I move: "That the Bill be now read a Second Time."
Finance (European Stability Mechanism and Single Resolution Fund) Bill 2021 [Seanad]: Second Stage
We would like to hear what the Minister, Deputy Fleming, has to say about this Bill. He has all of 20 minutes if he requires them.
I thank the Ceann Comhairle and I appreciate that. There is much heavy detail in this Bill. It is about ratification of a treaty between the Eurogroup members within the EU. It is not specifically an EU treaty or an agreement. It involves the Eurogroup within the EU. There is a treaty in place. When people read the legislation they will note it is very short but it contains very long Schedules because it relates to a treaty. All the appendices in respect of the treaty and content are written in both Irish and in English in the Bill as presented. It appears a voluminous Bill but much of the content is due to the appendices being very large.
The purpose of this legislation is to seek the approval of the Oireachtas to ratify two amending agreements agreed between the Eurogroup last November, with the objective of strengthening the crisis resolution capabilities of the euro area. I stress I am referring to the banking sector for the information of people listening in to this debate. In summary, the two amending agreements provided for the reform of the European Stability Mechanism, ESM, as well as the introduction of the common backstop to the Single Resolution Fund, SRF, from January 2022, two years ahead of schedule. I will provide more detail on the content of the amending agreements, as well as the Bill, during the course of my opening statement. This agreement represents a significant political development following protracted political discussions and is a substantial milestone in the development of economic and monetary union.
The two amending agreements in question, the ESM treaty and the Single Resolution Fund intergovernmental agreement, IGA, were signed by the 19 members of the euro area, including Ireland, in January of this year and are subject to ratification. I acknowledge the tremendous work of the Minister for Finance, Deputy Donohoe, who, as chairman of the Eurogroup, was involved during this process. There was a great deal of effort and strong engagement on his part during the entire process.
The Eurogroup has agreed that following the appropriate ratification procedures in each of the euro member states both amending agreements should enter into force from the beginning of 2022. Our ambition is to progress Ireland's national ratification procedure swiftly over the coming weeks so that we can meet this commitment.
I will give a brief overview of ESM treaty reform. It is composed of four complementary and mutually reinforcing building blocks. The centrepiece of ESM treaty reform is the establishment of a common backstop to the Single Resolution Fund with the ESM as provider. The ESM is a little like the National Treasury Management Agency, NTMA, at national level but it will operate at European level in the banking sector with funds and the ability to borrow such that if there is a crisis in the financial sector, it will be dealt with through the ESM and the banks and the funds they will have in place and will not fall back to the taxpayer, as would have happened previously.
The common backstop necessitates amendment of both the ESM treaty and the Single Resolution Fund intergovernmental agreement. The backstop will be available as a last resort to support effective and credible crisis management within the Single Resolution Mechanism framework. Loans from the backstop to the SRF will be repaid via contributions from the European banking sector, meaning there will be no use of taxpayer funds. The common backstop will replace the existing ESM tool for dealing with bank failures, the direct recapitalisation instrument. The backstop better suits current regulation and the overall banking union architecture.
The Single Resolution Fund was established for the purpose of applying resolution tools and exercising resolution powers. The fund is financed by levies imposed on credit institutions at national level and member states entered into an intergovernmental agreement, which established a transitional period of eight years, during which time national contributions would be progressively mutualised into a common fund. These reforms will allow the backstop to come into operation two years ahead of schedule. This is a significant positive decision that marks another important step towards completing the banking union. When I refer to national contributions I am referring to contributions from the banks, not from the taxpayer.
The early introduction of the common backstop will bring real benefits and additional stability to the European banking sector while protecting taxpayer resources. As the backstop will be repaid by bank sector contributions, the resolution of a bank will no longer put taxpayer resources at risk. This is in line with our goal of breaking the link between banks and their sovereign states.
The second element of ESM treaty reform involves the modernisation of the ESM's financial assistance toolkit. The ESM's precautionary conditioned credit line, PCCL, is reformed to enhance its effectiveness in order to prevent minor crises from escalating into more serious ones that might make it necessary for the member state to request an ESM loan with a full economic adjustment programme. The PCCL is available to any ESM member whose economic and financial situation is fundamentally sound but which could be affected by adverse shock beyond its control. The reform standardises the application process for PCCL access making it more transparent and predictable.
The third element of ESM treaty reform provides for a stronger future role for the ESM in the design, negotiation and monitoring of future financial assistance programmes. The existing ESM treaty allocates the various tasks involved in the ESM's operations to the European Commission, the European Central Bank, ECB, and the International Monetary Fund, IMF. The political reality is that the IMF has stepped back over time from its role in euro area financial assistance programmes. It is therefore appropriate to clarify the roles of the institutions going forward in the amended the ESM treaty.
The fourth and final element of ESM treaty reform concerns the debt sustainability framework in the context of ESM financial assistance. A key principle of the ESM since its establishment is that financial assistance should only be provided by the ESM to member states whose debt is considered sustainable. This principle will be strengthened by three improvements to the ESM's debt sustainability framework. First, a new common methodology for conducting the debt sustainability analysis of a prospective programme country has been jointly developed by the ESM and the European Commission. The second improvement to the ESM's debt sustainability framework is the introduction of single-limb collective action clauses, CACs, in future euro area sovereign bond issuances. Collective action clauses are clauses in bond contracts, which allow changes to the terms of the bonds to be made subject to a vote by the holders of the bonds. This reduces holdout risk, that is, that a small group of bondholders decides not to partake in the restructuring, forming a minority to block it in the hope of getting a better deal for themselves. These holdouts can result in delays and deepen a debt crisis. The final amendment to the ESM's debt sustainability framework is the ESM's new role of facilitating dialogue between a member state and its private investors on a voluntary, informal, non-binding, temporary and confidential basis in the exceptional circumstances where a member state requires a restructuring of its debt.
I will briefly outline the content of the Bill. In essence, it is mechanical legislation - people will have detected that by now - which seeks the approval of the Oireachtas to ratify the amending agreements to the ESM treaty and SRF IGA. The Bill has eight sections and three Schedules, each comprised of two parts to include both the English and Irish language versions of the agreements.
Section 1 provides the definitions to the legislation and clarifies references to existing legislation contained in the Bill. Section 2 provides for the approval of the ratification of the agreement amending the treaty establishing the ESM by the Oireachtas. Section 3 provides for amendments to the ESM Act 2012. This includes a new definition of "Treaty" and an update of Ireland's paid-in capital to the ESM following the end of the temporary correction periods for three of the founding ESM members, namely, Malta, Slovakia and Slovenia, during the period between 2019 and 2021. Section 4 provides for amendments to the ESM (Amendment) Act 2014 and amending the definition of "Treaty" within to align it to the definition of "Treaty" in section 3 of this Bill.
Section 5 provides for the approval of the ratification of the SRF IGA amending agreement. It also provides that my Department will publish a notice of this intergovernmental agreement coming into operation in Iris Oifigiúil and on the Department of Finance's website, once the conditions in Article 5(2) of the agreement have been met. The purpose of this provision is to signal to banks and signatories of the intergovernmental agreement that it has come into effect.
Section 6 provides for amendments to the Finance (Miscellaneous Provisions) Act 2015. It redefines "Agreement" in this legislation. Section 7 provides that any expenses incurred by the Minister in the administration of this Act shall be paid out of moneys provided by the Oireachtas.
Section 8 is a standard section defining the Short Title of the Bill.
As I indicated, there are three schedules to the Bill, each composed of two Parts. Schedule 1 is the amending agreement to the treaty establishing the ESM treaty, schedule 2 is the text of the ESM treaty and schedule 3 is the intergovernmental agreement. All are set out in both the English and Irish language versions.
As I mentioned at the outset, the purpose of this Bill is to seek the approval of the Oireachtas to ratify two amending agreements agreed last November by the Eurogroup, which was chaired by the Minister, Deputy Donohoe, during that period. The agreement to reform the ESM treaty and bring forward a common backstop to the SRF represents an important step forward in the euro area. When the agreement is implemented early next year, it will make our monetary union more resilient, boost confidence in the euro area's ability to quell crises before they escalate and strengthen the crisis resolution capabilities of the euro area should they be required. I look forward to a constructive debate on the Bill.
I thank the Minister of State. That was fascinating. So much for plain language.
I welcome the opportunity to speak on Second Stage of this important legislation. We will scrutinise it further if it proceeds to Committee Stage. The purpose of the Bill, as the Minister of State set out, is to ratify the amending agreements between the European Stability Mechanism treaty and the Single Resolution Fund intergovernmental agreement. It is required in order to implement the agreement reached by the Eurogroup on 30 November last year and the signing of the ESM treaty reform in January this year. The Minister for Finance described it at the time as a crucial stepping stone on our path to strengthening the economic and monetary union. He has a real stake in this agreement as both president of the Eurogroup and chairperson of the ESM board of governors.
The provisions of the Bill and the agreements are substantive and consequential. I welcome the opportunity to explore them and for the Minister of State to present and clarify them. The ESM was established in 2012 as a permanent fund to provide loans to financially distressed euro area members, of which there are 19 in total. It is the permanent replacement for the European financial stability facility, EFSF. It was established with the superficial objective of providing loans to financially distressed euro area countries in order to safeguard the financial stability of the euro area member in question and the broader stability of the euro area. As we all know, assistance provided by the EFSF was subject to strict conditionality. In November 2010, the Government entered a financial assistance programme with the EFSF and the IMF. The memorandum of understanding that was entered into with the troika resulted in far-reaching austerity measures being implemented and imposed on the Irish people that caused great hardship and damaged our economic recovery. It was a treatment that made the patient sicker. Among the measures that flowed were cuts to the widow's, blind and invalidity pensions. The minimum wage was cut, there was a fiscal contraction equivalent to 17% of GDP and we saw cuts to public services that damaged families and communities.
The permanent successor to the EFSF is the ESM. It provides financing conditional upon the implementation of macroeconomic reform programmes designed and overseen by the ESM, the Commission, the European Central Bank and, in some instances, the IMF. Those programmes are, too often, ultimately informed by the ideological bias that favours austerity and privatisation. Currently, access to ESM financing amounts to a codification of the cap-in-hand process the troika meted out here during the financial crisis, applying imposed policy changes that did not work and will not work in the future. The issue of conditionality plagues the architecture of Europe. It is centre stage in the discussion around reforms to the fiscal rules. The stated worry of some is that, without conditions, funding will simply be wasted. In fact, the real issue is that those who impose conditions have done so from an ideological position that is counterproductive and, without accountability or oversight, undermines and damages citizens' interests and democratic rights. The fear of moral hazard has too often been used as an excuse to impose conservative ideology on countries. Some of those issues will be discussed in the course of this debate.
I will touch on three particular areas, two of which relate to changes proposed on foot of these agreements and through this legislation and the third of which is related to the second issue. The SRF was established on 1 January 2016 as an emergency fund for resolving failing banks. In this country, the Finance (Miscellaneous Provisions) Act 2015 implemented the original intergovernmental agreement on the SRF. The latter is funded and financed by commercial banks, with all banks and member states paying an annual fee that contributes to the fund. In this regard, I acknowledge that the SRF offers some protection to taxpayers in that it is the first line to pump money into a failing bank, after bail-in tools have been exhausted. Such tools have long been advocated for by Sinn Féin. We argued for them during the financial crisis and they are now part of the package across all European countries.
The agreements and this legislation provide for a credit line to be established between the ESM and the SRF beginning next year. They propose that the common backstop be used as a last resort when other options, including the bail-in tool, have been exhausted and only when the SRF is depleted. The ESM head of financial sector and market analysis has said the backstop will double the resources available to bank resolutions in the future, with a stated purpose of strengthening the resilience and crisis resolution capacity of the euro area. I note that this reform has been accelerated in the light of what are described as reduced risks, which is often code for securitisation. I ask the Minister of State to comment on this. I note, for example, that Permanent TSB, a majority State-owned bank, today sold off €390 million worth of loans to Morgan Stanley Principal Funding, with 57% originating from home loan products. Those loans have gone from a State-owned bank into the hands of funds at a time when many people have lost their jobs and income during the pandemic.
The Government has facilitated this by blocking legislation that would implement a requirement for the consent of families to have their mortgage loans sold in this way. Securitisation and the sale of family home loans to vulture funds is not risk reduction, but it is all too often the easy option for banks. This fact was noted even by the deputy Governor of the Central Bank, with Irish banks failing to work through the full suite of solutions under the code of conduct on mortgage arrears. In addition, the Dáil voted on a motion yesterday regarding the reserve fund for exceptional contingencies. While noting that the fund is empty and never really got off the ground, the legislation allows for the fund to be used for a capital injection into private banks in the domestic banking sector. Will the reform of the SRF in the legislation before us today make that provision redundant?
Returning to the changes envisaged, I note that any loans made from the ESM to the SRF under the new credit line would be paid back within three years from bank contributions, thereby meaning we would recoup any funds paid out of it. I acknowledge that this condition goes some way to decouple the dangerous sovereign bank link. I look forward to scrutinising the provision in greater detail.
On the second proposed reform, the agreements and legislation propose changes to the operation of the precautionary conditional credit line, PCCL. There are two types of credit line under the ESM lending toolkit, namely, the PCCL and the enhanced conditions credit line, ECCL. The former is available to member states only when they satisfy six eligibility criteria, such as public debt, structural balance requirements and others. Even under these agreements and this legislation, that will remain the same. There is no change in that regard. Criteria such as ensuring the member state that is applying for the PCCL has a debt to GDP ratio of 60% or less in the previous two years will continue to apply. These criteria are defunct, redundant and do not take account of the failure of the fiscal rules as they were implemented prior to the pandemic.
They fail to take account of the fact these rules must change to reflect the economic needs of member states and the level of investment required to respond to the climate breakdown. Even the European Stability Mechanism, in a working paper published in recent weeks, called for the debt-to-GDP ratio ceiling to be increased to 100%. Yet the legislation before us provides this line of credit can only be accessed if you hit the old defunct rules of 60%. The structural balance, relying as it does on measures such as the output gap, is not fit for purpose.
I recognise that other changes are envisaged. To date, both credit lines required a memorandum of understanding, MOU, that detailed the policy conditions to be implemented in exchange for financial assistance, often policies of austerity. These MOUs damaged economies, inflated hardship and bred resentment. Under the proposals, members applying for the PCCL will submit a letter of intent rather than be subject to an MOU, with that letter of intent outlining the members policies intentions and the proposals then being assessed with respect to the pre-existing legislation. It appears this seeks to replace imposition from above with proposals from below. Insofar as this is a change, I acknowledge it and believe it moves in the right direction.
However, in assessing the Bill it becomes clear that an opportunity has been missed, with no reforms whatsoever to the ECCL, the other line of credit from the ESM. Instead, all loans under this credit line would remain subject to a macroeconomic adjustment programme, with a memorandum of understanding negotiated and designed by the ESM and the European Commission, in liaison with the ECB and, in some instances, the IMF. These bodies are largely unaccountable and have displayed an ideological bias in the form of austerity in the past. We all recognise that austerity failed in the past and this new financial crisis, brought on by the pandemic, is not being resolved through austerity because of its past failure.
The agreement of 30 November, which this Bill seeks to ratify, provided no significant reforms to the ECCL. Such reforms could have been negotiated in line with those negotiated for the other line of credit, the PCCL. Therefore, as it stands, the architecture of the ECCL is not one we can support. We acknowledge the reforms to the ESM and the SRF but, taken with the opportunity for ESM treaty reform, this is clearly a missed opportunity. We cannot support maintaining a regressive architecture.
I look forward to further scrutinising this legislation, if it goes to Committee Stage, and the agreement it seeks to ratify at a later stage.
This is a highly technical Bill but it provides two main reforms, which I will deal with in moment. First, it is worth providing some background context on what the ESM is, what its forerunner was and what Ireland's previous experience with it was. While most ordinary people are probably not familiar with the ESM, they will surely be aware of what transpired and led us to requesting financial assistance from its forerunner, the European Financial Stability Facility. That was in 2010, a year when multiple Fianna Fáil Ministers told us there was to be no bailout. I recall the then Minister, Mary Hanafin, saying we were fortunate here to have such a good banking sector. It was a time when our former financial regulator told us our banks were well capitalised, only for the Government, before the close of the year, to turn around and go cap in hand to the IMF and EU seeking money for a bailout of the banks.
The money we received was to be the first package organised by the European Financial Stability Facility. We received a package of almost €5 billion, financed by a combination of the EU and the IMF. The first tranche of these funds was to be disbursed on 1 February 2011 when we would receive €3.6 billion. In order to receive this money, this State had to enter into a memorandum of understanding with the troika, which would lead to harsh, long-lasting and far-reaching austerity measures being imposed on some of the most vulnerable people in this State. It led to a mass exodus of many of our young people, some of whom never returned home. It also led to the sale of valuable State assets at knockdown prices, representing poor value for money, and has set back the process of economic recovery, as the European Commission now recognises.
The European Stability Mechanism, in its current incarnation, is similar to the European fiscal rules in that it is regressive. It is neoliberal in orientation and reflects the kind of erroneous, neoclassical economic thinking which has often pervaded in the EU institutions. However, in saying that, I recognise some of the reforms the Bill is trying to enact and they are an improvement on what is currently in place. The Bill's primary purpose is to ratify amending agreements to both the European Stability Mechanism treaty and the Single Resolution Fund intergovernmental agreement.
The Single Resolution Fund was established on 1 January 2016 as an emergency fund for resolving failing banks in the context of the banking union. It is financed by commercial banks in member states which participate in the banking union and thus offers some protections against taxpayer bailouts. The amendment before us seeks to create a line of credit between the ESM and SRF, a so-called common backstop, and this would be used under a scenario in which other options had been exhausted. It is welcome on the basis it goes some way to breaking the sovereign bank link or what is often referred to as the "doom loop".
Another welcome reform relates to the credit lines the ESM can access. I am, of course, referring to the precautionary conditioned credit line. Member states will not be required to submit a memorandum of understanding. Rather, they will submit a letter of intent outlining their policy intentions, which will then be assessed. Provided this new process is in good faith and member states will not be sent away until they come up with the reforms the EU wishes, this will be an improvement on the status quo.
One criticism which needs to be made, and which echoes the current problems with the fiscal rules, relates to the debt-to-GDP ratio criteria. The 60% debt-to-GDP ratio is unworkable. If a eurozone member found itself in difficulty tomorrow and tried to access this line of credit, the current debt-to-GDP ratio would preclude Germany, Austria, Greece, Italy, Portugal, Cyprus, Spain, Belgium, France and, of course, this country. Compounding this ridiculousness is the fact that where the fiscal rules are concerned, it seems likely there will be a significant upward revision of this ratio. The ESM criteria need to also recognise this.
I will mention the other line of credit member states can access through the ESM, namely, the line of credit for those countries which do not meet the criteria of the PCCL. This is known as the enhanced conditions credit line. A memorandum of understanding will still be required for this. For the connected financial assistance, the sale of public assets can be attached as a conditionality. This should be removed because, as we know, during such fire sales of state assets, good value for money is rarely had.
We have dealt with the technicalities and we all accept that, on some level, the need for a safety measure such as the European Stability Mechanism in a crisis scenario and that there will always be a need for emergency credit. However, everyone in this Chamber and beyond will remember the period of austerity, when we dealt with the EFSF, the forerunner of the ESM, and we had the memorandum of understanding with the troika which was not especially understanding. The European Union recognises at this stage that austerity is a failed policy. However, this legislation fails to deal with the weaknesses that exist and that will remain until we get serious about the European Stability Mechanism.
I accept what has been said about the SRF and that there are certain protections for taxpayers and citizens in the event that banks need emergency lines of credit. That is to be welcomed but the fact is that we are still failing miserably. There has been much talk about debt-to-GDP ratios in that it is a system that will not work when a line of credit is needed. We are talking about the PCCL and the ECCL. I am sure we could add 14 more acronyms and we would all be better off for it.
The fact is this is part of the status quo as regards fiscal constraints. We all accept that there is no magic money tree and we all have to operate within fiscal rules. However, we must look at the situation in which we have found ourselves during the pandemic. During that period, the European Union and other entities were able to suspend rules. They were able to do things and change rules that people in this State and this Chamber had said there was no chance of changing. They were changed because it was absolutely necessary to do so.
We are not where we would like it to be as regards the pandemic. We have not moved beyond it and we are still dealing with day-to-day difficulties. Beyond that, and in the context of COP26, it is fair to say there are many other crises, of which climate change is a huge one. There is a lot of talk about the European Green Deal, European green bonds and just transition. We need to change the fiscal constraints and fiscal rules to allow for what needs to be done. The big step up across Europe is the fact that, as has been the case in the pandemic, states are going to have to do the heavy lifting. It is not enough to impose carbon tax and pressure on individuals. We will need to change the fiscal constraints. We will have to give ourselves the ability to do what is necessary and take the required actions. We are about to enter into what can only be compared to a wartime situation. We need to deliver because we are running out of time. We do not have the constraints in this particular situation or in the situations we are going to enter.
Sadly, like the Minister of State, I am familiar with all of the terms and acronyms in the glossary of the Bill. It is complex and technical legislation but an extremely important Bill nonetheless. The Labour Party will support its passage on Second Stage on a qualified basis. We look forward to going into the legislation in more detail when it comes before the committee.
The Minister of State and the Ceann Comhairle will be pleased to learn that I do not intend to use all my time. Similar to the Minister of State, I view the time provided as a ceiling rather than a target, especially on a Bill like this. While it is mechanical and technical, it is nevertheless an extremely important Bill. It is important from a number of different perspectives, not least insofar as it will give us a sense of how far the EU has evolved since the financial crisis and the way in which the EU deals with anticipated financial crises that impact on the eurozone and the EU more generally.
All of us who lived through the financial and eurozone crisis of the late 2000s and early 2010s, especially those of us who were charged, as legislators and in some cases as Ministers, to clean up the mess, will have a particular perspective on this Bill. We also have a particular viewpoint on the role of the European Union, the European Central Bank and the International Money Fund in providing resources to the State at a time when the reality was that nobody else would do so. The conditions attached to those resources were extremely onerous.
This was new territory for Ireland and the European Union. It was a far from perfect package of support, coming as it did with strict conditionality to which the Government in the period from 2007 to 2011 signed up. The response of the EU and the European Central Bank to the Covid-19 crisis and the implications of that could not be more different. That is a point worth it making.
The Bill before us asks us to effectively ratify the major reforms the European Stability Mechanism treaty, which was signed late last year. The reforms show us, at least to some degree, that many of the lessons of the financial crash and the way in which the EU managed the response have been learned and, to a degree, applied. That being said, there are, as colleagues on this side of the House enunciated earlier, still levels of conditionality attached to certain types of supports that are concerning and require further scrutiny.
The ESM was established in 2012 as the permanent crisis management mechanism for the euro area in response to the crash and financial crisis. The EU more generally, the ECB and the mechanisms available to the ESM board swung into action rapidly in May 2020 to approve, for example, the pandemic crisis support credit line to help address the financial and health implications of the Covid-19 crisis across the European Union. In that instance, the EU acted together with great solidarity and care. That reflected the idea of the social Europe, an idea in which I believe and which should be the driving force of our connection with and loyalty to the European Union as a State that has pooled its resources with that combination of states.
The steps taken by the EU and the firepower available to member states through the ESM financial assistance are all substantial. It is worth reflecting on that. The ESM can provide members with loans to cover financing needs, loans on direct equity, injections to recapitalise banks, primary and secondary debt market purchases of member states national bonds, and credit lines to be used as precautionary financial assistance.
The new reforms we are debating were undoubtedly made more urgent by the challenge of the pandemic and the way in which the economic shock could have impacted on the stability of the eurozone and confidence in the EU's ability to act swiftly and intervene collectively to avert any ensuing banking, financial or social crisis. The reforms are a welcome evolution. They show me that the idea of solidarity is alive and well in the EU, although it can always be improved.
The EU is a work in progress, as is democracy itself. Klaus Regling of the ESM put it well when he said that the reforms "fortify the euro area against future shocks" and the agreement "broadens the EU’s mandate to safeguard the common currency". However, it is about much than a common backstop for the Single Resolution Fund, SRF. It also provides for a more rapid and collective response to extreme financial shocks that might befall an ESM member state in the future. That is reassuring given our experience in this country.
The reforms will undoubtedly make it somewhat easier for a country to access lines of credit more quickly and to a degree less onerously than Ireland did just 11 years ago this month. We are approaching the 11th anniversary of the troika bailout. This element of the reform package can only be a good thing given our experience in the past.
We have discussed in this Chamber, with the Minister of State, the Minister for Finance, Deputy Paschal Donohoe, and others, the fact that all of the indicators are that the EU is preparing for the swift reintroduction of the fiscal treaty rules when it determines that the circumstances, as it would see them, allow. I have said before that the fiscal treaty rules were reflective of an orthodoxy that existed ten or 11 years ago. They bear little relationship to the conditions on the ground today and what is needed across the European Union and in this country. The pandemic has exposed this fact.
I hope there is the collective insight and humility among EU member states and at European Commission level to accept and understand that a thriving post-pandemic Europe needs to see these rules changed to allow for greater levels of public investment in order to make Europe more resilient to future shocks we say we are concerned about avoiding or mitigating. The fiscal rules, as they stand, will still require a general government deficit not exceeding 3% of GDP and a debt-to-GDP ratio below 60%. This especially hampers Ireland, due to our skewed GDP figures and other circumstances. We believe the fiscal rules have to be reformed to take account of the need for countries like Ireland, with low levels of general government expenditure, to catch up on housing, transport, health and education and to invest in climate adaptation and mitigation over the next ten to 20 years.
The sensible option - indeed, the only option - available to us in 2012 when we were considering the fiscal treaty bears little relationship to the needs and demands of 2021, 2022 and beyond.
I would welcome the Minister of State’s views at the conclusion of this debate on where the Government stands on the review of the fiscal treaty rules and whether he believes they should be reformed to allow Ireland to do the things we all say this country needs to do in the future.
I call Deputy Cathal Crowe who has seven minutes.
I will be hard pushed to use seven minutes, so I will follow the lead of Deputy Nash in that regard. I apologise to Deputy Shortall. I think I have taken the seat of the leader of the Social Democrats. I did not mean to do so but I like this seat. It is like the front row of the circus as we get to see people when we are talking to them, which is important. It also carries a level of risk.
We thought you were moving to the left.
I think I am already on the left. Sitting here carries a risk.
It is very elastic.
I have noticed on the cameras in the last few weeks that the bald patch is visible when sitting here but if I am up at the back of the Chamber, I can pretend I am younger and still have thatch on the roof.
To make a serious point, this is a technical Bill. It is not the most exciting thing we will do over the next 48 hours in the Dáil. I support the Bill, as does my party in government, because it ratifies amending agreements to the European Stability Mechanism treaty and the Single Resolution Fund intergovernmental agreement. The reform of the ESM treaty signed in January of this year is a crucial stepping stone on the path to reinforce economic and monetary union and a significant accompaniment to our efforts to support economic recovery. It will boost confidence in the euro area's ability to quash crises before they escalate further.
All European area member states are required to ratify both amending agreements in order to implement the Eurogroup agreement of November 2020 on ESM treaty reform and the introduction of a common backstop two years ahead of schedule. The Eurogroup agreement addresses a crucial gap in the banking union by empowering the ESM to act as the common backstop from January of next year. The agreement further develops the ESM's precautionary financial assistance instruments and improves the operational effectiveness of the institution overall.
This is good legislation. It is not especially exciting but it is a necessary part of being a member state of the European bloc. It helps us to build further resilience as we negotiate our way through the Covid crisis. It helps us, leaning on our European partners, to have stability to keep the finances of the Union intact and protected.
If the Ceann Comhairle will give me a minute of forbearance, I will move to another area within the Minister of State's remit, namely, insurance. I promise I will catch up on time. Risk equalisation is a substantial factor for people whose homes are flooded. It is a principle that is applied wrongly and unfairly by the insurance industry. We have had it multiple times in County Clare, where one or two homes may have flooded but thousands pay the price in their insurance premiums. It is holding up the sales of houses in housing estates in the south of the county. It is causing sales to fall through because when banks carry out their due diligence, they often will not lend to somebody when flood insurance coverage cannot be obtained for the house. This area needs to be reformed.
The final point I will make is also on an issue within the Minister of State's remit. HomeBond is the largest insurer of building projects in the country when it comes to self-built and privately built dwellings but it is not stepping up to the plate with regard to pyrite, mica and defective blocks. I have tabled a number of parliamentary questions in this regard. The Minister of State has oversight of the insurance sector. It needs to step up to the plate. It cannot all be down to the Houses of the Oireachtas and the taxpayer. Something has to be done. HomeBond has got off scot-free so far as far as I can see, as have others in the industry, which is supposed to be a safeguard for homeowners who have put every penny they have earned into building a house, only to see that rug pulled from under them. I ask the Minister of State to step in and seek to have them back at the table to offer redress to homeowners.
The Government is once again bringing through EU legislation that will have no impact on ordinary people. We were quick to utilise the EU when it looked like the Government's pals in the banking industry were in trouble, to borrow money to save them, but for ordinary people trapped in the housing crisis, the Government refuses to listen to leading experts who say we should use the EU and the advantages that it brings to borrow money to fund housebuilding.
In response to a parliamentary question that I tabled about the ESRI report suggesting we use EU funds to build more houses, the Department is quoted as saying, "Jaysus, that is not helpful." Who is it not helping? Building more homes would help the families I deal with every day, who are losing hope of ever having a secure home. It would also help the elderly people who feel trapped in homes that are too big for them because there is nowhere to downsize to. It would help the children who are the future of our State and give them stable homes in which to grow up. Outside of the Department, the only people who think it is unhelpful are developers and speculators who are profiting from the current housing crisis.
We are once again here talking about legislation to bail out banks. Where is the fund for local authorities to be bailed out? Local authorities, including Cork City Council and Cork County Council, are still feeling the consequences of the austerity measures that were forced on the Irish Government and people in 2010, 2011 and 2012. As a result, Cork City Council is running a budget deficit this year of €1.5 million. It needs to cover housing maintenance, playgrounds, cycle lanes and traffic calming, which will all be hard hit or even completely eliminated in some places. If, due to dodgy deals and downright corruption, banks go bust, we are expected to bail them out again. People in my constituency do not want to bail out any more banks. They want to be able to have their boiler serviced, go to local playgrounds that are maintained and have roads that are safe to walk and cycle on. We know the EU offers an ability to borrow money at extraordinarily low rates. We should be using that to build houses and fund local authorities.
I welcome many of the provisions in this Bill but I also have concerns which I will refer to over the next few minutes. The European Stability Mechanism has been important in providing financial assistance to EU member states experiencing a crisis and so safeguarding the stability of the wider euro area. The Single Resolution Fund, focused as it is on resolving failing banks, is also important in the context of the banking union. In being financed by contributions from the banking sector rather than by taxpayer money, it shows that at least some lessons have been learned from the financial crisis of 2008 and 2009. Had some of these provisions for economic and monetary union been in place in 2008, it is unlikely that Irish taxpayers would have been left footing the substantial bill that we were.
When the Minister of State and Minister first began to attend the meetings that led to the agreement referred to in this Bill, their Department stated that they and their colleagues in the Eurogroup would make important decisions that would help to shape the eurozone in the years ahead. The question is whether the shape that emerges is one that fully addresses the challenges that Ireland and our fellow EU member states face.
This Bill is largely about deepening the economic and monetary union. There are some positive points in it, as I have already noted. Ireland, perhaps more than any other country, is aware of the importance of ensuring that a repeat of what happened with the banks a decade ago is impossible. Improving resilience to future economic shocks and facilitating sustainable and inclusive growth for Europe's citizens were among the stated aims of the negotiations which brought about the reforms we are now discussing. These were laudable and appropriate. As I have already alluded to, it cannot be understated how important it is to improve resilience to economic shocks. However, I do not see what in this Bill will do anything to drive inclusive growth. Perhaps the opposite is likely, given that the Bill does nothing to enhance the kind of flexibility around fiscal policy that would allow Governments to pursue such growth.
I will elaborate on that in a few moments. Questions arise about the direction of travel being taken. Economic and monetary union can have its positives but we can be sure it has negatives as well. For example, the Stability and Growth Pact is used to "maintain stability" of economic and monetary union. That fiscal monitoring of EU member states by the European Commission has some obvious negatives that I will address now. I acknowledge the Stability and Growth Pact was suspended to allow for the economic and fiscal repercussions of the Covid-19 pandemic but we have been repeatedly informed that these rules are coming back and the window in which they do not apply will be a short one. Surely the economic consequences of the pandemic and the need to temporarily suspend the Stability and Growth Pact is evidence enough of the need for increased flexibility on a more permanent basis within the key elements of economic and monetary union. The suspension of the pact was tacit acceptance of its limitations but long before the pandemic, there was criticism of the pact from the point of view of its insufficient flexibility and the need for the rules around deficits and debt to be applied over the economic cycle, as opposed to in any single year.
Given that EU member countries no longer control their own monetary policy, fiscal policy is governments' only significant mechanism with which to react to economic shock. By limiting governments' ability to spend during economic slumps, the rules risk intensifying recessions and hampering growth. That is clear and it is a danger that has not been acknowledged by the Minister of State. This is one of economic and monetary union's most obvious practical weaknesses. When a recession lingers for several years, it makes good economic sense to implement fiscal stimulus, especially if a recession is deepening. However, the fiscal rules as currently constituted allow, at best, the slowdown of some postponement of fiscal consolidation. The rules are not designed for the type of persistent recession the EU experienced after 20008. Other countries suffered worse than Ireland from this in the past decade but there is the prospect that Ireland could face such challenges in the near future. There are too many aspects of economic and monetary union that have led to pro-cyclical fiscal tightening across Europe in the past decade. Such policy likely played a role in prolonging the recession and increased unemployment in many countries, including Ireland. The excessive pro-cyclicality of fiscal rules, therefore, undermines the stabilising ability of fiscal policy.
It is not only economic shocks that require fiscal flexibility and the ability to react according to circumstances. It is not news to anyone in this Chamber that Ireland is and has been for a number of years facing a raft of crises in different policy areas, most notably health and housing, and has now committed to taking extraordinary and unprecedented action to reshape our economy and society in order to meet our international climate-related obligations. These are the areas I alluded to when I talked about the need for inclusive growth and for flexibility of Government policy in achieving this. These areas will have perhaps the greatest influence on living standards in this country in the coming decades. I fear that in spite of the obvious need for significant Government intervention in housing, health and climate, Ireland will continue to be severely constrained in our ability to borrow to finance even the most productive investments. I made the point the other day that if a company chose not to borrow in order to invest, it would not last terribly long and the same basic rules apply to an economy.
It is clear that increased Government intervention in the housing sector will be necessary to meet our targets there. This was spelled out clearly recently by the ESRI. The Government is involved in the most ridiculous housing policies, most notably in relation to long-term leasing, where the State is entering agreements with investment funds for 25-year leases where we end up paying close to market rents on thousands of apartments for the purpose of social housing. We pay high rents, are committed for 25 years and the State has to look after the sourcing of tenants and must ensure maintenance in that period, including with issues arising from tenants or vacancies. At the end of 25 years, the State is obliged to refurbish the apartments and hand them back. After forking out what amounts to a mortgage in rental payments over 25 years, the State is left with no asset. It is ridiculous and makes no financial sense. It would be far more sensible and cost-effective for the State to borrow, which it can do currently at low interest rates. It can borrow ten-year money for 0.25%. It would make sense from a financial, economic and social point of view to borrow the quantum of money the ESRI referred to and to invest in social and affordable housing. For some unknown reason, the Government will not do that. One has to ask why on earth not, when it is so obvious and makes so much sense.
It is also clear the reforms outlined in Sláintecare have received insufficient financial backing, which is part of the reason for the almost imperceptible levels of progress in a key element of any civilised modern society, namely, a functioning public healthcare system that meets the health needs of citizens and contributes significantly to reducing the cost of living.
It is perhaps in the area of climate mitigation where there is the most obvious rationale for rejecting the fiscal rules and directing significant investment into public transport projects and renewable energy generation. Last month in our alternative budget, the Social Democrats advocated significant borrowing, which we can do at negligible interest rates at the moment. We advocated borrowing in the range of €5 billion in order to capitalise a green transformation fund, which would be used to fund some of the projects necessary to transform Ireland's economy and help us on the road to carbon neutrality. It is obvious that the State should be investing in this critical area, in relation to the grid and to the development of sustainable and clean energy sources. We can do that and anything that brings a return of more than 0.5% makes sense. Why are we not borrowing during this narrow window available to us when the fiscal rules have been suspended and investing heavily in alternative, secure and clean sources of energy generation? As it makes sense to do that, why are we not doing it? Why are we leaving this key element of our economic and social activity to the market?
Why is the State not setting up a semi-State body to take control and to develop sustainable sources of energy generation? The return on that is obvious and it makes sense.
We outlined the goal of making Ireland a net exporter of renewable energy in the years to come. It is doable. Let us imagine if the Government got the country to a point where we could do that. It is hard to fathom why this option, which is open to us at this point, has not been grabbed with both hands. With the temporary suspension of the fiscal rules, Ireland has a narrow window of opportunity to utilise historically low borrowing costs to capitalise the fund. Without the necessary reform of the European Stability Mechanism, we will have no scope to do so once the suspension ends, despite the clear and obvious economic, social and strategic rationale for ensuring State involvement in and control of such an important and potentially lucrative sector of the economy.
Why are we not doing this, as the country faces into a situation where there have been several increases in energy costs that are putting such a huge burden on households? In short, European fiscal rules have not been sufficient either to ensure the sustainability of the public finances in the medium term or to allow countries to meet fiscal needs in a dynamic economy, nor do they offer flexibility when countries are faced with extenuating needs and circumstances, as Ireland is. It is clear that frameworks to improve and enhance fiscal sustainability have a place but I argue that the current structure is found wanting. That is without getting into the lack of proper enforcement measures or the hypocrisy of the situation that has seen Germany and France running what would be considered excessive deficits under the pact for a number of years, while resisting any enforcement of sanctions against them due to their size and influence. That is a strategy Irish Governments have seemed unwilling or incapable of pursuing.
There also seems to be an issue with the precautionary credit lines noted in the Bill. There are two available credit lines in the European Stability Mechanism's lending toolkit – a precautionary conditioned credit line and an enhanced conditions credit line. It looks to me like the eligibility criteria for the precautionary line will make it quite likely that it will never be used. Countries availing of it must meet three conditions in the two years preceding the request for financial assistance. First, they must have a general government deficit not exceeding 3% of GDP. Second, they must have a general government structural budget balance at or above the country-specific minimum benchmark. Third, such a country must have a debt-to-GDP ratio below 60% or proof that the country is reducing its stock of debt by an average rate of one 20th per year over the previous two years. Given current and future debt levels, one would have to seriously question the last condition about debt-to-GDP ratios, or the need to be already reducing debt. It makes it quite likely that this precautionary line of credit will not be available to the countries most likely to need to avail of it.
The only reason Ireland might qualify for access at present is the overstated impact of multinational companies in our national income numbers, which would allow us to come under the 60% threshold and fulfil the precautionary credit line criteria. I would welcome if the Minister of State could address those issues. The Social Democrats will not oppose the Bill on Second Stage. We will consider how the debate goes in further Stages.
I extend my sympathy to the family of Austin Currie, including Senator Emer Currie. I also extend my sympathy to his party colleagues and wide circle of friends. He was a distinguished human rights campaigner, co-founder of the SDLP and a former member of this House from 1989 to 2002, serving as Minister of State with responsibility for children from 1994 to 1997. Prior to his election to this House, he was elected as a Nationalist Party MP to the Northern Parliament at Stormont, representing the constituency of East Tyrone from 1964 to 1972, until that body was abolished, and direct rule reintroduced after Bloody Sunday. My family hail from Coalisland, County Tyrone, and his efforts on behalf of constituents there are still remembered to this day.
I will turn to the Bill before the House, the Finance (European Stability Mechanism and Single Resolution Fund) Bill 2021, which ratifies amending agreements to the ESM and the SRF intergovernmental agreement, IGA. As noted, the reform of the ESM treaty, signed in January, is a crucial stepping stone on the path to reinforce economic and monetary union and is a significant accompaniment to our efforts in supporting economic recovery. It will help to boost confidence in the euro area's ability to quash crises before they escalate. All euro area member states are required to ratify both amending agreements in order to implement the Eurogroup agreement from November 2020, in relation to ESM treaty reform and the introduction of the common backstop to the SRF, two years ahead of schedule.
The Eurogroup agreement addresses a crucial gap in the banking union by empowering the ESM to act as the common backstop to the SRF, from January 2022. In addition, the agreement further develops the ESM's precautionary financial assistance instruments and improves the operational effectiveness of the institution.
As the Minister of State highlighted, euro area member states have committed to completing their respective national ratification procedures by the end of 2021 to enable the amending agreements to the ESM treaty and the SRF intergovernmental agreement to enter into force at the beginning of next year. It is a largely technical amendment and many of the changes and reforms are welcome, moving from a situation where states that need to access ESM support agree to a memorandum of understanding to a state-prepared proposal.
I note some Members of this House dismiss the legislation as having no impact on Ireland. This misses the point. The European project is about more than one state, it is about EU solidarity and all of us working together with other EU states to make the Union stronger. The Bill strengthens the stability of the eurozone and ultimately the EU. This stability underpins the Irish economic model and ultimately Irish jobs, so we can see it has a critical impact on Ireland and our people. I hope Members from across the House will support the Bill. I welcome that the last few Members spoke in favour of it. I hope there will be full support for the Bill across the House and that when it comes to the final Stages, Members will see fit to vote for it and we will see unanimous support for the Bill.
As a member of the Regional Group, I would like our group to be associated with the comments of the previous speaker, Deputy Devlin, in respect of Mr. Currie.
The purpose of the Bill is to ratify amendments to the European Stability Mechanism and the introduction of the common backstop to the Single Resolution Fund. The policy paper suggests that the agreement represents a significant political breakthrough and is a crucial stepping stone on the path to strengthen Europe's economic and monetary union. Based on the amount of borrowing all European countries are doing at the moment, there is no doubt that we are in a very cohesive monetary alliance.
It is proposed that approving these changes will strengthen the resilience of the euro area and help with future crisis management. That is to be commended. It has been agreed to give the ESM an enhanced mandate with improvements to its toolkit of financial instruments' and a stronger role in future economic adjustment programmes. The question is how that will play out in terms of future fiscal rules and frameworks.
Although many people in Ireland might not have interest or regard for the technical nature of this Bill, they will certainly understand and probably have an intimate history with many aspects, namely, our request for European support funding back in 2010 as part of our application to the IMF and the subsequent visits of the troika here to rechart our national economic management post 2010, when we saw the institutionally-imposed austerity which has scarred so many of us in this society and continues to do so.
This agreement has pledged to address a crucial gap in the banking union by empowering the ESM to act as the common backstop to the Single Resolution Fund and, therefore, it assumes that the common backstop can provide a financial safety net for bank resolutions within the banking union. Based on our history, that is certainly something we could have done with in the past, although, hopefully, we will not have need of it in the future. The size of the credit line will be aligned with the SRF funds, with a target level of 1% of covered EU deposits in the banking union and with a cap of €68 billion, so there is significant firepower there, without a doubt.
There are elements within the treaty reform that are technical in nature. The common backstop to the Single Resolution Fund and reform of the precautionary conditioned credit line will ensure the fund is made up of contributions from credit institutions and investment firms in the 19 participating member states within the banking union and, therefore, ensures the financial industry as a whole ensures the financial stabilisation of the system. That brings up the question that, if we were back in 2010, would we have had to cover bank debts and, ultimately, would every citizen in Ireland have paid a price for covering the bondholders. I am not sure where that lies. I presume that when this legislation goes before a committee, some of these issues will be addressed.
There is no doubt we are in a very important monetary cohesion system and we are very grateful for it in terms of the borrowing we are doing to facilitate spending on Covid in particular. However, I would ask at what cost. We know the national Government is certainly borrowing cheaply from the European framework but that is not cheap when it comes to things like mortgages, and we are still supplementing mortgages with interest rates to potentially restore our own banks' balance sheets, which were wiped out through the banking crisis. The question has to be asked as to how long more will borrowers in Ireland continue to pay rates that are significantly, sometimes 50%, above what our European peers are paying. This is a competitiveness threat and an ongoing competitive disadvantage to the businesses in this country.
We also question the oversight that is at present being implemented in terms of our national bank borrowing arrangements. Given the State is borrowing at a very low rate, it makes it very easy, first, to borrow but, second, it often derives very poor value for money. The best time to make a borrowing application is when a person does not have the money and badly needs it. When there are onerous terms to the lending, it will make people look long and hard about the spending they are going to do and the proposed oversight that is going to be implemented. This is an area that Ireland Inc. has to be very careful about.
As I said, there is no doubt we need European stability at the moment, particularly in light of where Brexit is at and where it is potentially heading to. European borrowing frameworks are required but Ireland has probably suffered quite a bit under them, and other Deputies have outlined our inability to go beyond structural frameworks in terms of investment in transport infrastructure, for instance. We will have to see the new direction and where these frameworks are going to take us. We do not have a choice but to support and pass this proposed legislation. There are benefits, as has been outlined, but there are probably some shortcomings and I hope these will be identified in committee.
More importantly, as I said, the fact we have access to cheap borrowing rates is not a reason for us to go out and essentially throw money everywhere without significant oversight. I have brought up in the House before the lack of clarity on the spending that Deputies are asked to vote on. We come in here periodically and we are asked to vote in favour of voted expenditure without seeing where the money is spent. We have a significant situation in this country all of the time where we do not have sight of all of the spending, rather than the borrowing, that we are doing in this country. I wish to see that rectified into the future.
As no other speakers are offering, I call the Minister of State.
I thank all of the Deputies for their interesting contributions to this debate. As most have said, it is a technical and detailed debate but, nonetheless, it is very important for the stability of State finances and the banking sector across Europe. To conclude today's discussions, I want to reiterate the purpose of this legislation and then respond briefly to some of the issues that were raised by Members. Obviously. there will be a more detailed, one-to-one discussion on Committee Stage.
The reforms outlined in the amending agreements of the ESM treaty and the Single Resolution Fund intergovernmental agreement are intended to enhance the mandate of the ESM in order to further strengthen the resilience and crisis resolution capabilities in the euro area. The main provisions of the Bill seek Oireachtas approval to ratify both amending agreements to the ESM treaty and the SRF IGA. The key purpose of the amending agreement is to strengthen the crisis management and resolution capabilities in the euro area. The financial and sovereign debt crisis of the previous decade highlighted a number of weaknesses in Europe's crisis management systems, which have resulted in significant developments to the architecture of the euro area since 2010.
In fairness, the EU is a relatively new concept and is only a couple of generations in existence. The euro is quite a new currency and I was here in the Dáil when it came in. While we launched the euro, all of the infrastructure that goes with it has taken time to follow. Obviously, we want to strengthen all of our management systems because we have a common currency now across many of the countries in the EU through the euro, that is, all those countries that participate in the Eurogroup. It is important, as time goes on, that we strengthen the infrastructure and architecture behind the currency because what happens in one country can impact on another country. In layperson's English, we have a joint bank account when it comes to our currency and if something happens in one area, it can have an impact in other areas as well.
The establishment of the two rescue funds as a temporary European financial stability facility in 2010 and a permanent ESM in 2012 closed an institutional gap in the European Monetary Union, namely, the absence of a lender of last resort for euro area sovereign states. In addition, during the period between 2014 and 2016, we saw the establishment of the banking union, which introduced EU-wide banking supervision, the Single Supervisory Mechanism, and the common resolution mechanism for failing banks, the Single Resolution Board, which is the central resolution authority within the banking union, backed by the Single Resolution Fund, which is composed of contributions from the EU backing sector. I stress again what I said in my opening remarks, namely, the contribution to these funds will be from the banking sector, not from the taxpayers in the individual countries. The Eurogroup agreements regarding the ESM treaty reform and early introduction of the common backstop to the SRF will build upon the architecture that has emerged over the past decade by adding firepower and credibility to the bank resolution regime in Europe via the common backstop, as well as improving the effectiveness of the ESM as an institution.
Various points were made in the debate. Much of the debate centred on what happened in the crisis of over a decade ago and the introduction of the IMF, with the European Central Bank and the European Commission, at the time known as the troika, and the various conditions. People were almost saying this is going to happen again under this new regime. It absolutely is not. Anybody who has witnessed the European response to the Covid-19 pandemic will see that people on this occasion, and governments right across the EU, looked after citizens right through Covid-19. There was great solidarity within each country and between the countries of the EU. There has definitely been a clear sea change in regard to those issues. Some compare the new situation and what happened ten or 15 years ago and say it proves the same ideology is ruling in Europe, but I think Covid has proved the opposite is the case. The EU has changed its rules.
For example, I do not know how many times over the years we talked in this Chamber about the cost of medicines from the pharmaceutical industry in Ireland and the billions we spend. I was asked why we do not work with other EU countries to buy collectively from the main pharmaceutical companies.
Look at what happened during Covid. That bridge was crossed in a quick way and in a way that will benefit us all. The idea of solidarity between states is strong as a result of Covid-19. While there is no good side to Covid, we have learned lessons as European citizens and we are working together on that.
The SRF was introduced in 2016 and it was the first kind of funding for banking in trouble. There is a suggestion that our rainy day fund can be used to invest in banks. That fund was utilised during Covid and it reduced the need to borrow. The €1.5 billion that was in the fund came out and the debate we had yesterday was on not putting €500 million back into the fund while we are still dealing with Covid and while there are many immediate priorities. I understand the comments about the rainy day fund. When it is safe and prudent to do so, we will continue to commit €500 million per year into that fund, as was originally intended. We had a resolution yesterday, requiring a vote, to allow the Minister not to deposit €500 million this year.
We have had much debate in the House about the PCCL, which is reformed under the ESM. There was also a discussion on the ECCL available to member states that do not meet the PCCL eligibility criteria. It is important to stress that these matters are relative to the state concerned. These funds are not about bank bailouts but about supporting individual states. It was mentioned that to meet the PCCL eligibility criteria a state must have an approximately 3% deficit or be in budget balance or have a framework to do that and the debt to GDP ratio must be 60% or the state has to have a clear path to reduce that ratio to 60%.
I was asked about the role of multinationals and I confirm that GDP ratio is based on GDP, not GNI*, which excludes the multinationals contribution to the Irish economy in making up those figures. There have been references to the fiscal rules and it has been said that most countries might not be able to meet those fiscal rules and that they might be forced to go into the ECCL, which can be more restrictive. The reason for that is that this will concern states that have a weaker financial situation than other member states. Those states will probably need a more hands-on approach and careful management and there would have to be a memorandum of understanding.
On the PCCL, I note the reference to EU fiscal rules by many Members. Deputies have rightly pointed that out and said that those rules have been suspended during Covid. A period of consultation has been launched to update the fiscal rules. If Members have views on this, they should contribute to this debate. If there are changes to the fiscal rules, they will be reflected in the new PCCL rules and regulations that will apply. Those rules will flow from the fiscal rules.
Deputy Shanahan said there is never a great debate on spending where somebody does not say we should be spending more and I concur with him on that. I have a simple figure I use when we talk about the national debt. There is a debt of €50,000 on the head of every man, woman and child in Ireland. Every time we have debates like this, Members say we should spend more on this, that and the other. We need additional expenditure where it is prudent and important but every time we require additional expenditure and borrow money, I ask Members what we should shove that debt of €50,000 up to. People do not think about that but if one thinks about it in one's household context, it is a clear situation and it is a high bill. We need to look at that and we have to be careful about loading debt onto other people. Those were the main points that were mentioned. The interest rates and the issue of State spending have also been mentioned. I commend the Bill to the House.