JOINT COMMITTEE ON EUROPEAN UNION AFFAIRS debate -
Thursday, 15 Sep 2011

Middle East Peace Process

Chairman

Members of the joint committee are welcome back. I particularly want to welcome the Secretary General of the Department of Finance, Mr. Kevin Cardiff, and his colleagues. I apologies for keeping them waiting, but there always can be unexpected votes in the House, which delay us to a considerable degree at times.

We have invited the witnesses in to discuss the Council of the European Union agreement of 21 July 2011. Mr. Cardiff and his colleagues have kindly accepted our invitation. He should feel free to expand beyond those decisions and some of their future implications.

We invited Mr. Cardiff to give his remarks in private, but he has kindly agreed to give them in public. At the end of the session we can go into private session if we wish to discuss further some items privately. I thank the Secretary General for attending this committee so readily.

At the outset, I would remind members of the long-standing parliamentary practice to the effect that members should not comment on, criticise or make charges against a person outside the House, or an official either by name of in such a way as to make him or her identifiable. By virtue of section 17(2)(1) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of the evidence they are to give this committee. If witnesses are directed by the committee to cease giving evidence in relation to a particular matter and they continue to do so, they are entitled thereafter to only qualified privilege in respect of their evidence.

Witnesses are directed that only evidence connected with the subject matter of these proceedings is to be given, and they are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person or persons, or entity, by name or in such a way as to make him, her or it identifiable.

I now invite Mr. Cardiff to make his opening remarks.

Mr. Kevin Cardiff

I thank the Chairman and other members of the joint committee. It is a pleasure to be here today. As I have not attended this committee previously, I am particularly pleased to do so.

My colleagues are Mr. Jim O'Brien, who deals with our European division, as well as Mr. Feargal O'Brolchain, Mr. John McCarthy and Mr. Gary Tobin. We also have a gentleman from the Revenue Commissioners, Mr. Tadgh O'Connell.

The letter of invitation stipulated three main issues and I presume that we will stick around those areas, but as the Chairman said, things have moved on. The issues are: the implications for Ireland of the measures agreed by the Council of the EU on 21 July 2011; progress made since then with regard to other loans; and the current status of the CCCTB draft directive and Ireland's corporation tax rate in that context. I will address those issues in my opening statement and will then answer any questions which the Chairman or other committee members deem appropriate.

The meeting on 21 July came at a critical time when markets were very uneasy - they continue to be so, but were even more so then - and tensions were growing in relation to the euro area. The Heads of State took stock of those developments and made some important decisions to further protect financial stability in the euro area. These were set out in a statement that was issued after the meeting.

In summary, they reaffirmed their commitment to the euro and to do whatever is needed to ensure the financial stability of the euro area as a whole and its member states. They noted their support for a new programme for Greece in conjunction with the IMF and with some private sector involvement. The total estimated value of the official funding will amount to an estimated €109 billion.

In addition to this, private sector representatives agreed to make a substantial contribution to financing a new programme for Greece, primarily through a voluntary exchange of bonds. This is estimated to amount to about €54 billion worth of bonds in the period 2011 to 2014, or about €135 billion in the period 2011 to 2020. The bondholders would be taking a loss of about 21% in net present value terms over the period to 2020.

The lengthening of the maturity of future EFSF loans to Greece from 7.5 years to a minimum of 15 years and up to 30 years was also involved. The Heads of State and Government made clear that, as far as private sector involvement in the euro area is concerned, Greece requires an exceptional and unique solution.

Measures to improve the effectiveness of the EFSF and the ESM to address contagion were agreed to allow them to act on the basis of a precautionary programme; to finance recapitalisation of financial institutions through loans to governments, including in non-programme countries; and to intervene in the secondary markets following an ECB analysis recognising the existence of exceptional financial market circumstances. To be clear, that is not just about Ireland but it is also about their responsibilities and powers concerning the whole euro area.

It was also agreed that, where appropriate, a collateral arrangement will be put in place to cover risk to euro area member states arising from their guarantees to the EFSF. Importantly, the Heads of State and Government also agreed to apply the same EFSF lending rates and maturities to Portugal and Ireland as those agreed for Greece. This would mean the loans would be provided at lending rates equivalent to those of the European balance of payments facility and would be close to, without going below, the EFSF funding costs.

In Ireland's case the Heads of State and Government noted our willingness to participate constructively in the discussions on the CCCTB draft directive and in the structured discussions on tax policy issues in the framework of the euro plus pact framework. Finally, there was agreement to advance matters to help improve economic governance in the euro area, including inviting President Van Rompuy to bring forward proposals in October.

While recent events have given rise to further volatility - though at that stage less than in the Irish case - and pressures on the euro area, the agreement in July was important and helped address some of the key issues that Ireland had been pushing for some time, including the reduction in the level of interest rates charged by the EFSF and the need for additional stabilisation tools. It was also important in clarifying the position in relation to Greece, which was the focal point of the crisis at the time. It was, therefore, a good result from our perspective. Indeed, it has helped a great deal since then in reducing the spreads on Irish bonds - in other words, in improving the market sentiment towards Ireland - although, as we see from recent events, the markets remain very volatile and nervous about developments in the euro area - that is something one could have said at any stage in the past two years.

The reduction in the interest rates is of significant benefit to Ireland. While the precise details of the changes to the interest rate and loans have yet to be finalised, they will be reflected in the loan agreements for the programme countries that will be agreed once the changes to the EFSF have been passed by the parliaments in each euro area member state, hopefully by the end of this month. In addition, the Heads of State or Government decision has resulted in a commitment by the UK to reduce the margin on its bilateral loan, and just yesterday, the proposal by the EU Commission to eliminate the margin charged on EFSM loans, that is, the margin over funding costs.

Our initial illustrative estimates were that a 2% reduction in the interest rate on the EU funds would provide savings of the order of €500 million to €600 million for 2012. We have not drawn down all of the loans and the interest rate improvement only applies to that which one has already drawn down at that moment. The savings increase as more money is drawn down and based on the illustrative 2% reduction, the overall figure would be approximately €900 million for each year that the full amount is drawn down. Based on the initially envisaged seven-and-a-half years average duration of these loans, the overall illustrative savings would be of the order of €6 billion or €7 billion. To be clear, that is cash, not present value. Given yesterday's proposal by the EU Commission, which, if approved by the ECOFIN Council approval, would reduce the EFSM margin by nearly 3%, the envisaged savings can now be expected to be higher - by some €200 million when all funds are drawn down. These savings are illustrative, and we cannot provide precise amounts until the details of all the reductions - EFSM, EFSF and the like - are known.

The issue of enhanced economic governance is also important and it is an area where much progress has already been made at EU level. For example, progress has been made on the so-called six-pack of legislative reforms which are intended to strengthen economic governance in the EU.

The six legislative proposals are as follows: first, a proposal for a regulation of the European Parliament and of the Council on the strengthening of the surveillance of budgetary positions, in other words, a more enhanced oversight regime; second, a proposal for a Council regulation on speeding up and clarifying the implementation of the excessive deficit procedure, in other words, a more streamlined approach to dealing with countries which are in fiscal difficulty; third, a proposal for a Council directive on requirements for budgetary frameworks of the member states, which, I suppose, is an external imposition on how we conduct our internal affairs but would apply to all of the member states; a proposal for a regulation on the prevention and correction of macroeconomic imbalances to deal with the issue of how difficulties, when shown by surveillance, are to be addressed; a regulation on enforcement measures to correct excessive macroeconomic imbalances; and a proposal for a regulation on the effective enforcement of budgetary surveillance. These are very much in the position of trying to see imbalances develop and deal with them before they have become too serious. In a sense, it is an issue for another time in our case since clearly we are already dealing with very difficult imbalances.

Agreement between the Council and the European Parliament on this package of proposals is close and, hopefully, will be finalised shortly. We have been very supportive of this process. A strengthened system of economic governance in the EU will be good for the EU as a whole, and for the individual member states, including Ireland. Ireland has been a strong supporter of the various measures that have been put in place such as EU2020, the European semester and the euro plus pact, and these are still being worked on.

The debate on enhancing economic governance in the euro area is developing further and the work under way by the President of the European Council to bring forward proposals in October will be the next important step in that process. In that context, the German Chancellor and the French President met in August to discuss the deepening debt crisis and follow-up to the July summit, particularly in relation to the economic governance issue. They made a number of suggestions that they think are necessary to strengthen the governance of the euro area and those proposals will be among those of other member states that will feed into the work underway by President Van Rompuy, in other words, the real action here should be in October when President Van Rompuy presents his synthesis of matters. Similarly, the Netherlands has also made a number of suggestions to feed into that process.

On corporation tax, as per the statement of the Council of the European Union on 21 July 2011, Ireland has declared its willingness to participate constructively in the discussions on a common consolidated corporate tax base draft directive and in the structured discussions on tax policy issues in the framework of the euro plus pact framework.

The European Commission has the right of initiation in terms of bringing forward legislative proposals for member states to consider. The Commission published a proposal for a draft directive on a common consolidated corporate tax base on 16 March 2011. There is nothing for us to be gained from pretending that this proposal has not been put down or from refusing to actively engage on the issue. In fact, the Minister for Finance stated that the opposite is the case. Only by actively engaging on this issue can we absolutely ensure that all of the arguments are brought to the table.

The stated policy is that Ireland could not accept the harmonisation of corporate tax rates or agree to any range of rates or minimum rate level which would necessitate or imply any movement away from the 12.5% corporation tax rate. In the recent letter to President Van Rompuy, post the President Sarkozy-Chancellor Merkel meeting on 16 August last, they stated that member states should commit to finalising the negotiation on the Commission's proposal on a CCCTB before end 2012. That is quite ambitious. It is a detailed and exceptionally technical dossier that will probably take longer than that to work through.

Ireland is not opposed to greater co-operation within the European Union on tax policy matters - in fact, we already engaged the European Union on many tax co-operation areas, including the code of conduct on corporation tax - but we favour focusing on targeted solutions to clearly identified barriers to the workings of the Internal Market. That is code for stating that if there are particular barriers, let us address them rather than trying to harmonise everything.

Ireland has always been committed to co-operating with any measures designed to avoid harmful tax practices and fight against fraud and tax evasion. Ireland's record in the promotion of good governance tax principles, including transparency, exchange of tax information and fair tax competition, fully stands up to international comparison.

The agreement reached by the Heads of State or Government on 21 July was an important one. That is an understatement. The changes to the rates charged by the EFSF and the additional flexibility it will have in the future are particularly important. Also, given events in the last number of years, changes to enhance surveillance and economic policy co-ordination are timely and welcome. Ireland is already subject to greater economic and fiscal scrutiny through our implementation of the EU-IMF programme of financial assistance, and we are used to that already.

The perception of Ireland in the financial markets has improved in recent weeks quite dramatically, but we still have a long and difficult road ahead and we are not immune from wider developments affecting the euro area. This underlines the importance for Ireland to continue to implement the appropriate policies to ensure that we return to fiscal and economic sustainability and to facilitate our return to the markets as soon as possible. We are also proactively engaging at all levels in Europe to ensure that the Irish position on issues of importance to us is clearly and effectively articulated and to continue to contribute to, and to influence, wider developments, particularly at euro area level. We will further use the opportunity afforded by Ireland's upcoming Presidency of the EU to build strong working relationships with the EU institutions and EU partners and to enhance our reputation and our contribution at European level.

I thank the Chairman and members of the committee for their attention. We are happy to answer their questions as well as we can or to clarify matters further. I apologise in advance for those moments when the answer to the question clarifies matters less.

Chairman

I thank the Secretary General. He has given us a comprehensive account of the deliberations on 21 July 2011 and teased out their implications up to the present time for the funding mechanisms, the interest rate, the length of time, and the new reform package or six-pack for economic governance. There is also the vexed question of the tax regime and the implications of the CCCTB.

I will ask a number of questions before I open it up to members. When the CCCTB was first spoken of, there was a view that part of the reason for harmonisation was to facilitate small and medium enterprises conducting business across borders and that this could be best done if the tax regime was simplified. The CCCTB seems to have taken on a life of its own as a tax regime per se and the French Government seems to have taken this line. However, much of the original talk about a consolidated tax base was to facilitate cross-border trade, because it is terribly expensive for small businesses to operate on a cross-border basis. Has much work being done on this? Is it possible to return to the original suggestion for a CCCTB rather than the version which the French seem to have hijacked?

What is the present situation with regard to the euro and the various states that are part of the eurozone?

Deputy Pádraig Mac Lochlainn

There is some confusion about the agreements reached at the Council meeting of 21 July, and which loans will be affected by the reductions in interest rates and the extensions of maturity. Do they apply to all of the loans we have received to date? An agreement was also reached on that date with regard to debt restructuring for Greece. Did the Irish officials seek inclusion for our country in this agreement? Did the Department officials provide an assessment or briefing to the Government on making this case? Should we have been involved in those negotiations?

Earlier this year, the Minister for Finance spoke about imposing losses on the unsecured senior bondholders in Anglo Irish Bank and Irish Nationwide. Is this being pursued? Has an analysis of this burden sharing been provided to the Minister and if so will it be made available to the committee?

With regard to the upcoming Council meeting, what briefing has the Department given to the Minister on burden sharing, interest-rate reductions and extended maturities? If such a briefing exists will it be made available to the committee? Some economists argue we should enter into negotiations with the ECB on a possible loss-sharing agreement on the Anglo Irish Bank €30 billion promissory note. Have Department officials provided briefing material on this subject?

Deputy Paschal Donohoe

I have an observation and some questions on the testimony of the Secretary General. As a consequence of the rate reductions secured, the State will be able to borrow at approximately 3.5% at a time when many large countries outside of the bailout arrangements, such as Italy and Spain, are borrowing significantly above this rate. I make this point to give a dimension to the arrangements; it provides a lower rate of financing to our country than that to many countries not participating in the bailout. Many of the countries funding this arrangement now access a higher rate of borrowing on the money markets as a result of these changes.

Deputy Mac Lochlainn asked a question about burden sharing, a topical matter. One of the decisions made at the 21 July summit was to set the goal of implementing some burden sharing for a portion of Greek debt. What has been learned from the action taken in the months since this commitment was made? Has it worked? What can be learned from this experience that can be used in the more broad discussion that is taking place?

I wish to ask about the role of the EFSF in the recapitalisation of the banks. Mr. Cardiff touched on this in his testimony. As Mr. Cardiff is aware, Christine Lagarde recently stated a form of mandatory recapitalisation should take place in banks. If a set of circumstances were to occur that required other European states to have their banks recapitalised they could end up in the type of vicious cycle we did, which is that the weight of recapitalising a bank goes on the balance sheet of the sovereign and huge pressures are created. Will the EFSF recapitalise banks and if so will it offer a disconnect between refinancing a banking system and a nation state having to bear all the cost of it?

The reduction of the interest rate was a huge achievement, and we heard more good news yesterday. I read Mr. Cardiff's testimony to the Committee of Public Accounts in which he stated if the rate of interest on debt is ahead of the growth rate of the economy we must run larger and larger budget surpluses in the years to come to finance it. This means the State must still find a way of growing the economy by more than 3%, which is ahead of any forecast that has been made. What other avenues are open to us for reducing further this rate to ensure this portion of our debt burden continues to be reduced and controlled?

Senator Fidelma Healy Eames

I thank Mr. Cardiff for his presentation. It is only fair to commend him on what he has been dealing with in recent months. To the lay person, it would appear we are doing much better now as a nation than we were when the IMF came in last Christmas. Given the scale of the problem facing Ireland, how many pages are we ahead in terms of dealing with our macro problem? This is a question I am asked constantly.

Looking at Greece and how it is handling - or not handling - its austerity programme, as it has had two bailouts and it seems to be on another tricky wicket, could it wreck everything for Ireland? Where do we stand? I know fragile negotiations are taking place Europe-wide at present but what would be the impact on Ireland of another Greek default?

Mr. Kevin Cardiff

I will deal with the questions in sequence. I will try to be careful not to answer those I do not wish to answer, but I am sure the committee will catch me if I do that.

Regarding the common consolidated corporate tax base, CCCTB, as an SME facilitator of cross-border trade, we were never fully convinced by that tag. It would seem that a single European tax system would simplify matters, but it is all about cost. If it was simpler but more costly, it would not work for SMEs seeking to export. The CCCTB was not intended to be simpler. The proposition was that it would be added as an extra layer. These are the types of matter the Commission's proposal and the discussions must address. Would the CCCTB benefit anyone? If there would be large winners, would there also be large losers? Our work on the generality of the situation suggests that the number of winners and losers would be substantial. It is difficult to be precise with this type of work, but it does not look like a game in which the advantage globally would be so great that almost everyone would win and it would only be a question of who and by how much. The proposition requires much consideration in this regard.

Ireland has some of the most export-oriented SMEs. When they make profits, they have the advantage of a relatively good tax rate and a tax system that is relatively simple and transparent. We are in a different boat from some of the other countries concerned. The CCCTB might not have the same advantages of simplification for our exporting firms as it would for the firms of other countries. One cannot always tell, but some international work, such as that done by PricewaterhouseCoopers, indicates that ours is one of the simplest countries for paying tax. This is about the system, not how onerous the taxes are. Our situation differs from that of other countries.

I will address the euro situation as I proceed. The euro is a strong currency built around the strength of the whole, not of the country that is in the most difficulty at any given time. Market reaction is evident in the euro exchange rate. Notwithstanding the depth of the difficulties experienced by many countries in the euro area, the exchange rate has remained relatively stable. Compared with the other big currencies, the euro's exchange rate movements have not been dreadful or consistently downward. This suggests that the people whose job it is to try to make money out of particular currencies and those whose day-to-day business activities require them to buy and sell currencies are not selling the euro in a long-term, consistent way. While there are short-term movements, there is no avalanche of movement out of the euro. In an area where some countries are experiencing more difficulties than others, the currency is well positioned and strong.

The confusion on 21 July owed to the fact that, while the decision on the day related to a particular type of facility, the European Financial Stability Facility, EFSF, it was expected to have a knock-on demonstrative effect for other facilities. There are six such facilities in Ireland's case, those being the EU loans from the EFSF, the loans from the European Financial Stabilisation Mechanism, EFSM, the loans from the IMF and three bilateral loans from the UK, Denmark and Sweden. The difficulty with trying to say what this one decision means is that one does not know how much the demonstrative effect is one for one and how much it is slightly different.

The Commission proposal for ECOFIN on the EFSM is reassuring. We had always expected that the demonstrative effect would be significant, but the Commission seems to be trying hard to be helpful to us and to others. In effect, it has proposed that there would be no margin over the cost of funds. This means that the countries in trouble may get moneys at a cheaper rate than other countries that are not in the same level of difficulty. This not only represents a communautaire approach, but also an attempt to be helpful to Europe. Our problem is not isolated from the rest of the euro area. The confusion is starting to unwind, but matters are not yet finalised.

To clarify, a Commission proposal means that the margin on the EFSM rate will be reduced by nearly 3%. This should be decided in the next few days. A set of discussions is ongoing regarding the EFSF. It is not yet clear whether there will be a margin, but we hope any such margin will be small. Some additional costs built into the EFSF could be reduced. The current margin is 2.47 percentage points. Were member states willing to give up all of that margin, that is the order of benefit. Were other costs also handed back, we might do even better. We are hopeful that the margin will be small. That is what we are working towards, but we are working with many partners and it would not be right to predict what each will say. The general tone is that people are trying to be helpful.

The IMF's rate is judged against a standard that has applied almost universally to all of its programme countries in Europe and elsewhere. There is little scope for manoeuvre. By various quirks of the voting arrangements in the IMF and our so-called quota therein, we might get some small advantage. The rate is tied to a range of factors. A minor, yet important factor is that there is some advantage for a country with a large IMF quota, that is, with a greater share in the IMF. Our quota has been increasing. The additional benefit to us could be the icing on the cake. I apologise for the confusion. It stems from the fact that not everything has been determined. The direction is good and the signals since have been better still. All of this is positive.

Irish officials did not seek inclusion in Greece's debt restructuring. As to whether we provided an assessment, we brief Ministers as they leave to discuss these types of issue. The jury is still out on whether the restructuring worked for Greece. The various parties in the troika are to make an assessment shortly of whether the extent of policy movement in Greece has been sufficient and so forth. I would not want to overstate it.

One must judge each country according to its particular situation. By many measures, the Greek situation is different from ours. For example, its debt is higher, its balance of payment issues are greater and its economic flexibility is less. There are some advantages also but, in the round, the depth of our difficulty is not nearly so great as theirs. Not every solution will be right for everybody. The very specific differentiation made between Greece, Ireland and Portugal in the statement of 21 July by the euro area Heads of State and Government has been very positive for Ireland in terms of calming the market and public expectations and relieving tensions that might otherwise have been very difficult for us. If the differentiation between Ireland and Greece has been positive, we ought not to be identifying ourselves with the latter and saying we are in the same position. We ought to be demonstrating how we differ, on both negative and positive grounds, and stating we will work together for an Irish solution rather than for a Greek solution for Ireland.

I was asked about the extent to which debt restructuring has worked for Greece. It has not happened yet. The process of bringing the private sector into the mix is complicated. I was careful in my speech and stated, "private sector representatives agreed". A particular association of bankers agreed to a particular outcome. There is full belief that the private sector in general will sign up. There is a process to go through in that contracts must be addressed and it is not yet completed. The market has not stood up and said Greece's problems have ended. The restructuring is a positive move but probably will have to be supplemented by much official action.

I should not comment on burden sharing because the Government stated its policy is to address the issue in the autumn in conjunction with the EU-IMF partners. We will support the Minister's policy entirely and will support him in the negotiations as they occur.

Deputy Pádraig Mac Lochlainn

Is Mr. Cardiff saying the intent of the Minister when he spoke in America was to deal with the senior unsecured bondholders in Anglo Irish Bank and Irish Nationwide Building Society and engage in negotiation? Is that being pursued?

Mr. Kevin Cardiff

Yes.

Deputy Pádraig Mac Lochlainn

That it all I wanted to know.

Mr. Kevin Cardiff

The Minister is pursuing that actively.

I covered in passing the question of the rate reduction and its consequences, and the question of borrowing at 3%. The reason we are, or will be, borrowing cheaply is that the EFSF has the advantage of a combined credit rating that takes into account guarantees given by all the various member states. Some will be in circumstances in which their fund cost will exceed ours. However, we are in a programme because our difficulties were a little deeper than theirs. No country I have come across has telephoned to say it is offensive that Ireland is getting cheaper money. It may be a political or local issue. Member states are very anxious to help us resolve our problems, in part out of a sense of being communautaire and in large part because the solving of imbalances by Greece, Ireland, Portugal, Spain and other relevant countries will be of great importance to the stability of the overall euro area. The tone in discussions has been helpful and co-operative, as one would expect. This is good. It does not mean we will not try actively to re-enter the market. It is better for all of us and for our economic sovereignty that we return to the market and begin to function without the help of the EU-IMF programmes. The discussions of 21 July took some of the heat away; there is no sense of panic in Europe in this regard. There is no belief that Ireland should enter the market straight away, nor is there a belief it should do so by any given date. We have at all stages in recent years maintained a high level of cash. We have never been in circumstances where the raising of funds within the next month, two months or three months has been critical for the sovereign. There is no panic. The whole point of the programme is to give countries time to adjust their economies and fiscal approach.

I worry when I hear people ask what will occur when the programme ends. The point of the programme is to give time. We have the time and will use it to the best advantage. When the market is right, we will return to it, but there is no rush.

On the EFSF and the recapitalising of banks, the actual statement was that the EFSF could be used to recapitalise banks through lending to the Governments. That is what has already happened, and this was really an additional facility aimed at non-programme countries. It is quite correct that if the EFSF were to recapitalise banks directly it would assist in breaking the linkage between the sovereign and the banking system but there has been no decision that goes that far. Countries that are not in programmes but which may have some bank capital issues may regard the facility as a good and useful one that helps to underpin overall stability.

On the Committee of Public Accounts, the rate of interest and the growth rate, it is important to remember there are a few factors that have a bearing on sustainability. We gave the Committee of Public Accounts a note on this that I can happily give to members. It concerns the interest rate, the level of debt in the first instance and the nominal growth rate. I refer to inflation plus the real growth rate. If we talk of a 2% growth rate, we refer to that plus inflation. A rate of 3% does not seem difficult to beat over the medium term. In any event, we, the IMF and EU produce figures, all of which I believe have been published. Most were produced before the recent interest rate reductions. If one looks at the matter in various ways, one can say the interest rate reductions are worth, at the lower end, €6.5 billion or €7 billion, based on our expectations. The figure could be higher. One could do one's sums by taking that much off the debt and look back at where we have been or one could assume the lower interest and work it in that way. Either way, the interest rate reduction is real money that makes our debt genuinely more sustainable. It is very positive. It does not mean the job has become easier all of a sudden; it has not. It is conditional on us doing everything we said we would; the job is just as difficult but the prospects of success, which were always positive, are now a little more positive.

With regard to whether we are doing better now than when the IMF came in, it is a year later and one more year's worth of work on fiscal adjustments has been done. There have been positives and negatives. The positives include European policy towards Ireland. Generally, we have done better; the banking situation is much calmer, but economic growth is lower than we would have wanted it to be. However, some of this may be due to households adjusting their balance sheets and this takes time. We would prefer to have seen a slightly higher growth rate and a slightly better level of consumer activity in the economy during the year.

We have spoken about export-led growth, and the exporting sector is doing exceptionally well given the international conditions. One hesitates to say it, but it shows a very strong exporting infrastructure and not only by the multinationals. The domestic food sector is also doing well. I am sure people involved in agriculture are pleased that the prices have been higher this year. The overall tone is definitely better and with regard to Ireland it is significantly better, albeit with some down sides. The international scene is calmer now than it was two months ago but it would seem to be what poses the greatest risk. As with last year, our fiscal deficit is on target this year. If we deliver what we state we will, it will improve the tone and certainty. One cannot predict the growth rate but one can do what is within one's control, and fiscal deficit is somewhat within our control. I am more optimistic now than I was six months ago.

Senator Fidelma Healy Eames

What is the impact of Greece?

Mr. Kevin Cardiff

What happened in July was that people applied what was happening in Greece to other countries and took a very pessimistic view on Greece. To the extent it happens, a Greek cough is also an Irish or Portuguese cough and other countries also suffer from the bug. We have been concentrating on stating not so much that Ireland is better or worse but that it is its own case with many positive elements which we can show. We can show them through the progress which we have just discussed, policy developments which are explainable to people and transparent and improvements in how the banking system is structured. Do not get me wrong; I do not suggest this is all wonderful as it is at a huge cost to our population. However, with regard to righting the economic imbalances we can show progress which is according to plan and not random. For our population and the external world this must be a very big differentiator between what is happening to us and what is happening elsewhere.

From our point of view, we must build on this record and continue to show we stand on our own case and that we are not being guided either in policy terms or in the actual conditions that apply to other countries. What is common between us and Greece is that we have some difficulties and we have the assistance of partner countries, and that is it. The diagnosis of these difficulties is different and therefore the cure is different. One uses aspirin for a headache and penicillin for a bacterial infection, and what is common is a doctor who is anxious to help and the fact that one is anxious to help oneself. The application of treatment is different and we must be clear about this. If we start to think of ourselves as having the same ills as someone else we will misdiagnose and therefore mistreat.

Senator Fidelma Healy Eames

What about the doctor?

Mr. Kevin Cardiff

The doctor has coughed occasionally but is doing okay and is anxious to help. For all the arguments, negotiations and beating up each other, generally speaking the other countries are trying to help and the people who come here on missions or are in situ in Dublin are very well disposed towards helping us to deal with our problems.

Deputy Pádraig Mac Lochlainn

I wish to return to a question I asked which has not been answered on the suggestion of negotiations on the €30 billion promissory note to Anglo Irish Bank. Has Mr. Cardiff been asked to draw up a briefing for the Minister on these negotiations? Have they commenced?

Mr. Kevin Cardiff

It is a standing item; it is always there as an issue. The Deputy will be glad to hear it is no longer Anglo Irish Bank but the Irish Bank Resolution Corporation, IBRC. While a few positive elements exist, the big problem is the set of assets are worth less than they ought to be, and therefore the Government has had to inject much capital by way of a promissory note. It is important that the assets are sold at the right time to get the best value for Ireland. A gentleman told me an asset is like a melting ice cube as if left unattended it can lose value. One cannot leave the assets to sit and return to them after ten years. An active programme is required.

The recent move by Anglo Irish Bank management, with the encouragement of the Government and the Department, to sell the bank's US assets has been very positive. The process has moved more quickly than was originally planned and there are preferred bidders. A large part of the bank's book might be gone sooner than we expected, and it is good to see the management is active not in trying to protect the long-term existence of the institution but in trying to rectify the problem in so far as it is rectifiable.

Recently, the chief executive stated more might be obtained than was originally thought. One cannot really predict such things but it is positive and shows the management is striving in the right direction. It does not obviate the fact that the loss will be enormous but makes it that bit better and it is a good tone. The promissory note is the capital we put in and in effect it is a loan. We gave Anglo Irish Bank money by borrowing from it in a circular transaction and what it ended up with was an additional asset which was the Government's liability. One can look at how this is structured and whether it can be improved but this is financial engineering and one cannot magic away the big liability. We are always open to big ideas and we will always strive for them but it is a liability and we must deal with it. It would be nice if someone was willing to take it off our hands but it is there.

Chairman

Mr. Cardiff has told us of many pluses and quite an amount of work has been done over the 12 months since the bailout deal was put in place. We have had debt restructuring and interest rate improvements and our exports are holding up very well. However, one stubborn area that seems to be disimproving is unemployment. Given the improvements that have taken place in the other areas, including the obvious saving of some money in respect of the interest rates and so on, is there scope for an injection of funds or diversion of money into this area or must the austerity measures simply continue along the lines that appear to be the formula of the day?

Mr. Kevin Cardiff

Because we are in the programme, people assume the austerity measures are externally imposed but they really are imposed by the situation. They are real and must be done. Although we can control the pace with which we deal with such issues to some extent, slowing down the pace of adjustment extends the length of time it takes to address the issues and so on. Within that context, the Government has choices as to how exactly it deploys the resources available to it. It is within this space that one can consider the issues of employment and unemployment.

The Chairman is correct that unemployment is not simply an economic problem but also is a social evil on a huge scale. This affects all of us either directly or indirectly and has a terrible impact on the individuals concerned. It is not just about money but about self-esteem, engagement with society and so forth. Consequently, we should do all we can to address it but there are limits to what we can do. One can think of measures that would lead to an early fillip but which subsequently would lead to a worse position. The joint committee may take it that in the process of the formation of the budget and so forth, Ministers are anxious to consider how best this resource allocation can be done. The jobs initiative announced last May was a first example of this but there is anxiety, both at official level within the Department and elsewhere, and within the Government system to address this social evil. However, putting off painful decisions in regard to the fiscal adjustment will not solve the problem and could make it worse in the long run. Consequently, I do not believe that is the approach.

Chairman

I thank the Secretary General and his team for their attendance. This discussion certainly has been interesting, valuable and comprehensive. It also has been frank, which members greatly appreciate, within the parameters within which the Secretary General obviously must operate. I thank the Secretary General in particular for his generosity in appearing in person before the joint committee together with his team. It is good to see that, as the joint committee likes to have people who are at the very top of Departments appear before it to give their views.

Sitting suspended at 2.15 p.m. and resumed at 2.20 p.m.

Chairman

On behalf of the joint committee, I welcome Mr. Pat Kelly, Middle East director, Department of Foreign Affairs who will provide us today with an update on the Middle East peace process.

Before we commence, I remind members of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the House or an official by name or in such a way as to make him or her identifiable. By virtue of section 72(1) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of the evidence they are to give to this committee. However, if directed by the committee to cease giving evidence in regard to a particular matter and they continue to do so they are entitled thereafter only to qualified privilege in respect of their evidence. Witnesses are directed that only evidence connected with the subject matter of these proceedings is to be given and are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against a person, persons or entity by name or in such way as to make him, her or it identifiable.

I now invite Mr. Kelly to make his opening remarks.

Mr. Pat Kelly

I am happy to meet with the joint committee this afternoon for a general discussion on the Middle East peace process. I am also happy to provide the committee with a briefing in advance of its meeting next week with a representative of the Israeli NGO, Breaking the Silence.

In terms of overall developments in relation to the Middle East peace process, the issue currently attracting most attention is the possibility of Palestinian action at the UN seeking some form of support or recognition for a Palestinian state. It is still not clear what exactly the Palestinians will be seeking at the UN. Intensive diplomatic negotiations are continuing in New York and in the region. President Abbas is due to address the Palestinian population on Friday afternoon before travelling to New York, where he will address the General Assembly on 23 September. It may not be until next week that definite indications of what the Palestinians are seeking emerge. There is speculation that the Palestinians may opt to seek observer state status at the UN rather than full membership, which the US has already indicated it will veto in the UN Security Council.

The EU, through High Representative Ashton, is extensively involved in the current negotiations. The Tánaiste and his EU colleagues have been consulting closely on the issue in recent months, with their most recent discussion at their informal Gymnich meeting in Poland on 2 and 3 September. The resumption of direct negotiations is clearly the most desirable way forward and is the Palestinians' preferred option. However, the Palestinians are deeply frustrated by the policies of the current Israeli Government, in particular the ongoing settlements policy, and have been unwilling to return to the negotiating table while these policies continue. In July, it did not prove possible to agree a Quartet statement which might have helped the Palestinians to return. It is not too surprising, therefore, that they should turn to the UN in the hope of seeking support for their political objectives, in particular on the question of statehood.

The Tánaiste has signalled in broad terms, in Dáil Éireann and elsewhere, that Ireland supports the basic right of the Palestinian people to the establishment of a sovereign state. He has stated that he wishes to see a state of Palestine and very soon. Ireland and our EU partners want to see a viable Palestinian state coming into existence as part of a negotiated, two-state solution. This must remain the ultimate priority since, as the Tánaiste acknowledged in the Dáil on 13 July, a UN resolution of itself will not help to achieve a Palestinian state that exists in reality. The Government will carefully consider the terms of any draft resolution which the Palestinians may table in the General Assembly in the coming days. It will do so taking into account factors such as Ireland's long-standing support for the achievement of a Palestinian state, the exact terms and nature of what may be proposed, the positions of EU partners and other friends, the progress on the wider peace process and our assessment of the practical impact of any such decision.

I would now like to turn, if I may, to the joint committee's meeting next week with the Israeli NGO, Breaking the Silence. Breaking the Silence is a widely respected - at least in international circles - non-governmental organisation founded in 2004. It publishes testimonial accounts by active and reserve duty Israel Defence Forces, IDF, soldiers who have served in the West Bank, Gaza and east Jerusalem since September 2000. The accounts published by Breaking the Silence provide vivid descriptions of the military occupation of the West Bank and of military operations in Gaza and are intended to stimulate awareness and debate in Israel of the realities of the occupation for the Palestinian population.

As an NGO, Breaking the Silence has achieved some prominence in Israel in recent years, primarily on account of a number of politically sensitive reports which it has published, including on the conduct of Operation Cast Lead, a retrospective analysis of the IDF's operations during the second Intifada and a report on the experience of female IDF soldiers operating in the occupied Palestinian territories. The report on Operation Cast Lead published in July 2009 was particularly sensitive as, based on the anonymous testimony of 26 combatants, it provided harrowing and troubling accounts of the conduct of IDF operations in Gaza and clearly alleged a failure on the part of the IDF to properly respect rules for the protection of citizens. As a result, Breaking the Silence has found itself accused of seeking to vilify and delegitimise the Israel Defence Forces, an institution which commands the greatest respect across much of Israeli society. Current members of the Israeli Government, such as Foreign Minister Lieberman, have been highly critical of Breaking the Silence for its activities and for publishing testimonies and accounts which, it is feared, could leave IDF commanders open to possible prosecution before international courts, such as the International Criminal Court.

Members of the joint committee will have the opportunity at next week's meeting to hear first hand from Noam Chayut, one of the founders of Breaking the Silence, about its activities and advocacy work. Breaking the Silence is a serious and respected organisation with which we have, through our embassy in Tel Aviv, maintained ongoing contact. The Department does not provide any direct funding to Breaking the Silence but the organisation has in the past received funding from Trócaire through a human rights programme in Palestine which Irish Aid funds. It may be worth mentioning at this stage that the climate generally for non-governmental organisations operating in Israel, in particular those critical of current Israeli Government policies, has become more difficult in recent years due to legislative attempts aiming at greater regulation of this sector emanating in the Knesset. Thus far, the impact of legislation adopted has been rather limited. A new NGO regulation law enacted last year imposed more frequent reporting requirements for NGOs receiving foreign funding, as well as requiring explicit disclosure in public information material of any funding received from a foreign source. Transparency of operations is a desired norm and is something to which Ireland would strongly subscribe. However, there have also been legislative proposals aimed at imposing much greater restrictions on the operations of civilian society institutions, in particular those active in the area of human rights. This has given rise to considerable concern on the part of many of Israel's partners, including within the EU which has raised such proposals as part of its ongoing dialogue with the Israeli Government on human rights issues.

The recent adoption by the Knesset in July of this year of a boycott law which makes it illegal to boycott or advocate a boycott of settlements or settlements products is a further indication of the current political attitudes prevailing within Israel and of the increasingly difficult climate which exists for those openly critical of current Israeli Government policies, in particular as they relate to the peace process or Israel's security. I can assure the joint committee that, nationally, we will continue to convey clear messages to the Israeli Government on the need to maintain rather than restrict the democratic space within Israel for civil society groupings and NGOs. In doing so, we are aware that there are many in the Knesset across the political spectrum, including within the governing Likud party, who do their best to protect civil liberties in Israel.

I am happy to respond to questions from members of the joint committee.

Chairman

I thank Mr. Kelly for his very valuable presentation. I will take questions from members and if there are any matters that are particularly sensitive we can move into private session.

Deputy Pádraig Mac Lochlainn

As Mr. Kelly pointed out in his presentation, the Palestinian people will be seeking nationhood. I am a little disappointed at the tone of the presentation where it states that it is not quite clear what they want. It is very clear what they want but they are being forced to reassess. Clearly they do not want to go to the UN and be given a "No" as that would be a morale blow to their people. What they want is nationhood for their people on the boundaries of the 1967 agreement, a two state solution, which would be in the best interests of the Israeli and Palestinian people. At last there would be a boundary clearly defined.

It is a tragedy because in recent times the Israeli people were on the streets campaigning, as in any normal democracy, for improved rights for a better distribution of wealth and so on. That is welcome and is a healthy engagement in any normal democracy. The Israeli people are a fine people but the actions of the security establishment - this is my view - of the Israeli state for too long have been a disservice to the Israeli people and have harmed their security rather than enhanced it.

I strongly believe that the UN should give the strongest possible signal that it recognises the nationhood of the Palestinian people, that it recognises its right to a state, would assist the peace process and give it more momentum and would encourage the Americans, who play a critical role here, to be more constructive in this area. The departure of George Mitchell caused dismay for many, particularly given the way he so expertly assisted the peace process in the North of Ireland and the esteem in which he is held internationally. That he had to leave without success was deeply worrying.

Recent developments are a cause for concern such as the break-up of diplomatic relationships between Turkey and Israel and the recent attack by an Egyptian crowd on the Israeli Embassy. Rather than Israel retrenching into itself in response and tightening up the security arrangement it must understand that the rise of the Arab spring, the rise of democracy and the development of governments that will represent assertively the interests of the Arab people - rather than some of the political leaders who are allies of the west but which was never sustainable - is an opportunity for Israel. They can choose it to be a threat but it is an opportunity to finally get to that two state solution.

I thank the Chairman for his patience. It is almost impossible to speak about this issue without giving some degree of analysis. Will the Government take the lead, as the Swedish Government has done? Will Ireland state explicitly not with words but with actions that we support the right of the Palestinian people to nationhood, to take their place at the UN? Will we upgrade the Palestinian mission to an embassy as the Swedish have done? Will we take a decisive position considering our influence and the fact that we are deeply respected internationally as leaders in the field of human rights, not least because of the work of Mary Robinson and Seán MacBride? We have a tremendous legacy in terms of human rights. We have an Irish diaspora in America that we can influence. If we took that stand it would be a massive morale boost to the Palestinian people and it would help the peace process.

Chairman

We are not sure yet what the position will be, whether an application will be made directly for full statehood or observer status. Has the EU adopted a policy at this point? Presumably the EU will seek to have a collective voice on the issue. Presumably when the Tánaiste addresses the United Nations he will be expected to address the issue in the context of the EU. I am not sure whether Catherine Ashton is addressing the issue or what the voice of the EU will be at the United Nations assembly. Perhaps Mr. Kelly can provide the committee with some information in that regard.

What is the state of affairs in regard to the Palestinians and the Israelis in terms of the settlements? Are they continuing apace? Has there been any indication from Israel that it is prepared to restart the negotiations on the two state solution or is this stagnant? Is there a likelihood of any progress on this matter?

Mr. Pat Kelly

There was one additional point I did not get to make earlier. If the Irish Government says it is waiting on European consensus that is not tenable because we have recognised Kosovo and there has not been European consensus on the issue. Only half of the UN members have recognised Kosovo. We have taken action outside of a European consensus in disputed circumstances. If that is our response I wish to make it clear it is not tenable.

Chairman

Do we need to move into private session if Mr. Kelly wants to give a fuller response?

Mr. Pat Kelly

Perhaps I will attempt to reply to some of the points the Chairman and Deputy Mac Lochlann have made and if there is a need for further discussion at that stage we can do it privately, if that is acceptable.

Chairman

Yes. Proceed.

Mr. Pat Kelly

We would agree with much of the Deputy's analysis. The bottom line is that we want substantive negotiations between Israel and the Palestinians resumed. That is the priority. In terms of bringing about a Palestinian state, that will only come about through negotiations with Israel and that is accepted. That is very much the preferred choice of the Palestinians and that is where they want to be. Going to the UN is very much a second option, an alternative route, because they are frustrated at the lack of progress in recent years and particularly at the fact that the talks that began in September 2010 lasted only a few weeks before they broke down because the Israelis refused to reinstate the settlement moratorium. Everyone is agreed on the need to get back into substantive negotiations.

The EU is very much involved in trying to seek an agreed way forward. It is ultimately the Palestinians' own choice as to what they want to do. We do not know as they have not shown their hand for good reasons. Tactically it is very important that they reflect carefully on this issue and decide ultimately what is in their interests. The issue is attracting huge attention and prominence. The US has made its position very clear that it will veto any resolution in the Security Council seeking to recognise a Palestinian state. It has also been made clear that US funding to the Palestinian Authority could be reviewed and threatened were action taken at the UN. The stakes are high.

The EU position is that until a proposal is on the table for consideration, EU member states should not state definitively how they would respond to a possible Palestinian resolution seeking statehood or observer status. In part, this is because the Palestinians value the EU's role in the peace process and are anxious for the EU to retain as much influence as possible by having a united common position. It is also a recognition that there are different opinions within the EU and that it may be difficult for the Union to reach an agreed position on any proposed resolution. Until such time as there is a Palestinian proposal, it is impossible to tell how Ireland or any other member state will react.

As the Tánaiste has clearly stated, no other state within the EU has been as strong a supporter of Palestinian aspirations for statehood as Ireland. In 1980, Brian Lenihan became the first EU Foreign Minister to call openly for the establishment of a Palestinian state. In terms of our relations with the Palestinians, Deputy Mac Lochlainn suggested following Sweden's lead, but Sweden is actually following our lead to some extent. Earlier this year, we upgraded the status of the Palestinian diplomatic delegation to Ireland to a mission. The head of the mission has the rank of ambassador and any future head of the mission will present his or her letter of credentials in the normal way as any other ambassador.

We have gone as far as we can in showing our support for the establishment of a Palestinian state. The likelihood of us being asked to make a decision on recognising a Palestinian state is slim, as the proposal will not appear before the General Assembly if the US decides to veto any Security Council resolution. It can only be laid before the General Assembly after it has appeared before the Security Council.

Chairman

If it is an application for statehood. What if it is an application for observer status?

Mr. Pat Kelly

It will be laid before the General Assembly. That is entirely within the assembly's prerogative.

Chairman

Presumably that is not a problem for the EU or any of its member states.

Mr. Pat Kelly

It remains to be discussed. Given our long-standing position, Ireland would find it difficult not to support any reasonably worded resolution that sought to enhance the standing of the Palestinians at the UN and keep open the prospect of a return to substantive negotiations as the only real way to bring about the establishment of a Palestinian state. This is as much as I can say now. We are committed to discussing the matter with our EU partners, as EU unity is regarded as important and we must make a joint effort. We cannot do so until such time as a proposal is on the table, which I hope will be in the coming days. I do not know whether I have addressed every question.

Chairman

Deputy Durkan wishes to contribute.

Deputy Bernard J. Durkan

What is the status of the peace process? Is it being actively engaged in, is it operating in a haphazard fashion and do the various components meet on a daily, weekly or monthly basis? To what extent has the situation been affected by other events in the region, for example, in Egypt, Syria and Libya? What is the purpose of the restrictions on reporting imposed by the Knesset on NGOs and civil society institutions? What was reported that made the introduction of such legislation necessary?

Mr. Pat Kelly

The Chairman also asked about the situation regarding settlements and Israeli intentions as regards the peace process. To some extent, these questions overlap with Deputy Durkan's. The settlements are continuing to expand. Last month, there was a further announcement of a major settlement expansion in east Jerusalem on the West Bank. This is the unfortunate reality the Palestinian population faces. Israel remains committed to its settlement programme. Ireland and the EU have told it bluntly that this is not conducive to furthering work to bring about a solution. It is creating new facts on the ground that make it more difficult for a Palestinian state to come into existence and is conflicting with Israel's stated desire to see a two-state solution come into being. To date, Israel has not been prepared to alter its policy on settlements.

There was a ten-month moratorium on the West Bank up until September of last year. Israel decided it was not prepared to renew the moratorium. Its Government and Prime Minister Netanyahu have stated their intention to return to negotiations without imposing or having imposed on them preconditions. They would regard any request to cease settlement expansion as such a precondition and are not prepared to entertain it. We have clearly stated that engaging in such actions does not inspire confidence in Israel's interest in arriving at a comprehensive two-state solution. This is as much as I can say about the Israeli position.

There have been no direct talks for more than a year. There are many indirect discussions and High Representative Ashton has made numerous trips to the region in the past year. She is there currently. The US has continued to be engaged, albeit at a lower level. We agree with Deputy Lac Lochlainn that George Mitchell's departure was an unfortunate development and we regret the loss of his vision, wisdom and experience to the Middle East peace process. Since no direct talks are ongoing, we will continue to try to reach a point at which such talks can resume. A great deal of pressure is being exerted on both sides to enter into talks as soon as possible with a specific timeframe. It has been suggested that the Quartet, which comprises the EU, UN, US and Russia, will issue a statement setting out parameters for a resumption of negotiations and put it up to both sides to return to the talks. We will see what comes of that in the coming days and how it will tie into Palestinian intentions.

Deputy Mac Lochlainn alluded to the Arab spring. The region is changing dramatically and new governments are emerging. Privately and publicly, we have told the Israelis that they should seize this opportunity. They are fond of saying that they live in a tough neighbourhood. The hard reality is that the neighbourhood could become a lot tougher if the Israelis do not really commit to making progress on the peace process. Thus far, they have been deaf to the pleas being made.

With regard to Deputy Durkan's question on restrictions on NGOs, the current political climate in Israel is such that its Government believes the country is becoming increasingly isolated. It has spoken about efforts to delegitimise Israel in world opinion. Such talk has shone a spotlight on the actions of NGOs in Israel that are critical, for whatever reason, of Israeli Government policies, be they on the peace process or general social policies. The NGOs are coming under increased scrutiny from the Knesset. The general environment for them is becoming more difficult precisely because the Israeli Government believes NGOs that are openly critical of Israel's policies, particularly on the peace process, somehow support those whom the Government claims are trying to lessen Israel's standing internationally and isolate the country.

Deputy Seán Kyne

I look forward to the presentation of Breaking the Silence in a number of weeks. One must accept the only way forward is a negotiated settlement between the two sides. Examples in other parts of the world show that, no matter what sort of settlement is agreed, even if an acceptable boundary division is formed, it will not be acceptable to everybody. I am sometimes a little pessimistic about the chances of ultimate peace in the Middle East.

If the European Union's member states supported the idea of statehood, either unanimously or by majority, how much pressure would this put on the United States in terms of its not vetoing a resolution? Would it be immensely difficult for any US Administration to prevent one from going before the General Assembly?

Chairman

In May, I believe, the European External Action Service was given observer rights of audience at the UN General Assembly. For the first time, the European Union will be able to speak on its own behalf at UN meetings. Will Catherine Ashton be attending or speaking? Will there be a common European voice?

Mr. Pat Kelly

I will take Deputy Kyne's question first. There is very little likelihood of a common EU position on the basis of recognition of a Palestinian state at this stage. A number of EU partners have made it clear that they could not support Palestinian statehood at this stage, most particularly the German Government, which has been quite clear on this point. The most that could be achieved by way of a common EU position would be a reiteration of a long-standing EU position, namely, that the European Union will recognise a Palestinian state at the appropriate time, which is taken to mean at the time of an actual peace agreement between Israel and the Palestinians.

The issue of UN observer status for the Palestinians is a different issue. It is hard to predict the level of support for this at EU level. It would be a difficult discussion and we will have to see how it goes. There will be a huge effort by all member states to try to arrive at a common position.

On the question of how the European Union will present itself at the UN General Assembly, High Representative Ashton will be present. She will be travelling this weekend to New York. The actual EU statement in what is called the general debate, which starts next week, will be delivered by President Van Rompuy. High Representative Ashton will be more or less leading on the EU side regarding the Palestinian issue. I imagine she will be chairing. The European Union normally has high-level meetings with the United States and Russia during what is called the UNGA week. These talks are scheduled for next week with Secretary of State Clinton and Foreign Minister Lavrov. I am sure High Representative Ashton will chair the European Union's discussions with the two countries. There will be no more important issue next week for the European Union at the UN General Assembly than this one. We will continue our efforts to arrive at an agreed way forward.

A UN resolution will not bring about a Palestinian state but, at the same time, if this is handled in the correct way we feel it can give impetus to the peace process and have a constructive effect. That is the way we are approaching the discussions that are taking place.

Chairman

I thank Mr. Kelly for enlightening us on so many of the issues pertaining to the Middle East peace process. The discussion was very interesting. Next week, the Israeli NGO Breaking the Silence will be present to give us its account of circumstances. That will also be very valuable.

The joint committee went into private session at 2.57 p.m. and adjourned at 3.06 p.m. until 11.30 a.m. on Thursday, 22 September 2011.