study, holidays or living abroad can be taken for granted but other generations could only have imagined them.
The aspersions cast upon the EU as an elitist project ignores the major role it has played in advancing the cause of democracy across a Continent torn apart by fascism and communism. Membership of the EU has provided a strong incentive for the democratisation of and deepening respect for human rights among applicant states. The success of the EU played a major role in staving off the threat of communism and the advancement of the Soviet Union during the Cold War. It stands as a shining example to other tentative unions, such as the African Union and the Arab League, and their efforts to create mutually beneficial and peaceful links between precariously related states.
The euro crisis, unacceptably high unemployment levels, stagnant economic growth and the grave challenges for sovereign debt mark a serious challenge to the European project which has secured so much for this Continent. Fundamental design flaws in the euro from its origins in the post-Berlin Wall Maastricht treaty have returned to haunt the currency. The idea of a single currency was borne from a long-standing effort to combat the currency battles that scarred the EEC and the resulting price instability that undermined economic growth. Under a single currency, events like the "Battle of the Franc" in the early 1990s would become a relic. In the grave uncertainty and instability of the post-world war globe, with a reunited Germany at the centre of Europe, there were also clear political implications in utilising a single currency to bind the Continent closer.
From its inception there was a failure to appreciate fully the ties between monetary and fiscal union. The illusion of lowered sovereign debt among diverging states, the need for banking regulation because of free-flowing currency across member states and the deepening of economic links between participating countries has undermined the currency. Fiscal imbalance between states due to an inability to adjust currencies was initially obscured in the buoyant early years of the euro. However, the financial crisis that exploded from the sub-prime mortgages problem of 2007 has mercilessly exposed these flaws. Bond markets have reacted sharply against the failure to confront these problems. The previously converging bond yields on German sovereign debt and those of peripheral states, like Greece, were sharply torn asunder. Market confidence in the reliability of sovereign debt as an investment was firmly shook, with the repercussions felt across all countries when agency ratings such as the French AAA standard were downgraded and bond yields in Spain and Italy soared dangerously high.
The pressing demands of the crisis have abated somewhat as the deal on Greek debt with creditors ramped up long-term ECB financing of banks and escalated secondary market bond buying, assuaging immediate problems. The long-term challenges persist and it would be extremely naïve of any commentator to assume the current relative calm indicates the problems have passed. If action is not taken to tackle these problems, even greater challenges will emerge in future.
The capacity of member states to borrow is reliant on taking significant and meaningful measures to tackle these problems, and this treaty is a step towards addressing them. The future of the eurozone hinges on putting in place a renewed infrastructure to solve the problems that have beset the currency. Economic growth in the EU is also bound with the fate of the single currency, as the collapse of the euro is estimated to have the potential to inflict between 25% and 50% in loss to GDP, according to certain studies. The capacity to borrow at affordable rates is a crucial tool in the economic kit of states which must borrow to fund infrastructural developments and meet ongoing financial obligations.
In essence, this fiscal compact treaty is a beefed up version of the 1996 growth and stability pact, which laid out a framework for the budgetary discipline of member states. However, the Stability and Growth Pact lacked effective enforcement rules. It is well known that Germany and France were the first two countries to break the provisions of that pact, breaching the deficit rules for several consecutive years. However, this compact aims to enforce these rules by imposing stringent oversight and a clear active role for the European Court of Justice. The fiscal compact treaty attempts to reduce the chance for poorer fiscal policy in one country to affect another country through budgetary oversight and co-ordination, as well as multi-year budgeting. This aims to enshrine good fiscal policy by making imprudent fiscal policies harder to enact in member states. We will argue throughout the campaign that the treaty is not enough on its own to solve the eurozone crisis. It is, however, one critical part of the puzzle and a step towards a comprehensive set of policies and the overhaul of the eurozone design framework needed to address the fundamental problems the eurozone faces. The limited mandate of the European Central Bank is one such fundamental issue that needs to be addressed. The lack of uniform financial regulation, including a pan-European eurozone bank resolution regime, is also a fundamental requirement, one which will have to be addressed in addition to the provisions and measures set out in the fiscal compact. The lack of a more ambitious fiscal union, one which involves transfers between states, is a key issue which will have to be addressed as part of an overall resolution of the crisis that has engulfed the eurozone.
Dr. Alan Ahearne correctly describes the treaty as an indispensable bridge to the policies necessary to confront the crisis, which creates a framework to co-ordinate fiscal policy in countries sharing the euro currency and allows for macroeconomic policy efforts across the eurozone. The treaty is best viewed as an essential part of the foundations of a new fiscal and monetary structure for the eurozone. It can also be viewed as putting in place the fiscal constraints needed before financial transfers to countries with weaker economies can occur to compensate for the financial imbalances that result from monetary union. This combination of fiscal and monetary measures is required to tackle the crisis by addressing the basic design flaws of the euro.
Fiscal union is the only real solution to the crisis and the problem of generating the economic growth and job creation required to tackle the endemic unemployment and anaemic growth levels that have hit Ireland hard in recent years. Without an effective system of financial transfers such as pooled sovereign debt, the economic dominance of Germany and other northern European countries will be copper-fastened because countries with weaker economies are unable to devalue their currency to compete. Fiscal union with eurobonds that pool sovereign debt will strengthen all member states' economic performance. The US Federal Reserve provides a model from which the European Central Bank can draw in expanding monetary policy to buy debt from member states. The current restrictive system under which it is empowered only to purchase debt from the secondary market limits the financial firepower available to the bank - sometimes referred to as the bazooka effect - in tackling financial events. The ramped up capacity to buy sovereign debt providing a backstop to national debt would act as a panacea to market doubts about the viability of sovereign debt in the euro area.
This expansion of the role of the European Central bank can only take place if national budgetary constraints are in place to avoid the significant threats of inflation and currency devaluation. Strong, unified financial regulation across the European Union reflecting the reality of international finance within the remit of the ECB will be vital in ensuring the banking crisis we have endured is not repeated in the future. This is particularly salient in the case of Ireland which met the Stability and Growth Pact requirements with ease but laboured under the illusion created by a bank fuelled property bubble. Pan-European regulation would ensure the spectacle of German banks recklessly lending to Irish banks and fuelling a property bubble would be avoided in the future. We have seen the effect of global finance in the ghost estates that ring our towns and in homeowners struggling with negative equity. Let us ensure we learn lessons and, more importantly, apply them. We will make this argument on the campaign trail. While the treaty is a significant step in the right direction, a long journey lies ahead.
The Fianna Fáil Party has continuously taken the initiative and spearheaded European Union engagement. Continued engagement with our European partners hinges on the legitimacy that can only be bestowed by the popular decision of citizens. For this reason, my party has continuously called for a referendum to be held on the substantive issue of the treaty to secure democratic approval for what is a fundamental measure. The ongoing support of ordinary citizens for the European project is vital to its future and losing this connection would ultimately destroy the European Union. Governments should not fear putting critical decisions to the people. The Government tried desperately to avoid holding a referendum. For all its talk of rebuilding relations with our European partners, its eagerness to avoid a referendum immediately puts it on the back foot in the referendum campaign. We know a little about its reluctance in this regard because Germany's Minister with responsibility for European affairs, Mr. Michael Link, stated the European Union negotiations sought to design the eurozone fiscal compact in such a way as to avoid a referendum in Ireland. According to him, the negotiators sought "to design everything that is on the table in a way which would be okay in the eyes of the Attorney General and the Irish Constitution so that no referendum is needed." This was one of the worst decisions made by the Government in the entire process because it indicated that it was not prepared to engage in a transparent process. As a fundamentally important agreement, the Government should have engaged with the people on the treaty at a much earlier stage. Its strident attempts to avoid a referendum and statements by certain Cabinet Ministers that referendums were by their nature not especially democratic have had a corrosive impact on the democratic legitimacy of the treaty and our ongoing engagement with the European Union.
On a broader level, efforts must be made to address the democratic deficit that is steadily eroding the core of the European project. A full, open and honest debate on the future direction of the European Union should always be at the heart of major EU decisions. The referendum marks a crossroads for Ireland's involvement with the Union. People will make a positive choice by voting in favour of the treaty and the step forward it represents for the country and, more importantly, the European project as a whole.
The rush to hold the referendum after the Attorney General's legal advice was issued does not bode well for the campaign. I am also wary of the Government using the referendum to score cheap political points. I watched the Minister for Justice and Equality, Deputy Alan Shatter, in the House yesterday.