I move: "That the Bill be now read a Second Time."
The Covid-19 pandemic constitutes an unprecedented economic and social challenge for Europe and the world and is of such a scale that no country can successfully address it alone. The response requires urgent, decisive and comprehensive action at EU, national, regional and local levels.
At a European level as part of the early response to Covid-19 on 23 March 2020 the European Commission triggered the general escape clause of the Stability and Growth Pact and has adopted a temporary framework to enable member states to use the full flexibility foreseen under state aid rules. Then, the European Central Bank, ECB, launched a pandemic emergency purchase programme, which is now worth €1.35 trillion. The European Council endorsed a further comprehensive package of measures amounting to €540 billion on 23 April. That package includes three safety nets to minimise the short-term economic consequences of the crisis for workers, businesses and member states: the European Stability Mechanism pandemic crisis support instrument; the new SURE instrument, which is the main subject of today's legislation and will protect jobs, workers and people's livelihoods; and the European Investment Bank, EIB, pan-European guarantee fund to support SMEs.
These initiatives are in keeping with the commitments laid out in the programme for Government for a jobs-led recovery. This will help families and households where jobs have been lost to return to work and ensure businesses that have weathered the Covid-19 storm can now grow and rebuild. The July stimulus package will be unveiled shortly and will place the SME sector, which is the backbone of our economy and is central to our recovery, at its core. There will be a specific focus on offering supports for the sectors of the economy worst affected by the pandemic. The package will help to restore employment to the end of 2020 and will fund and progress our goals of decarbonising the economy, delivering balanced regional development and preparing for a digital future. The legislation we are introducing today can complement the stimulus package in helping the economy and the country to recover.
The EIB and the European Commission have already presented a support action plan amounting to €40 billion to address the economic challenges resulting from the Covid-19 crisis. However, given the gravity of the challenges facing the EU economy it has become apparent that far more is required. To significantly and rapidly extend the EU support for struggling SMEs, mid-cap companies as well as corporate and public entitles the EIB has decided to establish a pan-European guarantee fund.
This €25 billion guarantee fund is designed to support those enterprises by leveraging up to €200 billion of additional financing. The EIB guarantee fund is for workers and business, and is designed to finance high-risk operations that are viable in the long term but vulnerable due to the economic impact of the Covid-19 crisis. These will be primarily private sector operations with a focus on SMEs, although mid-caps and large corporates will also be eligible.
Public entities providing essential services, particularly those in the health, research and education sectors, that cannot be financed under existing EIB group products will also be eligible for support under the guarantee fund. Geographic eligibility will extend to those EU member states that have agreed to participate in the fund by way of a contribution guarantee. The fund will be implemented by the EIB in partnership with national promotional banks, in our case the Strategic Banking Corporation of Ireland, SBCI. In managing the fund, the EIB group plans to deploy a broad mix of products, including counter-guarantees for national promotional banks, venture debt, venture capital and private equity to fund working capital for the corporate sector.
All 27 EU member states are invited to participate in the guarantee fund. The contribution from each member state will be in the form of a state guarantee of €25 billion in proportion to its shareholding in the EIB. As Ireland's shareholding in the EIB is 0.66%, our liability to the guarantee fund is capped at €164.7 million. Ireland's shareholding in the EIB was recently adjusted from 0.67% to 0.66%, which led to a corresponding reduction in our liability from €167.5 million, based on a shareholding of 0.67%, to €164.7 million. This adjustment occurred as a result of two events that had a material impact on our shareholding in percentage terms: the UK's departure from the EU and the subsequent withdrawal of its shareholding, followed by two member states increasing their shareholding. While our commitment to the guarantee fund is €164.7 million in actual terms, provision in the proposed legislation is for an amount not to exceed €167.5 million. This offers a degree of flexibility should further shareholding variations occur.
The State guarantee is required to cover a degree of losses incurred in the implementation of the commercial operations of the guarantee fund. The fund will be formally established once member states representing at least 60% of EIB capital make appropriate commitments. Following Government approval on 29 May, Ireland gave a commitment in principle that it will, subject to the passage of legislation in the form of this Bill by the Oireachtas, participate in the guarantee fund. Legislative provision is required for payments to be made out of the Central Fund to cover any calls on the guarantee provided by the State. Where losses are incurred by the guarantee fund in the implementation of its operations, a call will be made on all of the member states' guarantees at the same time, given the pooled nature of the fund. Any delay in payment beyond five days would incur interest penalties. However, the EIB will provide a liquidity facility to allow member states time to make the necessary arrangements to cover the call on their guarantees.
Repayments and advances under this liquidity facility will take place on standardised dates once per quarter. The maturity of each advance will be for a maximum of six months. It is envisaged that the guarantee fund will be temporary in nature, with the initial investment period in place until 31 December 2021. A prolongation by six months could take place if the majority of contributing member states do not object. Any further prolongation would be subject to the agreement of all contributors. The legislation to provide for Ireland's participation in the European instrument for a temporary support to mitigate unemployment risks in an emergency, otherwise known as SURE, and the €25 billion EIB pan-European guarantee fund established by the EIB, and to provide for related payments from the Central Fund to cover both guarantees, is set out in sections 2 to 9, inclusive, of the Bill before the House.
On 7 April, the Government approved the drafting of an amendment to remove an ambiguity about the ability of the SBCI to offer guarantees without breaching the insurance Acts or regulations. This was not considered necessary up to this point because the SBCI was only involved in a small number of risk-sharing schemes up to now. It was already clear that risk-sharing schemes were going to become a larger part of the SBCI's offering in the coming years. The current crisis has accelerated this process. Following detailed discussions with the Offices of the Attorney General and Parliamentary Counsel, it was decided that the most appropriate way to deal with this ambiguity was to amend the Strategic Banking Corporation of Ireland Act 2014. Taking this step will aid the development and deployment of new risk-sharing loan schemes, including schemes that may be backed by the EIB guarantee fund, to which this Bill is facilitating access for Ireland. For this reason, the amendment will be included in section 10 of the Bill.
On a further clarification matter, section 11 of the proposed legislation includes a provision to allow for an award of the arbitral tribunal to be enforceable before the Irish courts in accordance with the Third Protocol to the General Agreement on Privileges and Immunities of the Council of Europe. This provision is for the avoidance of doubt on the matter.
In recent years, legal opinions have been necessary in order for the Housing Finance Agency, HFA, to borrow from the Council of Europe Development Bank. This provision will be important in allowing for and simplifying the potential future borrowing by the HFA and other State parties from the Council of Europe Development Bank.
The SURE instrument is intended primarily to support member states with efforts to protect workers and jobs, and also to support some health-related measures. In the case of Ireland, the introduction of the temporary wage subsidy scheme has been important in supporting families and ensuring businesses can continue to trade. These are the types of essential initiatives that can now be supported on a European level. Under the proposal, SURE will provide financial assistance to member states of up to €100 billion in total. The Commission will borrow on financial markets to finance loans to member states at the same interest rate, allowing them to benefit from the EU's strong credit rating and low borrowing costs. The loans are targeted to assist member states in addressing sudden increases in public expenditure caused by the pandemic in order to preserve employment, such as short-time work schemes and other measures put in place for the self-employed, and certain health expenditure. SURE comes with safeguards to ensure fair and equitable access to funding for member states, with no more than €60 billion available to any three member states under the proposal. The loans will be underpinned by a system of voluntary guarantees for member states and no more than 10% of all loans would fall due for repayment in any one year. For a lending volume of €100 billion under the SURE instrument, €25 billion in guarantee commitments are required from all member states collectively. This guarantee mechanism ensures member states do not have to pay any money upfront. The instrument will not become available until all member states sign up to their guaranteed amount. These commitments will remain in place for the full term of the loans which they are underwriting. Each member state contributes to the guarantee in proportion to its relative share in the total gross national income of the Union. For Ireland, this will be equivalent to just over €483 million.
SURE was adopted by ECOFIN Finance Ministers and published in the Official Journal on 19 May 2020. While the SURE instrument is a regulation which is directly applicable to Ireland, signing the voluntary guarantee agreement will require enabling legislation. This requirement stems from Article 11 of the Constitution which provides that all the revenues of the State "shall be appropriated for the purposes and in the manner and subject to the charges and liabilities determined and imposed by law".
As no member state can access SURE funding until all member states have signed the voluntary guarantee, the timeline for the introduction of this Bill is urgent. I will now outline the specific sections of the Bill.
Section 1 defines the commonly used terms in the Bill.
Section 2 outlines the circumstances for the application of section 8. The EIB guarantee fund can be formally established when member states representing at least 60% of EIB capital have made public commitments. Section 8 shall not apply unless and until that occasion occurs.
Section 3 allows the State to enter into the SURE guarantee and associated commitments and empowers the Minister for Finance to carry out the obligations associated with that guarantee.
Section 4 of the Bill permits the payment of a sum not exceeding €483,401,250 in aggregate out of the Central Fund under the State's obligations under the SURE guarantee.
Section 5 ensures all moneys received by or on behalf of the State by way of repayment of sums paid in accordance with the SURE fund will be placed in the Central Fund to ensure the Exchequer has access to them.
Section 6 provides for reporting arrangements on the operation of Ireland's part of the SURE guarantee. In the event of a demand being made under the guarantee, a report will be laid before the House within one month of payment of that demand and annually thereafter. The report will consist of any information or any sum paid by the State or repaid to the State under the guarantee. Each subsequent demand will be reported upon within one month in the same manner and is then included in the annual report.
The reporting arrangement ceases when the SURE instrument expires and when all outstanding commitments by or to Ireland are exhausted.
Section 7 confers on the Minister the power to enter into a contribution agreement and fund guarantee agreement with the European Investment Bank, EIB, for the purpose of committing to the pan-European guarantee fund. The guarantee shall be based on Ireland's shareholding in the EIB, the aggregate not exceeding €167.5 million, thereby capping the State's liability. If any amendment is proposed to be made to the contribution agreement or the fund guarantee, a draft of the proposed agreement providing for the amendment and containing the text of the amendment shall be laid by the Minister before Dáil Éireann and the amendment shall not be made unless and until a resolution approving the amendment has been passed by this House.
Section 8 permits payments related to the contribution agreement and fund guarantee to be made out of Central Fund for an amount not exceeding, in aggregate, the sum of €167.5 million.
Section 9 allows for any payments received by or on behalf of the State by way of repayment of sums paid in accordance with the contribution agreement and fund guarantee to be received by the Exchequer and to be returned to the Central Fund.
Section 10 amends the Strategic Banking Corporation of Ireland Act 2014 to remove an ambiguity with regard to the issuance of guarantees by the Strategic Banking Corporation of Ireland, SBCI. The amendment confirms that the Insurance Acts 1909 to 2018 and regulations relating to insurance made under the European Communities Act 1972 do not apply to guarantees made by the SBCI in the furtherance of its functions.
Section 11 includes a provision to allow for an award of the arbitral tribunal to be enforceable before the Irish courts in accordance with the Third Protocol to the General Agreement on Privileges and Immunities of the Council of Europe. This will allow and simplify potential future borrowing by the Housing Finance Agency and other State bodies from the Council of Europe Development Bank.
Section 12 provides for the Short Title, the Financial Provisions (Covid-19) Bill 2020, and its commencement.
I am confident the measures to be outlined as part of the July stimulus package will help us to kick-start the economy post lockdown and set us on the path to recovery. However, Ireland's response must also take account of the wider European Union and global context for recovery. As a small open economy with a global outlook, Ireland depends on a rule-based international order and robust global trading frameworks. A recovery at global and European levels will in turn support efforts at national level to restore the Irish economy to growth. Our membership of the European Union, guaranteeing access to a Single Market of over 450 million consumers and the EU's network of free trade agreements covering 72 countries, is central to our prosperity and the success of our businesses. Ireland will work with its EU partners to restore the European economy to growth and to ensure the smooth functioning of the Single Market.
As a member of the eurozone, we share a common currency with 18 other member states with whom we will continue to engage closely in the development of economic and monetary union. We also enjoy uniquely close ties with the United Kingdom and with the United States, enabling Ireland to act as a bridge between three major currency areas and to attract foreign direct investment.
The Government will also draw on Ireland's membership of the International Monetary Fund, IMF, World Bank and other international financial institutions to shape the global economic recovery and maximise opportunities and supports for Irish business. Engaging at the heart of the European Union with our fellow member states and strengthening our ties with the United Kingdom, the United States and a range of other global partners will play an important role in the Government's pursuit of national recovery and efforts to return the economy to growth. Participation in SURE and the pan-European pandemic guarantee fund is essential to this recovery effort.
To summarise, this Bill allows us to participate in two important EU Covid-19 pandemic response instruments. It supports access for workers on short-term schemes and in struggling businesses and is a strong signal of our willingness to stand in solidarity with other European Union member states. I commend this Bill to the House.