Dáil Éireann debate -
Wednesday, 1 Oct 2014

Vol. 852 No. 2

European Stability Mechanism (Amendment) Bill 2014: Second Stage

Minister for Finance (Deputy Michael Noonan)

I move: "That the Bill be now read a Second Time."

The purpose of this legislation is to make provision for the inclusion by the ESM board of governors, in accordance with Article 19 of the ESM treaty, of the ESM's direct recapitalisation instrument as one of the financial instruments envisaged under Articles 14 to 18, inclusive, of the treaty. This includes provision for the creation of subsidiary bodies which will implement the direct recapitalisation instrument. It also incorporates the ESM treaty, as adapted, following the accession of Latvia to the ESM on 13 March 2014, into the European Stability Mechanism Act 2012, No. 20 of 2012.

I will begin by outlining the Bill, as initiated, before giving more detail on the Bill and the reasons for this legislation. The Bill has six sections and a Schedule composed of two parts.

Section 1, "Interpretation", clarifies the references in the Bill to the board of governors, the ESM, an ESM member, the principal Act and the treaty. Section 2, "Amendment of definition of "Treaty" in Principal Act", provides that references to "Treaty" in the ESM Act 2012 are to be to the text, as amended, following the accession of Latvia on 13 March 2014. The treaty, as amended, following Latvia's accession is annexed to the Bill in the Schedule in both the Irish and English languages.

Section 3, "Provisions with respect to particular type of instrument and particular entities", allows for the powers contained in the ESM Act 2012 and the treaty to include those arising from the granting of a direct recapitalisation instrument, as well as those arising from the establishment by the ESM of subsidiary bodies or sub-entities. Such bodies may be used by the ESM to effect a direct recapitalisation.

Section 4, "Type of instrument to which section 3 relates", provides that the instrument referred to in section 3 is an instrument for the direct recapitalisation of a financial institution of an ESM member. Section 5, "Applications of sections 5, 6 and 7 of the Principal Act", provides that these sections of the ESM Act 2012 which deal with the legal status, privileges and immunities, exemptions from tax, as well as from authorisation and regulation by the Central Bank, to be enjoyed by the ESM shall apply also to the ESM acting through a subsidiary body or sub-entity.

Section 6, "Short title, collective citation and construction", is a standard section defining the Short Title of the Bill. It also provides for the collective citation of the European Stability Mechanism Act 2012 and the Bill, when enacted, as the European Stability Mechanism Acts 2012 and 2014.

The Schedule, as I have noted, comprises the texts of the ESM treaty, as amended, following Latvia's accession as the 18th member of the ESM in the Irish and English languages, being Parts 1 and 2, respectively.

The euro area Heads of State or Government agreed in June 2012 that it was imperative to break the vicious circle between banks and sovereigns and that when a single supervisory mechanism, involving the ECB, was in place and operational, the European Stability Mechanism should recapitalise banks directly. The Single Supervisory Mechanism will come into operation on 4 November this year.

The Eurogroup meeting on 20 June 2013 agreed to the main features of the European Stability Mechanism's direct recapitalisation instrument, DRI. The instrument is available for institutions the viability of which can be secured by a capital injection. In this context, the guideline provides that the instrument shall not be used for the winding up of institutions. The euro area member states reached a preliminary agreement on the operational framework of the ESM DRI on 10 June this year. This includes the draft guideline on financial assistance for the direct recapitalisation of institutions which sets out how the DRI will operate.

The draft guideline agreed on 10 June 2014 includes a specific provision on the retroactive application of the instrument. Therefore, the agreement that we were active in negotiating keeps open the possibility of applying to the European Stability Mechanism for a retrospective direct recapitalisation. The draft guideline states the potential retroactive application of the instrument should be decided by the ESM board of governors on a case-by-case basis by mutual agreement. It also states the detailed modalities for retroactive recapitalisation shall be established in the relevant decision of the ESM board of governors, that is, the euro area Finance Ministers. Establishing the DRI requires a decision by mutual agreement of the ESM board of governors, subject to completion of national approval processes, to create a new ESM instrument in accordance with Article 19 of the ESM treaty. The aim is to have the process completed by November this year.

An amendment to the ESM Act 2012 will be required to allow the Minister for Finance, as a member of the ESM board of governors, to pass the necessary resolutions. In short, there are three reasons for amending the ESM Act 2012 to allow for the DRI. First, the ESM was established to provide loans for member states. The DRI provides for loans for financial institutions, on the basis of an application by a member state. Second, the DRI provides that subsidiary bodies and sub-entities may be used to facilitate such investments. Third, while the ESM treaty provides for limited self-amendment, for example, in Article 19, to add to the range of financial instrument that can be used, these changes for the DRI go beyond what the Dáil approved in the ESM Act 2012.

The ESM Act 2012 provided for the payment of Ireland's contributions to the ESM and also made provision for the immunities included in the ESM treaty in Irish law. The ESM treaty, as it stood in 2012, was annexed to the Act. Article 3 of the ESM treaty states the "purpose of the ESM shall be to mobilise funding and provide stability support under strict conditionality, appropriate to the financial assistance instrument chosen, to the benefit of ESM Members which are experiencing, or are threatened by, severe financing problems, if indispensable to safeguard the financial stability of the euro area as a whole and of its Member States". The key feature is that it provides for financial assistance for euro area member states.

Article 19 of the ESM treaty provides that the "Board of Governors may review the list of financial assistance instruments provided for in Articles 14 to 18 and decide to make changes to it". The direct recapitalisation instrument is being introduced under this article. However, as the direct recapitalisation instrument was not in existence when the ESM was adopted and as it provides for direct assistance to a financial institution, it is considered that this expands the scope of the treaty beyond what was approved by the Oireachtas in the ESM Act 2012 and an amendment to that Act to provide for the new instrument is, therefore, required.

In addition, the draft guideline provides for the use of subsidiary bodies and entities of the ESM, including with external investment, to conduct the actual recapitalisation. While the treaty provides for ESM subsidiaries, the amendment provides for their use with the direct recapitalisation instrument. I should also clarify that the position on Ireland's capital contribution to the ESM will not be changed by this measure.

The aim of the instrument is to preserve the financial stability of the euro area as a whole and its member states. It does so by catering for those specific cases in which an ESM member experiences acute difficulties with its financial sector that cannot be remedied without significantly endangering its fiscal sustainability owing to a severe risk of contagion from the financial sector to the sovereign. The use of the instrument could also be considered if other alternatives would have the effect of endangering the continuous market access of an ESM member.

The Eurogroup agreed in June 2013 that an ex ante limit or cap of €60 billion would be set by the ESM's board of governors for the amount of financial assistance available for the DRI. It was also approved at the time that the €60 billion cap could be reviewed by the board of governors, if deemed necessary. This amount is provided within the ESM's overall lending capacity of €500 billion.

The reasons for the cap are as follows: to preserve the ESM's lending capacity for other instruments; to provide transparency for investors; and to help to preserve the ESM's high creditworthiness. This limit strikes a balance between the necessary containment of risks for the ESM, while at the same time ensuring sufficient capacity for the instrument. In this context, it is important to recognise that the ESM's DRI is part of a broader EU response to breaking the link between banks and sovereigns. It must be viewed in conjunction with the banking union measures, particularly the bank recovery and resolution directive, the single supervisory mechanism, the single resolution mechanism and the single resolution fund. Article 14 of the draft operational guideline on the DRI, approved by euro area Finance Ministers on 10 June this year, provides for retroactive direct recapitalisation. It states:

This guideline is established without prejudice to existing ESM and EFSF programmes in which financial assistance has been provided to ESM Members who recapitalised their institutions, which could be replaced in part or in full with a retroactive application of direct recapitalisation following a decision by the ESM Board of Governors, on a case-by-case basis, by mutual agreement.

The detailed modalities for such replacement shall be established in the relevant ESM Board of Governors decision.

As I have stated on a number of occasions, including in replies to parliamentary questions, an application for the DRI can only be made once the instrument takes effect and this, in turn, requires that the single supervisory mechanism be in place and operational, which is expected to be 4 November this year.

The ESM treaty, as adapted following Latvia's accession to the ESM in March this year, is being annexed to the ESM Act 2012, in both the Irish and English languages through this legislation, to ensure the most recent version of the treaty is associated with the Act. Latvia applied to join the ESM on 21 August 2013, arising from its imminent accession to the euro. The arrangements for its accession to the ESM were decided in accordance with Article 44 of the ESM treaty. In October 2013 the ESM board of governors which, as I have noted, is composed of the euro area Finance Ministers, approved Latvia's application to join the ESM, with the technical terms for Latvia's accession. Latvia joined the euro on 1 January 2014 and became the 18th member of the ESM on 13 March, 20 days after it had deposited its instrument of accession.

A consequence of Latvia joining the ESM is a requirement to adapt the ESM treaty to reflect this fact. As I have mentioned, the ESM treaty provides for limited self-amendment. This includes the adaptations arising directly from the accession of a new member in accordance with Article 44 of the ESM treaty. Such adaptations are subject to the approval of the board of governors by mutual agreement in accordance with Article 5(6) of the ESM treaty. The adaptations arising from Latvia's accession fall within these provisions. These changes were agreed to by the board of governors on 23 October 2013. Since there were adaptations to the text of the ESM treaty to accommodate Latvia's accession, including to Annexes I and II of the treaty, it is considered appropriate to take the opportunity presented by the Bill to address this issue. The changes to the ESM treaty arising from Latvia's accession are as follows: the inclusion of Latvia in the list of member states; the amendment of Articles 8.1 and 8.2 to increase the total authorised capital stock and value of paid-in shares by the amount of Latvia's contribution to each; the inclusion of Latvian as an official language through a new paragraph being added to the final part of the main text of the treaty, which is set out in the ESM treaty as annexed to the Bill; and the amendment of annexes I and II to the treaty to include Latvia's contribution key and share of the capital stock.

These changes to the annexes have been made because the technical terms of Latvia's accession to the ESM approved by the board of governors include the calculation of Latvia's capital contribution to the ESM. Latvia's ESM capital contribution key was set at 0.2757%. This means that Latvia's total capital subscription will be €1.93 billion, including €221.2 million in paid-in capital which will be paid in five annual instalments of €44.24 million each. Latvia has paid its initial instalment of paid-in capital and is expected to make the four remaining payments annually up to 2018.

The ESM direct recapitalisation instrument represents a core element of a much broader EU approach to the issue of breaking the bank-sovereign link, as was committed to by the euro area leaders in June 2012. This includes the establishment of the single supervisory mechanism, the bank recovery and resolution directive, the single resolution mechanism and the single resolution fund. The inclusion of the ESM treaty, as adapted, following Latvia's accession ensures the most up-to-date text of the ESM treaty is annexed to the associated legislation. As the ESM intends to seek the approval of the board of governors for the DRI in November, this legislation needs to be in place by the end of this month and it has been scheduled accordingly.

I look forward to an informed and constructive debate and commend the Bill to the House.

Deputy Michael McGrath

I welcome the opportunity to speak on Second Stage of the European Stability Mechanism (Amendment) Bill. Fianna Fáil will support the Bill because it is a logical extension of supporting the original ESM Bill in 2012 but for the more important reason, as indicated in the Minister's opening contribution, that it keeps open the possibility of a deal on retroactive recapitalisation for this country.

This subject is deeply depressing. I refer to last week's meeting of the Joint Committee on Finance and the Public Service which was a pre-legislative hearing attended by departmental officials. The prospect of Ireland accessing the ESM by means of a retroactive deal seems to be coming more remote with each passing day. Aside from that issue, for any country in the eurozone which is seeking to access the ESM and the banks of which get into difficulty, there are so many ladders to climb and hoops to jump through that it will become virtually impossible for any country to avail of the direct recapitalisation provisions, not to mention retroactive recapitalisation.

This must be seen in the context of the Heads of Government summit agreement in June 2012 which was heralded as a game-changer, a seismic shift, by which the sovereign state and bank debt would be separated. What we have had since is far removed from this. Even under the direct recapitalisation instrument which has been enshrined in the treaty, countries seeking to access the ESM for direct recapitalisation will only be able to do so if they themselves are unable to provide the money for the banks.

We are not separating bank debt from the sovereign at all. It seems that the spirit of the June 2012 agreement has been abandoned. The only reason I am supporting the legislation is that it keeps the door open to the remote possibility of a deal on retroactive bank recapitalisation for Ireland.

I am disappointed the Minister, Deputy Noonan, was obliged to leave the Chamber because I wanted to put it to him that he should have taken the opportunity to confirm that Ireland will lodge an application to the ESM in respect of a deal on bank debt and retroactive bank recapitalisation as soon as the window opens, which, as he confirmed, will be on 4 November. That is just over a month away but the Minister did not see fit to come before the House and use the opportunity presented by the very Bill which makes it possible to do so to confirm that Ireland will be seeking to invoke the instrument pertaining to retroactive recapitalisation. The Minister should have done that. He made a commitment in this regard - under pressure - at a meeting of the Joint Committee on Finance, Public Expenditure and Reform. However, I am of the view that he did not do so with any great conviction. In light of his comments and those of the Tánaiste and Minister for Social Protection in respect of there being various ways to skin a cat, it appears that all of the mood music from the Government is indicating that the commitment to securing a deal on bank debt is being diluted. It is with regret that I must state that this is the tone I am picking up from the Government.

Under no circumstances should the welcome deal on the early repayment of IMF loans be seen in some way as a substitute for a deal on bank debt. We were promised a deal on bank debt in the aftermath on the agreement reached in June 2012, which, in turn, promised to separate such debt from the sovereign. A number of important questions in respect of this matter - and Ireland's strategy in terms of its investments in the banking sector - must be answered. The Minister indicated that he is examining the possibility of selling a stake in AIB to outside investors. Again, this is a further indication that there is no real commitment to securing a deal on retroactive recapitalisation. If there were such a commitment, the Minister would have awaited the outcome of an Irish application for a deal on bank debt before floating the idea that we might be prepared to sell a stake in AIB. I am of the view that it is far too early to contemplate selling a stake in the bank. AIB is in recovery but I accept that it still has some distance to travel. The long-term value of retaining ownership of the bank for the next number of years would be far greater than any short-term gain to be had by selling a stake in it. We know what happened in the case of Bank of Ireland. The sale of a stake in that institution to private investors was heralded as a great sign of confidence in the Irish economy and the banking sector. We were assured that the investors in question would retain their investment in Bank of Ireland because they were committed to the banking system here and to our economy. At the first opportunity, however, the investment was sold on at a very handsome profit for those concerned. We should not make the same mistake in the context of AIB.

The Minister should commit the Government to applying for a deal on retroactive bank recapitalisation next month. We have not heard anything about such a commitment so far. We need to hear it and to put it up to our European partners with regard to whether they are going to honour the agreement signed two and a quarter years ago. I am of the view that a deal must be obtained in order that the position in respect of Ireland's overall debt sustainability might be improved. Despite the improvements in the overall economic picture and the very clear signs of recovery, the fact is that Ireland remains highly indebted and has a debt-to-GDP ratio in the region of 120%. That is why advancing the issue of retroactive recapitalisation is absolutely fundamental in the context of the country's future debt position. Article 14 of the guidelines makes it clear that direct recapitalisation is a matter for the ESM's board of governors to decide. This means that any decision in this regard will be entirely political in nature because the board of governors, as such, comprises the eurozone Finance Ministers. This is an issue on which the Minister, Deputy Noonan, and his colleagues must follow up on a daily basis with those Finance Ministers in advance of submitting, as promised a number of months ago, an application for a deal on retroactive bank recapitalisation on Ireland's behalf.

In the context of the guidelines relating to direct recapitalisation and as already stated, it is depressing that countries will, in the first instance, be obliged to use their own money to the point of risking their own financial stability before the ESM will be opened to them in order that they might recapitalise their banks. The reality is that even if everything that is envisaged came into effect today and even if the forthcoming stress tests show that Irish banks need more money, the fact that we are able to borrow on the international markets at cheap rates of interest means that Ireland would not be able to access the fund. What good will it be if Ireland cannot obtain a deal in respect of retroactive recapitalisation?

The fund for direct recapitalisation is set at €60 billion, an amount which is far too small. As we are aware, the Irish State alone put €64 billion into its banking system. There is not any genuine commitment on the part of Europe to deliver on what was announced in June 2012. Earlier this year, Klaus Regling, head of the ESM, stated that "In exceptional cases, and by unanimous votes, there may be retroactive recapitalisation, but it doesn't seem very likely". I took issue with Mr. Regling and wrote to him seeking an explanation. When he replied in March, he refused to repeat or substantiate his claim to the effect that it is very unlikely that retroactive recapitalisation will happen and merely set out the formal context as to how the scheme relating to such recapitalisation could be invoked. In view of recent comments by the German Finance Minister and Chancellor, the Finance Ministers of other AAA-rated countries in the eurozone and Jeroen Dijsselbloem, there seems to be absolutely no commitment on the part of and very little support among Ireland's European partners in the context of having this matter addressed.

The Government has made matters all the more difficult in the context of the case we need to put to secure a deal on bank debt by talking up our economic recovery throughout Europe and highlighting how great we are doing. One could not blame any of our European partners for thinking that Ireland is out of the woods and does not need a deal on bank debt. Nothing could be further from the truth. This country is still exposed to very significant risks, many of which are external and beyond our control. We are extremely indebted at national level and our corporates and households are also very indebted. With a debt-to-GDP ratio still in the region of 120%, I am of the opinion that pursuing a deal on bank debt is critical.

When the idea of the ESM taking shareholdings in Irish banks was first floated a couple of years ago, I inquired as to how this would work in practice. Two years on, we are still no closer to obtaining an answer to the question I posed. I was informed at last week's meeting of the Joint Committee on Finance, Public Expenditure and Reform that any ESM investment in the banks would be by way of equity capital. Earlier, the Minister referred to "a loan". Will it be a loan from the ESM to financial institutions or will it be equity which may not necessarily have to be repaid? It would be of great assistance if the position in respect of this issue could be clarified.

In the context of the various bail-in measures and the liability cascade - again, the joint committee discussed these last week - it seems that the very last thing to be accessed in the context of rescuing banks will be the ESM. Even those with deposits in excess of €100,000 above the deposit guarantee threshold will be obliged to stump up their cash and take a hit before the ESM is invoked to support banks in financial difficulties. The way the ESM is taking shape in terms of the support it can potentially provide for banks in financial difficulty is deeply disappointing. The only reason we are supporting this legislation is because it keeps the door open in the context of Ireland securing a deal on bank debt. When replying, the Minister must confirm to the House that the Government will be applying for such a deal as soon as the door is opened in the first week of November. In my view, such a deal is essential.

I will leave it at that. We will support the Bill and we look forward to engaging on Committee Stage. I thank the officials for the information and guidance they gave on the Bill at the pre-legislative hearing last week. The whole thing is very rushed but I acknowledge that is outside of the control of the officials.

I am looking at the Bill through the prism of the Irish context. I see no likelihood that Ireland is going to be able to avail of this fund in respect of future capital shortfalls in our banks. The reality is that with the bail-in procedures in place, arrangements for depositors of more than €100,000 and the relative financial stability that this State now enjoys, the likelihood of being able to access the ESM fund for direct recapitalisation or to plug new capital shortfalls is remote. It is highly unlikely. The only potential benefit in the short term to Ireland relates to the issue of retroactive recapitalisation. That has been kicked to touch for long enough. Article 14 of the guidelines attached to the direct recapitalisation instrument is vague and rather non-committal, suggesting, essentially, that it remains a matter for the eurozone finance ministers. They have been resiling and backsliding on the original commitment ever since June 2012. At the time it was heralded in this country by the Taoiseach, the Tánaiste and others as seismic, as representing a game changer and as being greatly positive for Ireland. At this stage people are entitled to ask whether it will ever happen. The least the Government can do is confirm that November will see a formal application from this country in order that we will know once and for all whether the bank debt will be dealt with through the retroactive provisions set out in the guidelines.

Deputy Pearse Doherty

Caithfidh mé a rá go bhfuil sé dochreidte nach bhfuil an tAire sásta a rá sa Dáil inniu go bhfuil iarratas ón Stát seo ag dul chun tosaigh leis an airgead a chuir an Rialtas deireanach agus an Rialtas seo isteach sna bainc briste - ní raibh siad ag feidhmiú agus níl cuid acu ag feidhmiú go fóill - a fháil ar ais ar son mhuintir na hÉireann. Mar atá ráite cheana féin, dúirt an tAire liom nuair a chuir mé ceist air ag an gcoiste airgeadais níos luaithe i mbliana go raibh sé chun a leithéid d'iarratas a chur isteach. Níl dabht ann nach bhfuil an Rialtas ag dul síos an treo sin. Ar an drochuair, tá siad ag dul síos treo eile - sé sin, na scaranna atá ag an Stát in AIB agus i mBanc na hÉireann a dhíol chuig na margaí. Dá bhrí sin, ní gheobhaidh siad ar ais ach an méid ar fiú na scaranna sin inniu, agus beidh an Stát thíos leis an méid eile den airgead a cuireadh isteach sna bainc. D'fhógair an Rialtas sa bhliain 2012 go raibh athrú mór polasaí i gcroílár na hEorpa. Nuair a tháinig siad ar ais go dtí an tír seo ó na cainteanna a bhí ag dul ar aghaidh sna uaireanta malla san oíche agus na uaireanta beaga sa mhaidin, chuir mé fáilte roimh an athrú a d'fhógair siad. Dúirt mé ag an am go raibh gá ann déileáil leis an ábhar seo go scioptha. Dúirt mé go raibh an liathróid i lámh an Rialtas, go raibh an cúl foscailte agus go raibh ar an Rialtas an liathróid a chur isteach sa chúl. Ar an drochuair, tá cúlú ar an athrú polasaí mór Eorpach le feiceáil idir sin agus an lá inniu. Tá na téarmaí atá in úsáid ag an Rialtas anois i bhfad níos laige ná na téarmaí a bhí in úsáid i mí Meitheamh 2012. I say this because I believe many people have lost faith in the Government's handling of retroactive recapitalisation. The Government has been successful in changing the mindset of a large number of people in this State, convincing them that retroactive recapitalisation should only apply to AIB and Bank of Ireland and that we have to take the Anglo Irish Bank problem and its debt on the chin. It should never have been that way. The Government came to the House with a proposal on Anglo Irish Bank bonds and tried to sell it as a major victory in terms of absolving us from the Anglo Irish Bank debt. In reality, while it brought benefits in the here and now in respect of interest payments, the full capital is still to be paid by the State, not only by this generation but by future generations.

When the Government returned from the talks in Europe on that fateful night in June 2012, its members were tripping over each other to go onto the national airwaves and proclaim a major victory on behalf of the people. I was asked for my opinion and the position of my party at that point. I welcomed the news. I said that those in government now had the ball in their hands, that the goal was open and that they needed to move swiftly to place the ball in the net. The reason I said that was because events change. At the time we were very much in the grip of the troika. At the time our debt was unsustainable, as it is now. At the time we had a vast deficit. That was the time to strike. Moreover, it was the time to strike because Spain had got into difficulty and that was probably the reason the policy change was promised in the first place.

However, in the intervening months those in government have decided to take the attitude that we should leave it to them, that it will be okay on the day and that we need not worry about it. That type of laissez-faire attitude is a symptom of this Government when it comes to key major issues. Let us consider what happened yesterday after the publication of the letter from the European Commission concerning Apple, a company that is very much valued in this State for the jobs it provides, especially in the Cork region - it is one of the largest employers in the State. When it was pointed out time and again by me and my party that certain issues needed to be dealt with in respect of Apple's tax liability, those in government refused to listen. They said it would be okay on the day. This complacent attitude is evident in the remarks of the Minister for Finance, Deputy Noonan, to the effect that the investigation was part of a wider EU investigation, but this interpretation has been revealed to be misplaced. The Government's head was in the sand and its attitude to this entire affair has damaged Ireland's reputation at home and abroad. The Minister, Deputy Noonan, tried to downplay the gravity of the probe by the Commission into Apple as recently as July this year after he received the letter. However, the detail of the letter should wake him up to the seriousness of the situation. The lengthy letter seems to build a strong case against Ireland. The Commission is clearly unimpressed by the answers it has received thus far.

Embarrassingly - I say this as a Member of this Parliament but also as an Irish citizen - it has been revealed that either the Department of Finance or the Revenue Commissioners sent the wrong turnover records in March before sending the correct records in May. It is well time that the Government got serious about these allegations and was honest with the public about the implications. The damage done already to our reputation is sizeable, and it has been made worse as a result of the complacency of this Government. We should not have allowed the European Commission to investigate this. We should have investigated it ourselves and we should have set matters correct, if there were matters to be corrected in the first place. This is an issue I will return to later on. I hope the lessons are learned in respect of the way we deal with multinational profits and that the calculations and negotiations will be a thing of the past. I hope the deals that went on for 16 years will be reviewed more regularly and that they will be evidence-based.

What we have before us today is what looks like a bland technical Bill, but I fear it represents one of the biggest political failures this Government has yet brought down upon us. The raft of new legislation brought in at EU level, supposedly to bring about a more secure banking system that would prevent a repeat of the banking collapses throughout Europe, has not delivered results. Sinn Féin has always called for the European Central Bank to step up and be the lender of last resort for the euro, to be a real backstop for the currency. This would entail increased bond buying from Governments and, potentially, direct recapitalisation of banks. The balance sheets of banks needed to be examined more thoroughly and in more detail. More transparency needed to be applied. Regulation needed to be harmonised throughout Europe and bad debts needed to be written down in banks. Bondholders should have been burned. Given the transnational nature of banks, a common resolution regime must be agreed.

There has been progress on some of this but a lack of progress in other areas.

Later this month, the stress tests on banks will be carried out and the results published. If Irish banks pass these tests, it will be on the backs of struggling homeowners and citizens reliant on public services and the State. As a member of the banking inquiry, I will diligently examine the events that led to such a situation. In June 2012 the then Tánaiste, Deputy Eamon Gilmore, and the Taoiseach welcomed a decision by EU leaders to commit to separating banking and sovereign debt. The Taoiseach called it "a seismic shift" while Deputy Gilmore called it a "game changer". The Minister for Finance went on RTE radio the following morning to say he expected this to be concluded some time that autumn. It is now 27 months later and it has all gone quiet. There is no more talk of seismic shifts or game changers or the ESM stepping in and lifting the banking debt off the shoulders off the Irish people, while our debt-to-GDP ratio remains dangerously high.

I have welcomed other moves to reduce our debt repayments, but they are drops in the ocean when compared to the potential that was there. Let us remember that refinancing debt is not the same as reducing debt. Today we are asked to support this Bill, which does not say a word about retroactive recapitalisation and the €64 billion pumped into the banks, or €30 billion if it is agreed that the former Anglo Irish Bank is off the cards. The Bill ratifies a change to the ESM treaty to provide for a direct recapitalisation instrument. The instrument contains seven little lines that say nothing new about retroactive recapitalisation. Nothing new has emerged since June 2012. The flesh has not been put on the bones of the retroactive instrument. We have before us a detailed text, even if I could not get answers about the legal status of the instrument. However, since June 2012 no further detail has been added on the issue of the retroactive use of the ESM. I question what has been happening over the past 27 months while these modalities, as they were described by the Minister, have yet to be agreed by the board of governors of the ESM. It is almost as if they do not intend the mechanism ever to be used retroactively.

We are being asked to back this Bill without the Minister being able to answer the most basic questions about how retroactive recapitalisation would work even if the State applied for it. He failed to do so again in his contribution. When he applies to get back the money that the Irish people put into the bust banks through the previous and current Governments, will his application have to follow the same rules laid down in the instrument for direct recapitalisations in the future? Does he have any notion or hint at all about how it will work? Would he mind sharing that with the Parliament? Will the State have to subtract the moneys that would have been required at the time to bring the pillar banks up to the legal common equity tier ratio of 4.5%, as established under Basel III? When I asked this in parliamentary questions, the Minister would not answer because he said it was hypothetical. Would our application have to go through the waterfall system, as with all other future applications for direct recapitalisation? That is not hypothetical; it is a basic question that the Minister has not answered. Perhaps he simply does not know, because he has not answered that question for his colleagues over the past 27 months.

We are being asked to simply leave it up to the board of governors of the ESM to make up the rules as they go along on this issue of huge importance to Ireland. The board comprises euro area finance Ministers such as Wolfgang Schäuble and Jeroen Dijsselbloem who say retroactive recapitalisation is not on the cards. By simply rubber-stamping this Bill, we are passing the ball to Mr. Schäuble and his ilk, who have their own priorities in this regard. They have shown zero indication that they are willing to look favourably on a request for retroactive recapitalisation and they have not even bothered drawing up rules for it.

We were told in a broader sense that sovereign and banking debt would be separated. This was the big announcement, but the ESM failed to properly make clear the definition of what is private debt and what is public debt. There is still an onus on the State to act before the ESM steps in, and this is laid down in the guidelines. This could mean having to recapitalise the banks to a certain level or covering a chunk of the costs for years. The direct recapitalisation instrument is complex and many have questioned how it will work in practice.

There are also concerns that the fund is simply not large enough. Are we to believe that half the fund will be spent on Ireland? There are no straight answers available on how the relatively small fund will suffice in the event of a crisis or even how it can be topped up. The proposed banking union provides little protection to the taxpayer from a recurrence and does nothing to stimulate growth or provide opportunities for job creation. It does not go far enough to separate banking debt from sovereign debt; that lie needs to be nailed. If one of our banks gets into trouble in the future, irrespective of the difficulty we face trying to get the money back that we put in in the past, the State would have to step in before the ESM. That does not equate to separating banking debt from sovereign debt. Similarly, all the assurances given at the peak of the crisis that strict measures would be put in place to ensure a crisis of this magnitude would not be allowed to recur have failed to materialise. Any reforms have been minimal, with insufficient relief from the burden being shouldered by taxpayers. There is still the so-called vicious circle.

Article 8 of this instrument, which we are effectively voting on, lays out the rules to be followed in the case of a recapitalisation. From 1 January, the system will include a bail-in by creditors. In other words, the law of the land will be that bondholders are to be burned, but that will come as little relief to families filling out forms for water charges or suffering as a result of austerity, or who have seen their loved ones and their nearest and dearest forced to emigrate in the intervening months and years. The Taoiseach once said in the House: "I will not have 'defaulter' written on my head." However, the Government has introduced a Bill which, at its core, ensures that junior and senior bondholders will be burned in the future, because that is what is right. That is now accepted by the Government and every government across Europe. It is a pity the Taoiseach did not accept that principle when he took office in 2011. One of the first actions the Government took was to pay the promissory note worth €3.1 billion to Anglo Irish Bank, thereby bailing out bondholders, senior and junior, guaranteed and unguaranteed. One of the other actions the Taoiseach took was to inject €22 billion of our money into AIB and Bank of Ireland. It is a pity this legislation was not on the cards at that time or that he did not have the foresight to understand and to realise that when a bank goes bust, the creditors are dealt with and the bondholders are burned.

We in Sinn Féin have led the charge on this for many years. We have been proved correct in that this was the right course of action but, unfortunately for many in this State, it is too little, too late. The case for retroactive recapitalisation is strong, but it will only be strong if we have a Government that is willing to stand up for ordinary people. I am concerned at recent revelations in the national media that the Government plans to sell shares in AIB, because it is simply the wrong thing to do.

The Minister's first course of action must be to state, as he did under pressure from me and other members of the Joint Committee on Finance, Public Expenditure and Reform, that he will apply for retroactive recapitalisation. We want not only the €11 billion value of the shares of Allied Irish Banks, but also the €20 billion the State injected into that bank. If these moneys are not forthcoming, we should not sell off the bank. Why would one hold on to a bank when it is in debt and costing the country a fortune and then sell it off to vulture funds as soon as it makes profit in order that they can reap the benefits? The profits of Allied Irish Banks were achieved by increasing fees and charges, refusing to deal with families in mortgage distress and hiking up variable interest rates time and again. Profitability was, therefore, achieved on the backs of the Irish people whom the Government is about to betray again.

Sinn Féin will introduce amendments to press the issue of retroactive recapitalisation, as we have done in the European Parliament. Unfortunately, some Irish Members of the European Parliament could not find it in themselves to wear the green jersey and support our amendment. While it is our hope that the Bill will help us recoup the people's money, unfortunately, our experience has been that the Government and European Union are not up to the job and will not help us recoup one cent. I hope I am wrong.

I ask the Minister to state clearly, on behalf of the Government, that the issue of retroactive recapitalisation is not dead in the water. He must spell out what he has been doing on this issue for the past 27 months. Will he seek to recoup the moneys injected into Allied Irish Banks and Bank of Ireland to help reduce the national debt, stimulate the economy and enable young people to return to these shores and businesses that have been kept afloat in these times of austerity to flourish? These are the questions the Minister must answer.

It is unfair of the Government to ask Members to take a leap of faith and pass this Bill on the basis that it will be okay on the day or that he and his colleagues on the board of the European Stability Mechanism will draw up a set of rules that will allow him to apply for and possibly secure retroactive recapitalisation at some point in future. If the Government had an ounce of decency, it would have used this legislation as a lever to bring about further clarity on Ireland's application for retroactive recapitalisation.

Given that this instrument needs to be agreed by all the EU member states affected by it, the Minister should have asked his colleagues to explain how they could expect him to ask the Irish Parliament to enshrine in law a mechanism under which bondholders and creditors will be burned if European banks get into trouble again in future, while asking Irish people to take a leap of faith regarding the money they injected into broken banks and the hit they took on behalf of financial institutions across Europe. We have not been given any detail on whether or when an application for retroactive recapitalisation will be lodged and how any such application would be treated by his ministerial counterparts in the European Union. The Minister should immediately contact other European Finance Ministers seeking further clarity on this matter. He should request something more secure than the leap of faith required by the seven short lines which state that retroactive recapitalisation may be possible on a case by case basis. The issue is of such magnitude that it demands further clarity. Its delivery has the potential to change the fortunes of many people in this State.

My party will be the first to support the Government if it is sincere about pursuing an agenda of securing retroactive recapitalisation. I have not yet seen any evidence that this is the case.

Deputy Richard Boyd Barrett

Members of the Joint Committee on Finance, Public Expenditure and Reform first saw the heads of this Bill, which is quite technical, last week. I am still trawling through the detail because there is much to digest. It is important, in this Second Stage debate, to make clear to members of the public, using language they understand, what is at stake. When we speak of the European Stability Mechanism we are referring to the response of the European Union to a catastrophic crash in the European banking and financial sector which has beggared citizens here and elsewhere in Europe and for which we are still paying a terrible price.

It is appropriate that we are discussing Europe's response to the economic crash on the day that water charges are being introduced. The reason citizens must, for the first time in the history of the State, pay to access a basic human right is that the banks and financial institutions, through greed, gambling and speculation, wrecked the European economy. Six years after the banks crashed the economy, citizens are still paying the bill and will continue to do so through water charges and other charges which they never had to pay previously. I should add that people always paid for water through taxes but must now also pay charges. The previous Fianna Fáil led Government and the current Government agreed to these charges as one of the conditions of the so-called bailout. Hard-pressed, struggling families, many of whom cannot pay their bills as matters stand, are picking up the tab for the gambling and speculation of bankers, financiers and bondholders and the abysmal failure of European Union and Irish political and regulatory authorities to prevent them from doing so in the first place.

If it means anything, the Bill is supposed to ensure some degree of retroactive justice for the great injustice that has been done to citizens of this country and establish a mechanism that will ensure it never happens again. The Government suggested, in its famous landmark announcement of June 2012, that some retroactive justice would be done. There would be, it stated, a game changer and we would secure retroactive recapitalisation. Translated into layperson's terms, it meant that Europe would give us back some, or perhaps all, of the money citizens were forced to pump into the banks to prop them up and Europe and the political authorities in this State would establish a mechanism that would prevent it happening all over again.

Viewed in those terms, one must ask whether the Bill will achieve either of these ends and it is absolutely clear that it will not do so. On the issue of so-called retroactive recapitalisation, we get virtually nothing.

The matter will be dealt with on a case-by-case basis. The ECB board of governors will decide, but there are no guarantees that we will get some or all of the €64 billion that we - the ordinary working people and citizens of this country - put into the banks and paid for with cruel austerity for six years, as well as unemployment and emigration. Nothing in the Bill suggests there is any firm commitment to get that money back. Is there anything in it that suggests there is a reasonable chance that we will get the money back? If not a firm commitment, is there some evidence of, or room for, optimism based on the Bill? One has to say the opposite is true. Of the €500 billion firepower of this mechanism, only €60 billion - just over 10% of the fund - is to be set aside for recapitalisation of any description, whether it be retroactive or in the future. As we put in €64 billion, a lesser amount has been earmarked in the fund for recapitalisation of banks for the whole of Europe than what this country put in to save its own banking system.

The Minister might say - it was said at the committee - that the board of governors could decide to change the figure if we needed more than €60 billion. The fact that it has set aside €60 billion, however, strongly indicates that there is no intention of giving us back €64 billion, or even a substantial portion of that sum. If there was a serious commitment on its part to do so, the figure would be considerably bigger than it is. There is no inclination or suggestion in the legislation that we will get anything like all, or a substantial amount, of the money we pumped into the banks. That much is clear. That is why since the landmark game-changer announcements and all the rhetoric and hyperbole, we have really had nothing. All the evidence from the European Union is that it will not happen.

There is further evidence in the eligibility criteria to access the fund which has consequences both for our call for retroactive recapitalisation and the fund's future application or the ability of states to access it. Most people expect us to ensure ordinary citizens will not be put on the hook again. In fact, however, the so-called waterfall of access or eligibility criteria for the fund suggests the opposite. There is a very high threshold to access it. The first call - I welcome this to some extent - is on the bondholders in financial institutions. Let us remember, however, that in some of the biggest institutions about which we are talking we are the bondholders. We were forced to bail out the people concerned and become the owners of the banks. The first call, therefore, will again be on us. The second call will also be on us because after one has exhausted the 8% requirement of the institution, which amounts to only a fraction, 8% of the liabilities have to be paid by the financial institution itself from bondholders or deposits.

The next call is on the State which has to prove that it needs to access ESM funds only if there is a systemic risk and it has exhausted all other avenues through its own resources to bail out and recapitalise the financial institution concerned. Therefore, there is quite a high threshold to access the fund.

Deputy Thomas Pringle mentioned figures which he will go through later. If one looks at our bailout, in this scenario we would still be paying the vast majority. It would be paid out by us before we could seek money from the ESM.

We are also on another hook as we have already put €1 billion into the fund, while the total call on the State is €11 billion and possibly more because that figure can be revised upwards. It is alarming when one considers there are serious questions about the firepower capacity of this €500 billion fund for the whole of the European Union when one considers that just one bank - Anglo Irish Bank, a relatively small bank by European standards - cost €30 billion alone to bail it out. There is a serious risk that we could be on the hook for massive amounts of money if there is a crash elsewhere in Europe.

There is an additional point concerning retroactive recapitalisation. If this is the threshold, they are saying that in order to access the fund, one must do it primarily within one's own state. The first call might be on bondholders who, to a large extent, are us. The second call is on the State. Will they, therefore, not apply the same criteria when we ask for retroactive recapitalisation? If we seek this, they will say: "No. We think you are doing okay now. If the banks have a hole in them, we think you have the resources to do it. You have got to call on your own resources first, so we do not believe there is a systemic risk. We do not believe there is a wider risk to the eurozone, so sorry lads, you are going to have to cover the cost again, not this wonderful mechanism."

Like so many insurance scams, that is just what it is - a scam. One pays a high premium of €1 billion and possibly €11 billion and God only knows to what it will go up. When one makes a claim, however, they will fight it every step of the way to ensure they will not have to pay anything back. Looking at the Bill, they will certainly not even entertain any serious back-payment for the money we have already forked out and which beggared the country.

The legislation is not serious either in dealing with the problem we have or the likely problems we will have to deal with in the future. Therefore, we cannot vote for it. Quite a few of us on these benches voted against the ESM and I do not think we can support the Bill for the reasons I have outlined. It is often said on the Government side of the House that we are very good at criticising, but we do not offer an alternative. We have offered an alternative and I have a few minutes to spell it out. Both here and at ECB level we must examine banks' mandates and ask what they are for. Back in 2008, in its response to the initial financial crash, the ECB spelled out explicitly that whatever states had to do to prop up the banking system, they could not divert from profit maximisation. I am paraphrasing, but that message was set out in the ECB's guidelines and that mentality has been pursued ever since. Profit maximisation is what banks seek and, according to the ECB, they should not divert from it. That is the problem and it led us into the mess in which we find ourselves and it will lead us back into it again. We have absolutely no chance of achieving retroactive recapitalisation because it is all about profit maximisation.

As others and I pointed out in this House, even the Federal Reserve in the United States, the heart of capitalism, has a wider mandate than that. Its mandate includes making sure people have a roof over their heads, and employment in the jurisdiction is a key priority. It also deals with issues such as inflation. Therefore, the narrow profit-oriented mandate given by the ECB, which filters right through the banking system, is the problem and needs to be changed.

Banking authorities, including the ECB and pillar banks especially, should be under real public control and their priorities should be set according to the needs of the wider economy and society. Banks are supposed to be the lubricant of the economy as a whole and to account for the general interest of citizens and economic stability rather than engaging solely in the cutthroat business of making money at all costs. The latter always puts pressure on the wider macroeconomic considerations.

When one sees the property bubble inflating again, one just wants to weep. Once again, property, including housing and commercial office space, are becoming subject to speculation. What will prevent a recurrence? What mechanisms are being put in place? Where is the stability mechanism to stop this madness and prevent us from treating as commodities the things and infrastructure people require in order to live, regardless of the consequences for the wider economy? Bearing these consequences in mind is required if one wants stability. None of this is in the legislation. I cannot believe, after everything that has happened, that there has been no discussion on changing the mandate, focus or priorities of banks, at both European and national levels. As Deputy Pearse Doherty stated, we are in extraordinary circumstances in which we are nursing the banks. We have nursed them back or nearly back to profitability, yet we carry the can. As soon as they start to make money again, at which time they could actually give something back to the society that has been beggared bailing them out, we will hand them back to the vultures so that what occurred can happen all over again. I find it incomprehensible.

Ultimately, this is an ideological argument. It should not be, however, because there is sufficient evidence. One could argue about the merits of competition and profit and how trickle-down effects will work for all of us, but when we see where that thinking got us, I am amazed that we cannot draw the obvious conclusion that there has to be far greater public control and oversight over banks and their priorities and objectives. Instead, we are going back to square one. As this legislation clearly sets out, we could be beggared again if that happens.

The only slight, marginal change is that there is a bit of a levy on the banks, so we have some money set aside in case what occurred happens again. Of course, it may not be enough, and we will be on the hook if it is not. As I stated, we are the bondholders to a large extent. Therefore, what is proposed is not good enough and I do not believe we can stand over it. It will be a shame for any Government if, in the aftermath of the awful crash and the suffering endured by this country, it fails to learn lessons and does not at least ensure that if we cannot retroactively secure justice for the people who were wronged as a result of the crisis, it will put in place structures to ensure it will never happen again. Sadly, those reassurances and structures are not in place, and we will almost certainly be going down the same road again.

Deputy Thomas Pringle

I thank Deputy Richard Boyd Barrett for agreeing to share some of his time with me to discuss this Bill.

The Bill deals with the amendment of the treaty we signed up to through legislation in 2012. It is important to bear in mind that we are actually amending an international treaty that we signed up to without the approval of the people.

The ESM is an independent legal entity. It has legal immunity from all courts across the European Union and the world. It is not subject to regulation under any EU laws or any EU state. The body is a law unto itself, and we are amending a treaty today to give it the so-called power of direct recapitalisation of financial institutions in the euro area. We are to amend an international treaty for a very powerful secret body. Although the Minister for Finance is a director of the ESM, the ESM is not subject to freedom of information guidelines, and its meetings are secret. Its directors are bound by the privacy rules governing the institution. Thus, citizens have no means of knowing the discussions taking place within the ESM except when it decides to tell them. That is very dangerous.

We have already paid over €1 billion into the ESM as part of our capital call. The treaty we signed up to in 2012 gives the ESM the right at any time to call for a further €10 billion from us as a nation, which sum would be paid into its capital fund. If that is not enough, it can, by its own decision, alter its requirement for capital and increase the sum infinitely. It can use the funding to leverage unlimited borrowing on the international markets at its discretion without any input from any member state of the European Union or euro area. We are bound by the treaty to amend our laws and pay capital as the ESM asks for it, without question and without considering the impact it could have on us.

The ESM is a very dangerous institution. This has all been thrashed out before, but it is important in describing the context. We have been told the purpose of the legislation is to put into effect a decision that was made by the Eurogroup in June 2012. I refer to the famous seismic shift in which it was affirmed that it is imperative to break the vicious circle involving banks and sovereigns. We have seen nothing but rowing back on that since June 2012. As said by other speakers, the Taoiseach and Tánaiste lauded the shift as a game changer that would change everything for us as a nation and put us back on track. They have rowed back continuously, right up to June 2014 when the President of the Eurogroup stated that the direct recapitalisation instrument might be activated where a bank failed to attract sufficient capital from private sources, and if the ESM member concerned were unable to recapitalise it, including through the instrument of indirect recapitalisation of the ESM. He also stated the financial assistance would be provided in accordance with EU state aid rules and the ESM member would be asked to invest alongside the ESM. Even if one gets over all the hurdles involving direct recapitalisation of one's banks by the ESM, one must go along with it and fund it in parallel.

Other speakers have mentioned the so-called liability cascade and the decision-making processes that will have to be gone through before direct recapitalisation can take place.

It is useful to look at this in the context of our guarantees in regard to the banks and the bailout that took place. At that time, the estimated liabilities of the banks amounted to approximately €440 billion. If we look at the liability here, the first step is that the first 8%, at a minimum, must be provided by equity bond holders, uninsured depositors, which in our case would have amounted to approximately €35 billion. The next step is that national resolution funds must cover up to a maximum of 5%, which in our case at the time would have amounted to €22 billion. This brings us to a total of €57 billion that would be required to be invested before we could even look at using the direct recapitalisation instrument through the ESM. We have already put €64 billion into the banks, so that would leave €7 billion that could be covered by direct recapitalisation. The President of the Eurogroup says that any recapitalisation must be done in conjunction with the ESM member putting in funds. If this were done on a 50:50 basis, it would leave approximately €3.5 billion that we could expect in direct recapitalisation.

One could make the argument in our case that the 8% provides for equity from bondholders and uninsured depositors and that we have stepped up to the mark in that regard. However, if this happened today and we had to get access to the mechanism, we would be looking at recapitalisation of approximately €3.5 billion out of the €64 billion we invested in the banks to save them. Therefore, this direct recapitalisation is not a panacea or resolution. I think of it as a charade that the ESM has added into the treaty to make it look as though it wants to break the link between sovereigns and banks.

Much of the time, we on this side of the House operate under the false idea that what the Government, Europe and the ESM want to do is to look after European citizens, but that is not the case. What the Government, Europe and the ESM want to do is to look after the banks. We on this side of the House are coming from the wrong starting point, and that is why we cannot understand what the Minister is doing here. We need to look at the Bill in the context of what the Minister is trying to achieve, which is to financialise the whole of society and Europe and make all the citizens of Europe responsible for the banks. That is what the ESM hopes to achieve. It is not about looking after and protecting citizens from financial crashes and catastrophe. It is about making citizens responsible. The ESM is the instrument being used to copperfasten that responsibility and ensure we give unlimited power to a secret body operating out of Luxembourg which has the right to access unlimited borrowing and place unlimited demands on member states to underwrite that borrowing. This is what the ESM is putting in place.

We are going to rush this legislation through this House and sign up slavishly to it, quite happily, without any guarantees from Europe in regard to our banks and our recapitalisation. We might, if the Minister decides, make an application to the ESM. I expect that if he does make an application, we will be lucky to get €3 billion or €4 billion in direct recapitalisation. The suggestion has been made that this will be done through an equity swap in AIB, but in my estimation this is the level of funding we can expect to get. This estimate is as good as any that anybody else has come up with, because we have heard nothing from the Government side of the House as to what it hopes to achieve from the mechanism.

Deputy Boyd Barrett was right in saying that the €60 billion earmarked under the ESM for direct recapitalisation is not a serious figure. It is a figure that has been chosen to sell this con to everybody in Europe - that the ESM is prepared to do this and break the link for citizens - because €60 billion would only be a drop in the ocean if any financial institution in Europe was in serious need of direct recapitalisation. The ESM could, in five minutes, decide at a board meeting to increase that €60 billion. It could be increased by an unlimited amount. However, the signal it is sending out is that this is not something it is serious about or that it seriously considers using. It is something that is being proposed as a sop to people across Europe who are concerned about the mechanism. That is the real problem with this legislation.

Deputy Áine Collins

I welcome the opportunity to speak on this Bill. The European Stability Mechanism (Amendment) Bill is necessary because of the Government's continuing efforts to deal with retrospective repayment of capital pumped into banks by Irish taxpayers. It is, from the European perspective, an effort to put in place mechanisms that will allow Europe to provide loans to financial institutions. This is intended to help avoid the huge banking crisis that Europe as a whole continues to deal with.

The ESM was established to provide loans to member states. The direct recapitalisation instrument will be able to provide loans to financial institutions. The financial instrument deals with two issues, direct and retrospective recapitalisation. While this is welcome, it should be remembered that the requirements are quite restrictive. They require member states to contribute to any direct recapitalisation in the future. It is important to note that article 14 provides for retroactive recapitalisation. This could be decided on a case-by-case basis, by mutual agreement of the ESM board of governors. This instrument gives Ireland the option to apply to the ESM for the retrospective direct recapitalisation of the Irish banks. Nobody suggests that just because this instrument is being implemented, this will be an easy task. Such recapitalisation would require unanimous approval from the board of governors of the ESM.

The decision on whether or when it is appropriate to make such an application must be carefully considered by the Minister for Finance. Any retrospective recapitalisation will only be considered when the potential returns to the State from the banks now and in the future have been established. Responsible and sustainable management of the public finances is a huge commitment, and this commitment is agreed in the statement of Government priorities between Fine Gael and the Labour Party. In this context, the Taoiseach and Tánaiste recently highlighted Ireland's high level of debt as a risk to the economic recovery that is now taking place. Their analysis stated that the State investment in Bank of Ireland shows that careful management and disposal of our banks' holdings can result in a reasonable return for taxpayers and the disposal of the remaining banking assets will reduce the State's excessive debt levels. The outcome of this disposal will have a bearing on when and if the Government applies to the ESM, through this instrument, for retrospective recapitalisation of our banks.

Recent indications from the Minister demonstrate that he is considering how best to deal with the State's shareholding in AIB and Permanent TSB, with taxpayers' shares in Bank of Ireland and Allied Irish Banks valued at €13 billion at the end of 2013. With careful management and timing, disposal of the shares could lessen the need for retrospective repayment over time. In this context, we should remember that the Minister, Deputy Noonan, and the Government have an excellent track record to date. The renegotiation of the promissory note continues to save Irish taxpayers billions each year. The Minister's IMF negotiations will save Irish taxpayers €1.5 billion over a five-year period.

Apart from the direct effects of implementing this instrument in Ireland, it is designed to preserve the financial stability of the euro area as a whole by providing for specific cases when a eurozone state experiences acute difficulties with its financial sector. We have seen from the recent crisis that a mechanism is necessary to maintain fiscal sustainability in order to avoid the severe risk of contagion from the financial to the sovereign sector. To a certain extent, this is a minimalist effort to resolve a problem that should have been dealt with at the start of the euro process. The operation of the same currency in different countries with different economic activity and debt levels was inevitably going to cause problems. I hope this is the first step towards a more integrated and sustainable eurozone. I commend the Bill to the House.

Deputy Dominic Hannigan

I welcome the opportunity to speak on this Bill, which allows the European Stability Mechanism to set up a direct bank recapitalisation instrument which will enable recapitalisation of troubled banks in member countries directly without those moneys being added to the country's national debt, which is what happened here.

While this is a technical Bill, it could have serious implications for Ireland and the national debt in the long term. This is relevant to the discussions happening on the budget we are preparing for 2015. The growth figures we are hearing, including the most recent this week, suggest we could implement a neutral budget. However, there are still those, including the Irish Fiscal Advisory Council, that suggest the Government should make the planned €2 billion adjustment. We also heard the views of our European colleagues during the week.

All of this is, of course, because of concerns about the national economy and the national debt. The debt stands at just over 120% of GDP, the fourth highest in Europe. Debt levels across Europe have been rising in the years since the crisis began and in the eurozone the debt-to-GDP ratio is now at an average figure of just under 97%. Therefore, we are not alone with our problems. Of course, there are legitimate fears that if European-wide recovery does not take hold, this level of debt will harm the recovery not just of Ireland but of other European countries also. Therefore, this new instrument may give us an opportunity to do something about it.

In Ireland there is the possibility that the fund could be used to give us retrospective recapitalisation. The FAQ document which the ESM released in June this year included the following question: "Could direct recapitalisation be applied retroactively, so that the ESM would directly recapitalise troubled banks in countries that have received financial assistance from the EFSF and ESM?" The answer given was: "The potential retroactive application of the instrument will be decided on a case-by-case basis and by mutual agreement of ESM Members". Therefore, there is an opportunity for us. Will the Minister of State tell the House if Irish bank debt will be looked at under this instrument and if an approach will be made or has been made to the board of the ESM? I share the concerns expressed by other Members of the House, including the last speaker, that perhaps we will end up with not getting anything in terms of recapitalisation from the ESM.

Our shares in Bank of Ireland and AIB are getting into the mid to late teens in billions of euro. In the coming months and a short number of years the country may well be in a position to sell off these shares, in the process realising a dividend of perhaps €15 billion or €20 billion which could be used to help to reduce the national debt and also to pump-prime capital expenditure. I say this because we may be forced to deal with the issue ourselves. I am becoming more and more convinced that at a European level it is going to be difficult to achieve unanimous agreement. I attended a conference in Rome at the beginning of this week as part of the monitoring of the fiscal compact treaty. The House may remember that Article 13 of that treaty states we will meet as a Union every six months to discuss the implications and implementation of the fiscal compact treaty. Having listened to some of our colleagues across Europe, in particular our German colleagues, I very much doubt that we will see much movement in terms of achieving a European consensus to deal with many of the issues we face.

An Leas-Cheann Comhairle

The Deputy's time is up.

Deputy Dominic Hannigan

It would be helpful if the clock was working.

An Leas-Cheann Comhairle

My apologies.

Deputy Dominic Hannigan

The potential instruments being brought forward include eurobonds, a European redemption fund and the new PADRE system, all of which were shot down one by one by our German colleagues at the conference. It seems there is a reluctance on the part of some of our colleagues in larger states across Europe to look at the idea of mutualisation of debts. They are very content to have consensus on the mechanisms we use, but we are being told that each country will have to stand on its own when it comes to dealing with the issue of national debt. I wonder whether the answer is to go down the road of selling our shares in Bank of Ireland and AIB, rather than trying to seek a consensus on recapitalisation that we just might not be able to achieve.

Deputy Kieran O'Donnell

I am delighted to contribute to the debate on the Bill, which I welcome. I have listened to some, although not all, of the debate. I want to put this issue in context, as we often discuss Bills without discussing the background and context. The context, from an Irish perspective, is that the taxpayer put €64 billion of hard-earned money into the banks. In June 2012 we sought to break the vicious cycle between the banks and sovereign debt. Accord was reached and it was agreed that, once the single supervisory mechanism was in place, the issue of bank recapitalisation, both current and retrospective or retroactive as it is now being called, could be considered. The relevant date, I understand, is 4 November.

The role of the Government is to ensure the taxpayer gets the best financial return from the €64 billion put into the banks. How can we achieve this and what routes are available to us? One of the routes is to sell the shares on the open market. If the position of the banks is improving - this will provide us with a mechanism to do this - that is obviously one feature. Another is retroactive or retrospective bank recapitalisation through the ESM. It all hinges on Article 3 of the ESM treaty which states: "The purpose of the ESM shall be to mobilise funding and provide stability support under strict conditionality, appropriate to the financial assistance instrument chosen, to the benefit of ESM Members which are experiencing, or are threatened by, severe financing problems, if indispensable to safeguard the financial stability of the euro area as a whole and of its Member States".

Furthermore, the context is also relevant in terms of breaking the link between sovereign and bank debt. The ESM guidelines state there should be support where "an ESM Member experiences acute difficulties with its financial sector that cannot be remedied without significantly endangering its fiscal sustainability due to a severe risk of contagion from the financial sector to the sovereign". In Ireland's case, we fit the criteria in that the banks were recapitalised over a number of years owing, first, to the risk to the Irish banking sector; second, to the risk of contagion to the Irish sovereign; and, third, to the risk of contagion in a European context. This has brought about a situation where Irish taxpayers have had to endure many years of austerity. I include all those who buy goods and pay VAT, despite perhaps being unemployed, not just those who are working. This needs to be recognised and it was recognised in the accord of June 2012.

The case I make calls for a range of measures. One aspect could be the selling of bank shares on the open market, with the taxpayer getting the money back in that fashion. It also could involve retroactive or retrospective recapitalisation or it could involve a suite of measures. We have played our part for the European Union and the euro. I note that the draft guidelines agreed to by the member states on 10 June 2014 include a specific provision relating to the retroactive application of the instrument.

Interestingly, guidelines have been laid out for dealing with recapitalisation of banks in a current context. Guidelines have not been laid down for dealing with retrospective or retroactive recapitalisation. That is something that needs to be fleshed out. The draft guidelines state potential retroactive application of recapitalisation for financial institutions should be decided by the ESM board of governors on a case-by-case basis by mutual agreement.

The economy is doing well again after many years owing to policies put in place by the Government and the hard work of the people, but our debt levels are still way too high. Our debt-to-GDP ratio is approximately 120%, which is too high. The normal level at which any country should be operating is about 90%, which would be a safe level. Even though we are experiencing reasonable growth rates, I would like them to be sustainable and of the order of 3%. We are seeing significant growth in job creation and a reduction in unemployment. We see this in the live register figures which have decreased by nearly 10% in the past 12 months. We are also seeing a narrowing of the deficit and will certainly meet our 3% target by the end of 2015. The upcoming budget must clearly factor in the difficulties facing people, particularly those with young families and the elderly. What we need is a carefully planned budget. A budget is not just about the amount of money involved in terms of savings to be made and tax raised. It is also about the types of measure one brings forward. This has been lost in the budget discussions in the media and the House. It is not just about the volume and amount of money involved; it is also about how one allocates it.

The fact still remains that the Irish sovereign, on the basis of taking on the burden of debt from the banks, is carrying too much of the load. This is due in no small measure to the level of debt it had to take on from the banks. I go back to my key point. The legislation provides for retroactive recapitalisation. In this context, the €60 million being provided for bank recapitalisation needs to be reviewed by the ESM with a view to increasing it. We should remember that we put €64 billion into the banks; therefore, in a European context €60 billion seems very small. The date of 4 November, in terms of the single supervisory mechanism, is fast approaching. We have a legitimate case as part of a suite of measures to get money back, given that €64 billion of taxpayers' money went into the banks, some of which we have got back. Under Article 3, the €64 billion was put in at a time when Ireland was experiencing severe financial problems. At the time recapitalising the banks was indispensable to safeguard the eurozone and its member states. Come 4 November, we will have a very strong argument in a European context for putting forward retroactive recapitalisation as one of the measures to be considered, with the banks improving their financial position and being able to go to the market to get back the taxpayers' money.

An Leas-Cheann Comhairle

I have two names - Deputies Peter Mathews and Catherine Murphy. Deputy Peter Mathews is first to be called. I have to call the Deputies in the order in which their names were submitted to me. We can talk about this matter later, but I have no other information other than what is in front of me.

Deputy Catherine Murphy

The names were provided for administrative convenience. My name was submitted yesterday and I was to be in this slot, but I am more than willing to give way to Deputy Peter Mathews. However, it is not a Technical Group slot.

Deputy Peter Mathews

For the record, it is. As referred to, it is a non-party grouping and I am speaking in its time slot.

I thank the Minister of State for his attendance. I have listened to the majority of the contributions. The first point to mention is that the Title of the Bill - European Stability Mechanism (Amendment) Bill 2014 - has been framed in such a way as to almost mislead citizens across the European Union, including Ireland. The reason is that it is cobbled together complex legislation to create an illusion that stability will be promoted by it. It is so complex that the first sentence of the explanatory memorandum states:

The first purpose is to make provision for the introduction by the ESM Board of Governors, through Article 19 of the ESM Treaty, of the ESM's Direct Recapitalisation Instrument as one of the financial instruments envisaged under Articles 14 to 18 of the Treaty. And also through allowing for the creation of subsidiary bodies which will implement the Direct Recapitalisation Instrument.

The latter is not even a sentence.

Deputy Kieran O'Donnell said he wanted to provide the background to why we were discussing this legislation and put some framework on the figures, which figures would be expandable or retractable in secrecy, as Deputy Thomas Pringle pointed out. The legislation is so unsafe that it should not even be considered seriously.

The matter is very simple. Seán and Mary Citizen understand, starting in 2001 through to 2008, that the domestic banking system in Ireland amounted to a Ponzi credit pyramid. This is shown in a review of the balance sheets of all licensed deposit-taking institutions, excluding the IFSC. At the outset the domestic banking system was about three times the size of national income and over five times the size of national income when the bubble burst and the Ponzi schemes crashed. We have had three reports and I would say that, at most, possibly 2,000 people have read them. However, Seán and Mary Citizen did not read them because they are written in technical language and miss the point. The first point I have made is that the domestic banking system grew at such a level through reckless funding. One cannot have reckless lending without funds which were provided recklessly using all sorts of financial prudential scales on the balance sheets of the banks which were completely ignored.

When it was certain that there were going to be losses in the banking system - let us forget about Ulster Bank, Danske Bank, ACC and any other foreign bank such as KBC - the Irish-owned banks and building societies had losses not of the order of €64 billion that is repeated but of about €100 billion. Some of these losses are still latent in the banks which are paralysed in carrying on effective business for the households and businesses of Ireland. They are engaging in a pattern of pretence which involves a refusal to use the option of capitalisation they were granted to restructure the loans of their clients - small businesses and households.

That is very wrong. When the music stopped and the pyramid collapsed in 2008, to prevent an instant outflow of deposits from the banking system, a guarantee was entered into by the State and the previous Government. That guarantee, unfortunately, was based on fraudulent or false information on the balance sheets of the banks and entered into under duress, indirectly, from the euro system. There was overt and express duress when Brian Lenihan dealt with Jean-Claude Trichet.

What happens when a contract of insurance is entered into by persons who do not tell the truth about the risk involved in the contract? It is void. The previous and current Governments have been gutless, in the interests of the people, in not using that fact as the main justifiable reason for ensuring the secondary market holders of bonds in Irish banks covered their losses. Of the €64 billion mentioned by several people, at least €31 billion of it is gone forever. We cannot get that money back. It is not Anglo Irish Bank debt, rather it is losses. The euro system, at the point when the promissory note was created, forced the previous Government to create an asset which would be a noose around the necks of the people in the form of a sum of €31 billion or €32 billion which would be paid by them to meet the losses in that bank which had no resources to pay the secondary market speculator bondholders at the time. The euro system knew something had to be done to prevent the contagion of a financial conflagration which was on the point of happening around the world. Lehman Brothers, AIG and Bear Stearns had gone and Bank of America had to take over Merrill Lynch. Some French and German institutions were holding bonds, not just in Anglo Irish Bank but also in the other two so-called pillar banks.

I want to give some figures to show how out of control was the funding of Irish banks. In September 2008 Bank of Ireland had €61 billion in senior secured bonds on its balance sheet. That is reckless, crazy funding. It also had subordinated bonds. AIB had approximately €42 billion in senior secured bonds. By the time the troika came to rescue Ireland, €140 billion in funding from the euro system had materialised to pay for the exit of an awful lot of senior and subordinated bonds.

I only hope Seán and Mary citizen who may be listening believe I am making the effort to tell the true story behind the jargon they have been fed for the past five years. Losses of €31 billion or €32 billion for one bank alone have been converted into national debt. The forced Dáil debate and passing of the IBRC liquidation Act entailed the substitution of a promissory note for a series of what are now called promissory bonds, the balance of which is about €25 billion. They are the bonds which, if there is to be a fair spreading of the losses across the euro system, should be extinguished. I read in The Irish Times last week what would be a naive, if not stupid, front page headline that €500 million of the nominal value of Anglo Irish Bank's debt was on the point of being sold in accordance with the wishes of the euro system, that is, the ECB, as part of the figure of €25 billion. If that happens, gone will be the chances of securing a just and final settlement to heal the scar on the people of the losses of a defunct bank. If €500 million worth of bonds are sold, they will be held by third parties and will have to be redeemed in 20, 30 or 40 years. In the meantime, the coupon will have to be paid. There will be a cashflow drain on the Exchequer.

There has been too much smoke and mirrors, gutless posturing and self-congratulation on the part of the Government for what has been a failure to represent the people. About 1.25 million people have had their lives ripped apart and some have been taken by suicide. There have been health problems and marriage and family break-ups. Some 350,000 people are long-term unemployed on the live register. The figure was higher, at 450,000. There are 170,000 households in severe mortgage distress and arrears - at three people per household, that is 520,000 people. There are 90,000 households, or 270,000 people, on housing waiting lists. There are many more besides; these are just the base figures and if one tots them up, one will find it comes to a lot of people.

There was a failure to robustly make the case to the European authorities. If Ireland stated the €25 billion in promissory bonds would be extinguished, rather than sold, it would have given Mr. Draghi something to do, rather than talking about and mutualising the debt. That is what should be done if our leaders had the courage to do so. Instead, we find the two so-called pillar banks are failing to restructure the loans of their clients which originated in a credit pyramid Ponzi scheme as a result of the reckless funding and expansion of the domestic banking system.

Who is afraid to negotiate? What a waste of the largest Government majority in the history of the State. Deputies Richard Boyd Barrett, Pearse Doherty and Thomas Pringle made concrete points that I will not repeat. The European Stability Mechanism is such a complex, qualification-riddled framework that it is almost meaningless. Besides this, it is far too little. Does the Minister of State know how much Citigroup has paid in penalties, fines and settlements since the end of 2008? It has paid almost $70 billion. Does he know what the leverage of Deutsche Bank is on the most recent balance sheets? The ratio is about 50:1 on a balance sheet of €2 trillion.

When Lehman Brothers went bust, it was just a little over $40 billion. The stability mechanism is a secret mechanism which is expandable or retractable. It is a mechanism that does not have sufficient cascade-down regulation to banking operations in Europe. It is illusory.

In terms of the number of people whose lives have been ripped apart, I forgot to mention the 250,000 emigrants. What has been the experience of those who have remained in the country as a result of the losses? It includes water charges as a broadening of the tax base. That does not broaden the tax base, it just gives a different label to an income tax. How does the Minister of State think individuals will pay for it? Will they take some of the capital from the houses in which they live to pay it? No, it will come from income. It is the same with the property tax. What about the cuts to the numbers of carers, nurses and doctors and in schools? The Minister of State should read the article by Martin Wolf of the Financial Times which was published today in The Irish Times. He states that inequality does not work in economics. That is patently clear because inequality undermines and corrodes education systems and destroys the spending capacity of households living in normalised conditions. He is demonstrating in that short article what Joseph Stiglitz expanded on in the book The Price of Inequality which I gave to the Taoiseach before Christmas last year and which I asked him seriously and solemnly to read. It would be helpful in order that the right philosophy and arithmetic could be used in the budget. These are important.

We talk about what was happening in Europe in 2008 and the bank guarantee and the consequences and destruction that followed. It was like the forest fires in Australia the year before when 300 people died. The fires were out of control. The financial system was like that. When a forest fire is out of control, one must move ahead of the fire and burn its pathway in order that it exhausts itself. That is where Ireland was. That is what happened to us. The scar is the €30 billion worth of losses in Anglo Irish Bank that is being borne by citizens today and will be for the next 40 years. I did not vote on the IBRC liquidation Bill because of all it contained, because it failed to face up to the realities and because it was brought forward here with half an hour's warning. The voting took place at 1 a.m. On the third attempt, I was paired by the Taoiseach because I did not know if it was time to stand up and be counted for a fairer society in Ireland. However, I was paired as I was not going to put my finger on a green button for it. It was wrong. The amendment Bill is a tarnished consequence. It is tarnished by the source and the origin in so far as Ireland is concerned.

As Deputy Thomas Pringle pointed out, this is a day to use the leverage. The idea of the 2012 seismic shift is rubbish. The initiative is in our hands, but it will take men and women of courage and guts to act for the people. We will get real respect then. If one wants to broaden the tax base - it is now beginning to happen - one should ask the MNCs the profits of which have surged since 2008 to put their shoulder to the wheel of national recovery with a 3% levy. The Minister for Finance said that was not in the programme for Government when I mentioned the idea three years ago. There are many things which are not in the programme for Government that should be. Add them in; do not be feeble; do not be wimps; be men for the people, 1.25 million of whom deserve to have the Government with the largest ever majority on their side and show leadership. The Bill is unsafe and I will not support it.

Deputy Catherine Murphy

That the Bill is relatively straightforward does not mean that I will support it. In fact, I will not. There is supposed to be significant firepower available to ensure banking crises such as the ones which happened in 2008 and 2010 do not recur. However, it appears that the architecture that has been constructed around the ESM will be onerous in the event of a crisis. I remember the referendum and the near bullying of the people who were told they had to have this or they could land in the same situation again. However, the architecture appears to make it much more difficult than was anticipated to access the fund.

The direct recapitalisation instrument has attracted intense interest in this country. We were promised in principle that Ireland would be treated as a special case. We were unique, which, of course, was true. We made up 1% of the eurozone in terms of our population but accounted for 42% of the banking costs. That happened because we had intergovernmentalism. The European systems did not work and the institutions failed the citizens who were the main casualties. We are now looking at the result of this by way of extra taxation and services being at breaking point for the want of very small amounts of money. Instead of seeing the European Union acting as a unit, we saw an intergovernmental approach, with the French and German axis driving the system and getting what they wanted.

We were obviously given a commitment in relation to our legacy debt. It was vague and one must question whether it was worth the paper on which it was written. It is another example of the failure of institutions in Brussels to respond to a crisis in the interests of the people. It is no wonder that people reacted as they did in the European elections. There is increasing scepticism about European institutions as a consequence of what has happened directly to people and the failure of those institutions to protect citizens when they most needed to do so.

There has been no indication since the commitment was given that retrospective recapitalisation will ever take place; the opposite is the case. Germany, Austria, the Netherlands and Finland spoke out against it and the then Commission President, Mr. Barroso, cast doubt on it. Will the Minister of State confirm that it is Ireland's intention to seek direct retrospective recapitalisation once the single supervisory mechanism comes into full operation on 4 November? Does he expect the other countries to agree? What information is available on this? We are tired of playing what has become a very long game-----

Deputy Peter Mathews

A joke.

Deputy Catherine Murphy

-----and there are still more revelations to come about what happened at the time. I am sure the Minister of State is aware of the recent revelations from the Governor of the Central Bank, Mr. Patrick Honohan, which confirmed the long-held view of most of the population that Ireland had been coerced into maintaining a full, wide-ranging guarantee of all deposits and bonds in 2010. The threat was explicit: continue to implement the full guarantee or face bankruptcy. Apparently, it was made directly to the late Brian Lenihan. We also know that it was not only a threat. I refer to the letter from Jean-Claude Trichet allegedly instructing us to assume the debts of Anglo Irish Bank in 2008. On whose behalf was the European Central Bank acting in 2008? Was it in the interests of European citizens generally or on behalf of the French, German and United Kingdom banks? I do not need the Minister of State to answer that question because it is in plain view that they were acting in the interests of the banks.

As a result of the deeply tragic, grossly undemocratic and virtually criminal sequence of events, the population of this country, who make up 1% of the population of the eurozone, has had to shoulder 42% of the cost of the entire banking crisis, almost €9,000 per head of the population, compared to just €192 per person in other European countries, which is less than the cost of an average water bill for a single person. We are spending €9 billion per annum in servicing the debt. I accept that it is not all banking debt but includes other debts accumulated by virtue of the fact that we had to borrow. It is, however, a very large amount of money which is equivalent to the entire education budget.

I was having my breakfast one Sunday morning when I heard the Minister of State being interviewed on what I believe was the Marian Finucane radio show. I nearly choked on my rashers and sausages when I heard him say we had had €40 billion of debt written off. Will he, please, tell me where it was written off because if we had done this, we would not be in the trouble we are in?

I have asked by way of parliamentary questions to the Minister, Deputy Michael Noonan, about the former Anglo Irish Bank debt that was then the promissory note that is now sovereign debt-----

Deputy Peter Mathews

They are losses; they are not debts.

Deputy Catherine Murphy

It is debt now, unfortunately.

Deputy Peter Mathews

It is national debt.

Deputy Catherine Murphy

I do not dispute the fact that they are losses, but if the Deputy does not mind, I would like to continue.

It will take a further €25 billion out of the economy by 2032. It has not been written off, despite the Labour Party posters during the local elections stating €30 billion in debt had been written off. It is still there and we can use all the spin doctors we like in that regard. The problem is that this year €500 million will be taken out of the economy. I cannot remember the word the Governor of the Central Bank, Mr. Honohan, used, but essentially it will be taken out of the system. It is €500 million this year, €500 million next year and €500 million the year after that. The figure will then increase to €1 billion and, ultimately, to €2 billion. We know what €500 million buys. It is, for example, the take in property tax. We know what €500 million would do in the health budget for this year. It is a small fortune. The crazy aspect is that it does not have to be paid back to anyone but is being destroyed.

Deputy Peter Mathews

It is an illusion. There is no real money.

Deputy Catherine Murphy

It is smoke and mirrors. I do not understand how a group such as the Ballyhea group, together with some Deputies, could meet the Governor of the Central Bank and do something the Government has not done, namely, ask for the money to be written off. I understand the Governor of the Central Bank is part of the ECB framework, but it is extraordinary that the members of a small voluntary group from Ballyhea in County Cork are perhaps the first to go to the ECB and formally asked for the money to be written off. If we do not ask, we do not get. Many of us questioned the negotiating stance of the Government from the word go. We could see that there was very good reason to question it. A softly-softly approach was taken in the hope that if we behaved ourselves in some way, we would be rewarded, but we have not. Governments act in their own best interests. Two powerful governments were at the centre of this issue, namely, France and Germany, which acted in their own interests in the middle of the crisis. The upshot has been that it has destroyed this country's possibility of investing to get people back to work and maintain reasonable public services, many of which are at breaking point. It has most definitely dipped into people's pockets to the point where they are fearful for the future in terms of their ability to maintain even a basic living standard.

I did not support the holding of a referendum and will not be supporting the Bill. The Government must tell us directly the answer to the question I have asked of the Minister of State: is it seeking direct recapitalisation?

Deputy Lucinda Creighton

I thank the Acting Chairman for facilitating me and welcome the opportunity to speak on this legislation. I welcome the Bill which has been designed to facilitate direct recapitalisation of banks by the ESM, but I am sure the Minister of State will agree that while it is welcome, it in no way goes to achieving the separation of banking and sovereign debt we are all working towards and which at this stage is long-awaited. As other speakers stated, €60 billion is a drop in the ocean in terms of the potential capital losses banks faced during the crisis. Therefore, there will be a requirement for a much greater capital injection in due course. Otherwise, the European banking system will continue to remain exposed.

Leaving aside the actual size of the bailout fund, the absence of a clearly defined role where elected governments can bring greater democratic accountability to the European Central Bank is a major concern. It is something that has been of huge concern to me for many years. The lack of transparency in the European Central Bank is an issue I highlighted when I was a Minister of State and I will continue to highlight it. It is something that is deeply uncomfortable for some member states, but Ireland should have a very clear position on it, something the Government does not yet have. If it requires treaty change, it is something we should be courageous enough to pursue because transparency and openness within the ECB and for member states are critical.

If a bank faces a liquidity crisis, which we know was the original issue in Anglo Irish Bank and the Bank of Cyprus, the European Central Bank has a facility to allow domestic central banks, essentially, to print money to ensure the bank has enough cash to meet its liabilities. This does not improve the capital position of the bank and is supposed to be a short-term measure. The old maxim that owing the bank €100 makes it your problem, while owing the bank €100 million makes its problem needs to be extended, with an additional line that if it owes the European Central Bank €1,000 million, it is your country's problem. With the right hand, the European Central Bank has the crucial and powerful capacity to prevent a liquidity crisis, but, with the left hand, by threatening to withdraw that wall of liquidity, it can cause a capital crisis for the bank and, by extension, the member state concerned.

The charade of the European Central Bank operating independently of governments must come to an end because that is what it is. If this requires an EU treaty to change it, so be it. The people have a right to know what backroom deals are being done and what outside pressures are being applied by the most powerful unelected entity on the Continent. A perfect example of this is a story in The Irish Times this week that the Central Bank had begun the process for an accelerated sale of the Irish Government bonds it holds as a result of the promissory note deal negotiated by the Minister. The newspaper presented this as remarkably good news story because of the immediate capital gains the Central Bank stood to make from selling bonds into a market where Irish bonds had become so highly valued. The article made little mention of the fact that the interest rate the Exchequer, or the taxpayer, was paying annually on these bonds, for as long as they were held on the Central Bank's balance sheet, was coming back in a circular motion to the coffers of the State. Once sold, the burden on the Exchequer increases.

I find it too much of a coincidence that this story comes out only weeks after Mr. Mario Draghi expressed a view that early repayment of the IMF bonds could be conditional on an accelerated sale of the promissory note Government bonds. This IMF deal was heralded as saving the taxpayer €400 million a year. What we do not know yet is how much more taxpayers will have to pay in debt servicing because the ECB forced the Central Bank into an accelerated sale of its Government bonds. We do not even know if this was a condition of the IMF agreement because so much of the negotiations between the Government and the European Central Bank are conducted in utter secrecy and not underpinned by legislation and a clear treaty framework. Precisely the same scenario applies to the tool created by this legislation in terms of direct recapitalisation. All of these laws will not be worth the paper they are written on as long as the European Central Bank remains unaccountable in all scenarios to elected governments but, in practice, operates secretive negotiations and enormous leverage over all countries large and small.

In a disclosure during an election debate on television former President Nicolas Sarkozy told the French people live on television that he and Chancellor Merkel had essentially put pressure on Mr. Mario Draghi to announce a programme of long-term lending to eurozone banks. For at least for one year, probably longer, this stabilised the eurozone and prevented Spain and Italy from being forced into a bailout programme. Political intervention can have positive effects, but we need to know about this and it should be transparent. As it stands, it is not.

Similarly, when Mr. Draghi made his famous statement that he would do whatever it took to preserve the euro, which has provided for long-term stability in the eurozone up to today, we now know that months of private negotiations had been taking place between the ECB, Berlin and Paris. It was completely secretive, with other member states excluded, particularly those most affected by it. That is completely undemocratic and unaccountable. Small countries have the least power over the ECB, virtually none, and if their banks go bust, as we learned to great expense in this country, the sovereign takes the hit. Unfortunately, this legislation will do nothing to alter that reality. If the banks of a larger country are facing the wall, the ECB will step in to help them without great conditionality. This is realpolitik and the power and influence of the ECB. Unless the treaties reflect this reality, small countries will continue to bear the brunt and suffer now and in the future.

I will support the Bill because it is in Europe's interests and those of this country that we create a coherent European structure to bail out financial institutions that have a realistic chance of survival. We desperately need that capacity. Equally, in a single currency system, risks should be shared and mutualised, irrespective of size or the relative economic power of the country concerned. In a monetary union it is crucial that there be such burden sharing. I am not quite sure where the Government stands in that respect, but the Minister for Finance, Deputy Michael Noonan, made some utterances in that regard 18 months ago. I have not heard a whole lot since. My fear is that, in the absence of binding structures to define the relationship between the European Central Bank and EU member states and binding structures in treaty format, during the type of crisis scenario Ireland has experienced the little country will be the loser. As a country held in good standing across the European Union, we have a moral obligation to the people, other small member states and vulnerable and peripheral member states to fight for transparency in the ECB. I would dearly love to see someone within the Government articulate and argue that case with conviction on behalf of the people.

Minister of State at the Department of Finance (Deputy Simon Harris)

I thank all Deputies from all sides of the House for their constructive contributions to this discussion. We have had a broad range of views expressed and I acknowledge that we have received support for the Bill from Members on all sides of the House, although not all Members, given the opposition of Deputy Peter Mathews.

The purpose of the legislation is to make provision for the inclusion by the ESM board of governors, in accordance with Article 19 of the ESM treaty, of the ESM direct recapitalisation instrument as one of the financial instruments envisaged under Articles 14 to 18, inclusive, of the treaty. This includes provision for the creation of subsidiary bodies that will implement the direct recapitalisation instrument. It also incorporates the ESM treaty, as adapted, following the accession of Latvia to the ESM on 13 March 2014, into the European Stability Mechanism Act 2012. It is important to recognise that the Bill represents the outcome of significant negotiation reconciling the views of countries such as Ireland, convinced of the need for such a measure, and other countries that had to be convinced that there was such a requirement. While we can argue about the amount of any fund, it is important to realise that the very existence of direct recapitalisation was certainly not a foregone conclusion and had to be achieved by successful negotiation. Ireland was to the forefront in that regard. This is the way with all European policy and applies to this measure also. Once the instrument is in place, it can be adapted, as required. The addition of this instrument to the ESM treaty that took effect in 2012 shows this.

The draft guideline agreed on 10 June 2014 includes a specific provision on the retroactive application of the instrument. Therefore, the agreement that we were active in negotiating keeps open the possibility of applying the European stability mechanism for retrospective recapitalisation. The draft guideline states the potential retroactive application of the instrument should be decided by the ESM board of governors on a case-by-case basis and by mutual agreement. It also states the detailed modalities for retroactive recapitalisation should be established in the relevant decision of the ESM board of governors, that is, the euro area Finance Ministers.

I wish to address a number of issues raised by Deputies during the debate on Second Stage. I refer to the timing of an application for the retrospective recapitalisation in accordance with Article 14. I will repeat what the Minister, Deputy Noonan, has said on a number of occasions, that there is an agreement that the instrument required to give effect to direct recapitalisation, including in its retroactive form, shall be put in place in November 2014, subject to its ratification by member states. The Minister for Finance has stated also on a number of occasions that it was not possible to make a formal application to the ESM for retrospective recapitalisation before the instrument is in place as expected in November. It would, therefore, be premature to make any submission in advance of that. I have heard some criticism from some people that the Government had not made an application. As the Minister for Finance has clearly outlined we cannot make an application until the mechanism is in place and this legislation is part of the process. If all member states have ratified the instrument by November 2014 the instrument will then come into effect. We can then consider how to go about the application and the application will, therefore, not be made before November and the issue of timing after the instrument is in place will be kept under review by the Government.

With regard to the criteria to be applied, I reiterate that the text of Article 14 provides for a decision on a case-by-case basis. The Minister has outlined to the House in his opening address today that the instrument is part of a broader EU response, including the single supervisory mechanism, the single resolution mechanism and the single resolution fund. The size of the fund must be seen in that context as another tool in that array of tools.

I clarify that this Bill provides for approval of the ESM direct recapitalisation instrument; it does not provide for the broader banking union measures. While it is to be expected that people would raise broader banking measures it is important to point this out. To the extent that they are referenced they apply only in so far as an application is made for the ESM's direct recapitalisation instrument.

I also wish to clarify a number of issues in respect of the ESM. The ESM is governed by the board of governors who are euro area Finance Ministers. All the decisions of substance are made by the board of governors on the basis of mutual agreement, in accordance with Article 5(6) of the treaty. These decisions include decisions on the lending capacity, capital calls and the amount of capital stock. It is not the case that the ESM can, of its own volition, unilaterally call unlimited amounts from member states. The ESM Act 2012 sets a ceiling on Ireland's capital contribution and any change to the amount in that Act would need to be approved by amending legislation. This is an important point because Deputies raised legitimate and genuine concerns in that regard. In addition, its borrowing and lending capacities are fixed by decision of the board of governors and must similarly be changed by their decision. The ESM cannot do so unilaterally.

The ESM's direct recapitalisation instrument represents a core element of a much broader EU approach to the issue of breaking the bank and sovereign link, as was committed to by the euro area leaders in June 2012. This includes the establishment of the single supervisory mechanism, the bank recovery and resolution directive, the single resolution mechanism and the single resolution fund.

I would hate to be responsible for Deputy Catherine Murphy choking on her rashers and sausages or cornflakes or whatever else she chooses to eat on a Sunday morning but when I appeared on the "This Week" programme I made reference to the fact that our refinancing needs over the next ten years have been reduced and I outlined how they have been reduced by the extending maturities on the ESF and the EFSM loans, the interest rate reduction and the solution of the pro-note arrangement. Deputy Murphy has articulated strong views but the point I made on that programme and which I reiterate is that the promissory note deal brought us to a situation where a Minister for Finance did not have to find €3 billion upfront, each year and as we approach a budget in just two weeks-----

Deputy Peter Mathews

It is postponed.

Deputy Simon Harris

I did not interrupt the Deputy and I listened to him for 20 minutes. I would like him to do the same.

The budget will be announced in the House in two weeks and the agreement should be seen in that context.

I also refer to a point raised by Deputy Creighton on the issue of the IMF early repayment and her viewpoint on the sale of bonds. These are very separate issues and this was acknowledged by ECB President Draghi when he clarified that the ECB's agreement is not required to secure the waivers on this early repayment that the Minister, Deputy Noonan, in his latest round of successful diplomatic negotiation managed to achieve from his European colleagues.

On the overall issue of retrospective recapitalisation, it is important to note that thanks to the hard work of Government and the hard work and sacrifice of the Irish people this country finds itself in a very different position to the one in which we found ourselves in 2012, when people have referenced the deal that was struck and the accord announced at that time. We now have a situation whereby our economy is recovering and growing, the bank shares of AIB and the bank value of AIB is increasing and our unemployment levels are falling. It is in that context that the Government, as a collective, will have to make a decision as to how best they take the next step to reduce the debt burden on the Irish people. That next step must be the most tangible, practical benefit to the Irish people, whether that is a matter of retrospective recapitalisation, or as Deputy Hannigan and others said, to a sale of bank shares or a stake in a bank. It is a matter for the Government to decide but it is certainly better to be in that position where we have options and tools and more of them than was the case two years' ago. I commend the Bill to the House.

Question put:

The Dáil divided: Tá, 86; Níl, 12.

Tá

• Adams, Gerry.
• Bannon, James.
• Barry, Tom.
• Breen, Pat.
• Burton, Joan.
• Butler, Ray.
• Buttimer, Jerry.
• Byrne, Catherine.
• Calleary, Dara.
• Cannon, Ciarán.
• Carey, Joe.
• Coffey, Paudie.
• Collins, Áine.
• Conlan, Seán.
• Connaughton, Paul J.
• Corcoran Kennedy, Marcella.
• Creed, Michael.
• Creighton, Lucinda.
• Daly, Jim.
• Deasy, John.
• Deenihan, Jimmy.
• Deering, Pat.
• Doherty, Pearse.
• Doherty, Regina.
• Dooley, Timmy.
• Dowds, Robert.
• Doyle, Andrew.
• Durkan, Bernard J.
• Ellis, Dessie.
• Farrell, Alan.
• Ferris, Anne.
• Fitzgerald, Frances.
• Fitzpatrick, Peter.
• Fleming, Sean.
• Gilmore, Eamon.
• Grealish, Noel.
• Hannigan, Dominic.
• Harrington, Noel.
• Hayes, Tom.
• Heydon, Martin.
• Humphreys, Heather.
• Keating, Derek.
• Kehoe, Paul.
• Kelleher, Billy.
• Kenny, Seán.
• Kirk, Seamus.
• Kyne, Seán.
• Lawlor, Anthony.
• Lowry, Michael.
• Lyons, John.
• McConalogue, Charlie.
• McDonald, Mary Lou.
• McEntee, Helen.
• McFadden, Gabrielle.
• McGinley, Dinny.
• McGrath, Michael.
• McHugh, Joe.
• McLellan, Sandra.
• Mitchell O'Connor, Mary.
• Mulherin, Michelle.
• Murphy, Dara.
• Murphy, Eoghan.
• Nash, Gerald.
• Neville, Dan.
• Noonan, Michael.
• Ó Caoláin, Caoimhghín.
• Ó Ríordáin, Aodhán.
• Ó Snodaigh, Aengus.
• O'Brien, Jonathan.
• O'Dea, Willie.
• O'Donnell, Kieran.
• O'Donovan, Patrick.
• O'Mahony, John.
• Perry, John.
• Phelan, John Paul.
• Reilly, James.
• Ring, Michael.
• Ryan, Brendan.
• Shatter, Alan.
• Smith, Brendan.
• Spring, Arthur.
• Stagg, Emmet.
• Stanley, Brian.
• Stanton, David.
• Tuffy, Joanna.
• Walsh, Brian.

Níl

• Boyd Barrett, Richard.
• Broughan, Thomas P.
• Collins, Joan.
• Daly, Clare.
• Donnelly, Stephen S.
• Fleming, Tom.
• Halligan, John.
• Healy, Seamus.
• Mathews, Peter.
• Murphy, Catherine.
• Pringle, Thomas.
• Wallace, Mick.

Tellers: Tá, Deputies Paul Kehoe and Emmet Stagg; Níl, Deputies Peter Mathews and Richard Boyd Barrett.

Question declared carried.