I thank the Vice Chairman. I am delighted to be here. It is my maiden voyage, so I hope it will be a safe one. When I was invited to address the committee originally, the invitation was to address the subject of the report of the President of the European Council, President Herman Van Rompuy. I will start by addressing that report and will then lead into the results of the European Council. Since the invitation was issued to me, the political debate has advanced very significantly but it is still of value to the committee to take a look at the evolution of the debate on the basis of President Van Rompuy's report and then link it into the outcome of the Council.
In terms of that outcome, it is clear much remains to be elaborated on. Work at technical and legal levels is being started and will be completed between now and March. There are also some eminently political questions which are properly the responsibility of Ministers and not of public servants, so I will respect those parameters in what I say today in terms of my role and that of the committee.
It might be helpful if we look at the backdrop to the outcome of the Council, which was rooted in the original mandate given to President Van Rompuy. On 26 October, the euro summit tasked the President of the European Council, in collaboration with the President of the Commission and the president of the euro group, to identify possible steps to make the economic union commensurate with the monetary union with focus on further strengthening economic governance, economic convergence, improving budgetary discipline and deepening economic union within the euro area.
In his report to the recent Council, President Van Rompuy delivered a paper which took stock of what had been achieved so far through the normal range of EU actions and that he qualified, which is an important point often underestimated. Based on that assessment, he set out a way forward. His report took into account the bilateral consultations that had taken place with all EU member states in the preparatory process and Ireland was involved in those bilateral consultation. I believe members have seen the report from President Van Rompuy.
Last week's European Council began over dinner on Thursday evening at which President Van Rompuy set out the results of the work on the basis of that mandate. His report and the measures he identified in it were generally welcomed by the Heads of State and Government as well balanced. It is fair to say that, in substance and in large part, overall, the ideas elaborated on by President Van Rompuy formed the basis of the political level agreement that finally emerged from the Heads of State and Government last Friday. I will take each of the elements of President Van Rompuy's report in turn and briefly describe them as they were translated into the political statement the Heads of State and Government made on Friday.
First, was the broad rubric of economic co-ordination and convergence in the euro area. On the strengthened economic policy co-ordination, what was agreed was the outline of what is now being called, as the Chairman said "a new fiscal compact". Essentially this is a set of reinforced budgetary rules for countries in the euro area. Specifically, Heads of State and Government agreed that Government budgets should be balanced or in surplus. It was agreed that this rule shall be deemed to have been respected if, as a rule , and I underline as a rule, the annual structural deficit does not exceed 0.5% of GDP. This figure has been much commented on and will clearly need further consideration and elaboration. Such a rule will also be introduced in member states' national legal systems at constitutional or equivalent level. The rule will contain an automatic correction mechanism that shall be triggered in the event of deviation. It will be defined by each member state on the basis of principles proposed by the Commission. The jurisdiction of the European Court of Justice will be used to verify the transposition of this rule at national level. The political level agreement that the Heads of State and Government signed off on last Friday therefore provides for members states to begin the work as to how to carry over this commitment into national law "at Constitutional or equivalent level" and to provide that the European Court of Justice, ECJ, will have a role in ensuring this is done properly. We are examining this requirement very carefully in Dublin and working with experts in Brussels. In particular, we are also looking at how it dovetails with the fiscal responsibility Bill now in preparation domestically.
The agreement sets out that member states shall converge towards their specific reference level, according to a calendar to be proposed by the Commission. We await to see this calendar. Member states in excessive deficit procedure will submit to the Commission and the Council for endorsement an economic partnership programme - which is a new concept - which will detail the necessary structural reforms to ensure an effectively durable correction of excessive deficits. The implementation of the programme and the yearly budgetary plans consistent with it will be monitored by the Commission and the Council. A mechanism will be put in place for the ex-ante reporting by member states of their national debt issuance plans. The Heads of State and Government will expect that the detailed economic, legal and technical implications of this proposal will be further thrashed out in the weeks ahead as negotiations begin. Officials in capitals and in Brussels will be asked to work through the country-specific implications once those negotiations are under way. The Commission and the Council legal teams are already undertaking initial analysis which will be proofed by the country specific work under way in every capital, including Dublin.
As I have already said, at this stage of the process the content of the statement agreed by the Heads of State and Government represents a political agreement, but it does not constitute legal obligations at this stage. Obviously, the nature of what is involved dictates the very many detailed technical and legal considerations that need to be teased out before any legal text is adopted. We see this as an important process in which Ireland will be fully and actively involved. We give our legal assent to the substance only when we ratify the agreement. There is a long way to go from here to there.
Once again since we are at the first stage of elaborating a draft agreement many issues of definition and legal implication arise. Ireland is not the only member state grappling with those challenges as every member state at the table will be going through the same preparatory process in its capital, as I know from some of my colleagues who describe what is happening in their parliaments. As is the norm in these situations the expertise of the EU institutions as well as our own services will be deployed to clarify the basis on which we are proceeding through this negotiation.
Heads of State and Government also agreed that euro area member states that are in breach of the existing rules on excessive deficit will be obliged to work with the Commission and the Council in an economic partnership programme detailing the structural reforms to get back on track to a sustainable way. The implementation of this programme will be monitored by the Commission and the Council. The Commission, in particular, is developing a significant capacity in this regard, including through its ongoing work on the EU 2020 process. It will also consider how to step up that role through some specific proposals the Commission made earlier in November and will be worked on further as a result of the Heads of State meeting last week.
The political statement by Heads of State and Government also set out an outline agreement that the rules for the excessive deficit programme should be tighter for member states in the euro area. Specifically there will be automatic consequences for a member state that exceeds the 3% ceiling, unless a majority in the Council decides not to adopt a Commission recommendation in this regard. This is the reverse qualified majority concept and is building on the significant actions agreed in the europlus pact and the so-called Six Pack, which came into force on Monday of this week.
On the 23 November the Commission brought forward two elaborated proposals on the monitoring and assessment, which deals with draft budgetary plans and the strengthening of surveillance of member states which are experiencing or threatened with serious difficulties. Last week the Heads of State and Government agreed that these important proposals from the Commission should be examined "swiftly" so that they can be in force for the next budgetary cycle. Under this new legal framework, the Commission will in particular examine the key parameters of draft budgetary plans and, if necessary, adopt an opinion on them. Where a plan is seriously non-compliant with requirements, the Commission will be able to request a revised proposal.
In a further decision by the Heads of State and Government last week, it was agreed that the European Council should continue to work on how to further deepen fiscal integration so as to better reflect how EU member states are now more connected and interdependent. The President of the European Council has been asked to report further on that in March 2012. We expect President Van Rompuy will consult widely on that aspect and we will contribute to that reflection. This is not intended to be part of any new agreement but rather is situated in the broader process of reflection for all EU member states..
Another of the major issues discussed by the Heads of State and Government was the category of budgetary discipline. The new arrangements set out by President Van Rompuy and elaborated on by the Heads of State and Government will mean more oversight of what member states are doing in their individual budgets, such as sharing budgetary plans in advance. In the context of the new European semester, which we have already agreed and begun to operate and the Six Pack, which is now in place, there has been an emphasis on stepping up and tightening up budgetary procedures in a way that brings them into a more transparent arrangement in the European Union framework. The key elements of President Van Rompuy's report on this were aimed at what he described as enhancing the credibility of budget rules to ensure full compliance. President Van Rompuy had originally indicated that this would likely require changes and set out two possible avenues to deliver on it. First he proposed a revision of protocol 12, second through a possible treaty amendment of Article 48.
In order to be helpful to committee members, I thought it would be useful to point out the key differences between President Van Rompuy's report, on which the Chairman had invited me to speak and the final outcome of the European Council. If I am to be very blunt about it, one could characterise the main difference as a difference in the level of ambition between the two reports but more importantly to the pacing of the decisions and the means of delivering on the results. In terms of the actual substance and content, there is much in common between the Van Rompuy report and the decisions of the Heads of State and Government. They both argue for better budgetary and fiscal discipline. They argue for coming up with means to enforce it and to reinforce the legal obligations of member states to live up to political commitments. If there is a difference, it relates much more to the nature of the one-step approach to a single agreement in March that was finally agreed by the Heads of State. This differs from the step-by-step approach that was proposed by President Van Rompuy.
Essentially, President Van Rompuy had set out from the premise that we should start with the existing base of EU legislation and build towards treaty change as the issues dictate. He set out what might loosely be called a hierarchy of approach, in ascending order of political and legal ambition. First, he argued that a considerable number of measures aimed at reinforcing the budgetary and fiscal discipline about which I have spoken could be delivered using existing EU legislation. Second, he said the next step would involve looking at amendments to protocol 12 to deliver, for example, on balanced budgets, strictures, constraints in the excessive deficit procedure and debt breaks. Third, he argued that an amendment to the simplified treaty procedure would be needed in order to improve the automaticity of decision-making, provide for reverse qualified majority voting and introduce the idea of regular euro summits, which would have referred to protocol 12. He saw a need for action at three levels, building up from the existing legislative framework.
The ordinary treaty revision procedure would be needed to allow the institutions to have an enhanced role. There might be high levels of intrusiveness if there was poor implementation. When President Van Rompuy put the proposal on the table, he saw the process as a phased one. The decision that was adopted after political discussion last week will involve gathering the various elements together and proceeding with a single agreement that would encapsulate all of those elements. It could be described as a more fast-track or comprehensive approach, compared to the step-by-step approach that President Van Rompuy originally set out.
I would like to comment on two more elements of the report that was adopted by the Heads of State and Government last week. In addition to the categories of economic co-ordination and budgetary discipline, President Van Rompuy dedicated part of his report to the important question of strengthening the crisis mechanisms. In addition to the elements that form part of the so-called fiscal compact, last week's meeting of Heads of State also looked at the stabilisation tools, which we are calling firewalls. This is part of a programme of immediate action to answer current pressures in the markets. On the basis of President Van Rompuy's earlier recommendation, it was agreed to accelerate the entry into force of the ESM, which is the permanent replacement for the EFSF. The objective is that the ESM will be in place in the middle of July 2012. The Heads of State and Government also agreed that the EFSF should remain active until mid-2013, as previously planned, and that it will ensure the financing of ongoing programmes as needed.
Importantly, the Heads of State and Government considered the requirement for private sector involvement, which was previously included in the ESM. It was decided that EU member states would adhere strictly to well-established IMF principles and practices in this regard. In other words, private sector involvement has now been removed from the ESM. The established principles of the IMF in this regard dictate the way the treaty will be implemented. Several member states, including Ireland, considered private sector involvement as acting as a serious impediment to member states, including Ireland, seeking to regain market access in the future. It is indicated in President Van Rompuy's report and in the conclusions of Heads of State and Government that the Greek arrangements in respect of private sector investment are a once-off exception and will not apply to countries like Ireland in the future.
The adequacy of the overall ceiling of the EFSF and ESM was also discussed during last week's meeting. A figure of €500 billion has been included as a result of last week's discussions. This figure will be revisited in March 2012 in order to review its adequacy. The Heads of State and Government are ready to accelerate payments of capital into the ESM if they are needed to maintain the required ratio between paid-in capital and loans and ensure a combined effective lending capacity of €500 billion. The overall ceiling will be reassessed in March, as I have said. To further underpin the firewalls, member states have agreed to consider providing up to €200 billion in the form of bilateral loans to the IMF to ensure it has adequate resources to deal with the crisis. This process is expected to continue over the coming weeks. Ireland and other member states are assessing how this process develops and whether parallel contributions are forthcoming from the international community.
I wish to address the important issue of how the substance of last week's agreement will be delivered. The substance of President Van Rompuy's report and the outcome of the European Council meeting were broadly in step with each other. As the deliberations continued last Thursday and Friday, the Heads of State and Government went on to discuss the need to put in place structures or vehicles to deliver on those commitments. Potential vehicles like primary or secondary legislation, treaty-based amendments or international agreements are all on the table. It was agreed that there is considerable scope for making progress through secondary legislation, where that is possible within the framework of the existing treaties. During the meeting, President Van Rompuy sought to proceed with the support of all 27 member states. When this did not prove possible - for reasons that have subsequently been aired extensively - the Heads of State agreed to proceed by way of an international agreement, encompassing all the elements of substance to which I have alluded previously and involving all the euro area member states and any other member states that wish to join the agreement.
A number of EU leaders are now involved in a process of consulting their government partners and parliaments. It is not unlikely that the other 26 member states will agree to participate. Clearly, we are in contact with our partners at the table to monitor how the debate is evolving in each member state. At the end of last week's Council meeting, the clear exception was the UK, which felt it was not in a position to join that decision. This has been regarded by the Irish Government as a disappointing development. Clearly, it is a matter for the UK Prime Minister, Mr. Cameron to decide how best to advance and defend the UK's interests. In approaching the meeting, Ireland had hoped a way forward could be found by all 27 member states, not least as a strong signal of complete unity and common purpose at European level. The Taoiseach, the Tánaiste and the Minister of State with responsibility for European affairs have repeated in the Dáil this week that the UK is our closest neighbour and often our staunchest ally at the European table. Its unique and important perspective will be missing from these critical debates. A further aspect of President Van Rompuy's report was set out in a mandate to President Van Rompuy. It relates somewhat to what I have just said. In March, the European Council will look at relations between all EU member states and the euro area. We regard this as an important opportunity for all 27 member states to examine how they co-operate and how they will work together again in the future.
I wish to speak about the next steps in the process. Last night, we received a letter from the Secretary General of the secretariat of the European Council, setting in place the practical arrangements for the negotiation of what has been described as an international agreement that reflects the elements that were contained in the statement issued by the Heads of State last week. This work, which will involve the legal services of the Commission and the Council, is getting under way. An initial text will be prepared in the coming weeks, after which it will be shared with member states and subjected to intense negotiations in the usual way. This will involve senior officials from the Departments of Finance, the Taoiseach and Foreign Affairs and Trade, as well as the Office of the Attorney General. Many questions have to be considered, including what the eventual adoption of the agreement will mean for Ireland and whether a referendum may be required to ensure we are in a position to ratify what has been agreed. The simple fact is that it is not possible to answer those questions until we have a legal text to consider. There will be many complex issues to be considered in detail shortly. The Attorney General will wish to give the texts full study before offering to the Government advice on the basis of which it would proceed. I apologise for speaking at such length, however I thought it important to set out to the joint committee the position in detail.
