I welcome the Minister of State, Deputy Mansergh.
European Financial Stability Facility Bill 2010: Second Stage
I am pleased to be in attendance to introduce the European Financial Stability Facility Bill. I acknowledge the constructive approach taken by Deputies in the Dáil last week and I welcome the statements of support from the main Opposition parties.
The proposed legislation will enable Ireland to join with its colleague euro area member states in the implementation of the European financial stability facility, the main purpose of which is to safeguard financial stability in the euro area further. The facility is a contingent €440 billion financial support instrument that will be able to provide loans to euro area member states that are unable to access funding on international markets due to exceptional circumstances beyond their control. Ireland's main obligation under the facility will be to provide guarantees up to a ceiling of just over €7 billion, if required, in respect of the repayment of funds raised by the facility to provide loans to such states.
The establishment of the stability facility is a logical follow through of the steps that the EU and the International Monetary Fund, IMF, took in response to the recent Greek funding difficulties. The Heads of State and Government of the euro area made commitments in February and March to take determined and co-ordinated action, if required, to safeguard financial stability in the euro area as a whole. On foot of these commitments, the euro area finance ministers agreed in April the terms of the financial support to be given to Greece. In this respect, the euro area loan facility was established to provide loans of up to €80 billion to Greece over a three-year period. In conjunction with this, the IMF agreed to provide up to €30 billion, making a total of €110 billion available for lending to Greece. Ireland's share is approximately €1.5 billion, based on our European Central Bank, ECB, paid capital, and legislation was enacted in May giving effect to our participation. The measures put in place ensure that Greece will not need to rely on the sovereign debt markets for the next three years, thus giving it the necessary breathing space to rectify its public finances. However, I emphasise that the loan facility has considerable policy conditionality.
At the time, it was recognised that developing and implementing bespoke instruments each time a member state faced difficulties was not a sustainable or prudent approach. Accordingly, the European Council of Finance Ministers, ECOFIN, decided at an extraordinary meeting on 9 May to establish a comprehensive package of measures — the European stabilisation mechanism — to support financially member states in difficulties caused by exceptional circumstances beyond their control. The measures would be of sufficient magnitude to address future potential needs. Including an IMF contribution, the package will provide up to €750 billion in financial support to eurozone member states, if required.
This package has three distinct elements. The first is the establishment of the European financial stabilisation mechanism under which up to €60 billion may be borrowed by the European Commission and loaned to member states, subject to strict conditions on budgetary consolidation. The Council regulation establishing the stabilisation mechanism was adopted by the Council on 10 May. The stabilisation will be the instrument of first resort should a euro area member state seek assistance.
The second element is the €440 billion European financial stability facility, which is the subject of this Bill. It will be governed by the intergovernmental framework agreement between the euro area member states and the special purpose vehicle company that will be used to implement the facility. The Minister for Finance signed the framework agreement on behalf of Ireland on 10 June, subject to the enactment of the Bill. The agreement is included in the Schedule to the Bill. While the facility is independent of the EU budget, the EU Commission will play a key role in its operation. There is also provision for important functions to be carried out by the European Investment Bank, EIB, and the ECB.
The third element is the assistance the IMF can provide to member states under its existing standby arrangements. It is estimated this amounts to an aggregate €250 billion. The IMF has stated that, upon request in individual countries' cases, it is ready to provide financial assistance to its European members in conjunction with the new European financial stabilisation mechanism and the European financial stability facility. This would be on a similar basis to the assistance the IMF has agreed to provide to Greece in conjunction with the euro area loan facility. In overall terms, an aggregate amount of the order of €750 billion is being put in place to provide support for euro area member states.
The Bill's direct financial implications for Ireland relate to the subscription of capital for the company that will operate the facility. The State has already committed to contributing its 1.59% share of the currently issued share capital of €31,000, amounting to approximately €490. In addition to the issued share capital, there is an unissued but authorised share capital of €30 million. Calling up further capital from the authorised share capital requires a unanimous decision by the board of directors and each shareholder is represented by a director. The provisions relating to this and other matters are all set out in the company's articles of association, which have been laid before the Oireachtas. Were the entire authorised share capital called up, Ireland's share would be just under €478,000. However, this will be reduced slightly following the accession of Estonia to the euro next January.
The key obligation of the State under the framework agreement is to provide guarantees to the European financial stability facility company to enable it to raise money to provide loans to euro area member states. It is only if a guarantee is called that the State will need to fund its share of the guarantee in question.
The framework agreement sets out the contribution key which dictates how much of each funding instrument the State will guarantee. This will vary in each case, as I shall explain when I set out the main articles of the agreement. Under the agreement, Ireland's guarantee ceiling is just over €7 billion. In the highly unlikely event that a guarantee is called, this will not mean Ireland will never see its money again. The European Financial Stability Facility Company remains liable for funds paid under any guarantee and will endeavour to secure repayment of an underlying loan in default with a view to returning such funds to guarantors as soon as possible. In such an event, it is likely that a lengthy period would elapse before losses, if any, could be quantified.
The purpose of the Bill is to permit Ireland to work together with its fellow euro area member states to ensure the overall financial stability of the euro area. The Bill will allow Ireland to issue guarantees in accordance with the European financial stability facility framework agreement and provide for payments to be made from the Central Fund in respect of any obligations arising under the agreement, subject to a maximum ceiling of €7.5 billion. The Bill is straightforward legislation because member states' obligations are spelled out in detail in the agreement which is a Schedule to the Bill. After I have explained each of the sections of the Bill, I will explain the key articles of the agreement.
Section 1 defines the company which will implement the instrument on behalf of the euro area member states and the European financial stability facility framework agreement. Section 2 provides that the Minister for Finance may issue guarantees on behalf of the State for the purposes of the framework agreement. Section 3 provides that money may be paid from the Central Fund to meet the obligations of the State arising from the agreement up to a maximum sum of €7.5 billion. There is an obligation to subscribe to the capital and other costs of the company and additional obligations could arise if a guarantee is called. Section 4 provides that any money received by the State is to be paid into the Central Fund.
Section 5 deals with the reporting obligations. The Minister must ensure a report is laid before Dáil Éireann as soon as practical after 31 December this year and every six months thereafter. There is provision for more frequent reporting from time to time, if considered necessary. The report must include information on outstanding guarantees, moneys advanced by the State and money repaid to it under the framework agreement.
Section 6 amends the reporting requirements of the Euro Area Loan Facility Act 2010. The amendment to the earlier legislation providing for assistance for Greece takes on board the views expressed during the passage of the legislation for more frequent reporting. It also makes the reporting requirements consistent with the reporting requirements of this Bill.
Section 7 is a standard section on the expenses incurred in the administration of the Bill. Section 8 sets out the Short Title.
The Schedule to the Bill contains the European financial stability facility framework agreement which begins by stipulating the parties to the agreement. These consist of the euro area member states and the European Financial Stability Facility Company. This is followed by a preamble which outlines the origins of the facility and explains its purpose.
As the framework agreement is a lengthy and detailed document, I will highlight some of the key points. Article 1 covers the entry into force provisions for the facility. Essentially, the obligation to issue guarantees only becomes operational when member states, comprising 90% of the guarantee commitments, have submitted their commitment confirmations.
Article 2 covers the granting of loans, funding instruments, the issuance of guarantees and generally sets out how the facility will operate. It provides that a euro area member state seeking financial assistance must agree a memorandum of understanding with the European Commission in liaison with the IMF and the ECB which sets out the budgetary and economic policy conditions, with which the borrower will have to comply in order to receive financial assistance.
Detailed terms and conditions will be set out in a loan facility agreement between the company and the member state in question, subject to the approval of all guarantors. The company will be responsible for raising the money it requires to advance the loans to borrowers and establishing the terms, on which it issues or enters into funding instruments. The interest rate to be charged to a borrower will cover the company's cost of funding, plus a margin to provide remuneration for the guarantors. Guarantors will be required to issue irrevocable and unconditional guarantees in respect of funding instruments issued or entered into under the agreement. The amount of each member state's guarantee is based on its contribution key to the capital of the ECB, multiplied by 120% of the value of the principal, interest and any other amounts due under a particular funding instrument. Each guarantor's total potential exposure is limited, as set out in Annex 1, to its share of ECB capital among the existing 16 euro area member states. In Ireland's case, the limit is €7.002 billion. The issuing of guarantees is limited to funding instruments related to loan facility agreements entered into on or before 30 June 2013. It is worth noting, however, that individual loan tranches may be issued after that date.
Article 3 covers the preparation and authorisation of loan disbursements. The strong conditionality of any country programme is emphasised by the requirement that the Commission, in liaison with the ECB, must present a report to the euro group on the compliance of the borrower with the terms and conditions of the memorandum of understanding before each disbursement of a loan, apart from the initial disbursement. The guarantors will evaluate the report and unanimously decide whether to permit the disbursement.
Article 4 covers the issuance of or entry into funding instruments. In particular, the company is required to fund the loans it makes by the issuance of or entry into funding instruments on a matched funding basis, if market conditions permit it. It also requires the payment dates for loans to be 14 business days before scheduled payment dates for funding instruments. If matched funding is not possible, the company may, with the unanimous approval of the guarantors, pursue a diversified funding strategy. In this regard, there is provision for the company to delegate responsibility for its management to one or more debt management agencies of euro area member states or other institutions.
Article 5 provides for credit enhancement, liquidity and treasury matters. Credit enhancement is seen as extremely important because such measures are designed to help secure the highest possible ratings from the credit rating agencies with obvious benefits for the rates at which the company can raise funding. The first element of credit enhancement is that each guarantee issued by a member state will be for 120% of its actual share of the amount being guaranteed. This will be of great comfort to holders of funding instruments issued by the company because it builds in redundancy and allows for the extremely hard to imagine scenario that one of the guarantors will fail to honour a call on a guarantee.
The second element is that the money raised by the company from the 50 basis point service fees and the up-front payment of the net present value of the margin of each loan it issues will be held in a cash reserve to form a cash buffer. Should the company ever issue any loans, the cash reserve will quickly reach a substantial size, thereby boosting the resources of the company. The cash reserve is available to cover shortfalls in payments to holders of funding instruments and will only be distributed back to guarantors when the company has fulfilled its purpose and been dissolved. It has to be invested in high quality liquid debt instruments. The company will, in the event of a delay or failure to pay by a borrower, first make a demand on the guarantee from each guarantor. If this does not cover the due payment on the funding instrument, the cash reserve can be used.
Article 6 covers claims under a guarantee. If the company does not receive a scheduled payment under a loan, it will call in the guarantees from the relevant guarantors. It will also, if necessary, draw on the cash reserve. Once a guarantee has been paid, the company will be liable to reimburse each guarantor, subject to the extent of the funds actually received from the underlying borrowers in respect of the relevant loans.
Article 7 covers the contribution between guarantors. If a guarantee is called to meet a scheduled payment and, owing to non-payment by one or more of the other guarantors, a guarantor ends up paying more than its required proportion, that is, its share of the guarantee in question before it is increased to 120%, after three business days that guarantor will be entitled to an indemnity from each of the other guarantors for the excess it has paid, plus interest at the rate of one month EURIBOR, plus 500 basis points.
Article 8 deals with calculations and adjustments of the guarantees. I have explained that a prospective borrower can make a request to be excused from having to provide further guarantees. If this is accepted unanimously, it becomes a stepping out guarantor and the contribution key in Annex 2 for the remaining guarantors will be adjusted accordingly. For example, the article specifically provides that Greece is to be treated as a stepping out guarantor from the start. As a consequence, Ireland's contribution rate to guarantees of 1.59% in Annex 2, as it stands, will increase to 1.64%. On that basis, under the agreement, Ireland's exposure in respect of its overall guarantees remains at just over €7 billion.
Article 9 outlines the procedures to be followed by the company if it becomes aware of breaches of conditions by a borrower or the need for amendments to a loan facility agreement. Article 10 deals with the company, inter-guarantor decisions, directors and governance. It provides each shareholder, that is each euro-area member state, is entitled to be represented by a director, specifically its representative on the euro-group working group which typically is the relevant economic and financial committee member.
Each director's voting weight will correspond to the number of shares held by his country. The article identifies what decisions guarantors must take on an unanimous basis. These include decisions on the granting of loan-facility agreements, the disbursement of loans, various modifications of loan-facility agreements, stepping-out guarantors, significant changes to the credit enhancement structure and the funding strategy of each European financial stability facility, EFSF, programme or any increase in the aggregate amount of guarantees that might be issued under the framework agreement.
Corporate matters of the company that require unanimity include the call-up of capital, the employment of the chief executive officer, approving the accounts and any changes to the company's articles of association, a copy of which has been laid before the House.
The definition of the EFSF framework agreement includes amendments to it. That has been included for the good reason that there will be some technical amendments to the agreement from time to time; it would be a gross misuse of resources to have to prepare amending legislation each time. For instance, this definition would accommodate the accession of Estonia to the euro and the consequential amendments that would have to be made to the agreement under Article 13(7).
The most significant change that can be made to the agreement would be an increase in the overall ceiling of €440 billion. Under section 3, the maximum amount the Central Fund can pay out is €7.5 billion. I am seeking some leeway over the current maximum exposure of €7.002 billion to allow for an emergency increase in the agreement's ceiling of €440 billion, potentially when the House is not sitting. The leeway could permit agreement to an increase of around €28 billion over the current €440 billion ceiling without requiring further legislative amendment and, as such, I believe is appropriate. However, any increase above that level will require an amendment to the legislation before we could agree to it.
Article 11 deals with the duration and the liquidation of the company. It will remain in existence until 30 June 2013 as a minimum and be liquidated as soon as any loans advanced by it have been repaid and all its liabilities to holders of its funding instruments have been discharged. If no loan-facility agreements are in place on or before 30 June 2013, then the company will be dissolved immediately. On its liquidation, liabilities, if any, may be divided among the shareholders and any assets, after the cash reserve has been distributed, will be distributed to shareholders.
Article 12 covers the appointment of the European Central Bank and the European Investment Bank to fulfil various financial functions. Article 13 covers the administrative provisions. These include the use of resources, reporting, the transfer and disposal of shares and amendment of the agreement in the event of the accession of a new member state to the euro.
Annex 1 sets out the list of guarantor member states and their respective guarantee commitments. Annex 2 sets out the contribution key for each member state.
The EFSF is an essential contingency measure. As Senators will be aware, other broad-ranging measures are also being considered at EU level with a view,inter alia, to improving the economic governance of the euro-area and the related arrangements for budgetary surveillance.
In this latter regard, the European Commission yesterday issued a further communication on reinforcing economic policy co-ordination. To this end, a task force has been established by the European Council President, Mr. Van Rompuy, on which Ireland is represented by the Minister for Finance.
Notwithstanding what has been implied in some media reports, Ireland has nothing to fear and everything to gain from this important process which is likely, if anything, to enhance the role of national parliaments in these matters. In these difficult economic times, our membership of the euro has been and continues to be of critical importance to the economy. We must, therefore, play our part in defending the currency, not only because of the principles of solidarity and responsibility that come with our membership of the euro, but because safeguarding financial stability of the euro-area is vital to our own economic recovery and future success. This is the Bill's purpose.
I have outlined the legislation's full, and possible financial implications. This is important legislation for Ireland and for our partners in Europe. I commend the Bill to the Seanad.
I welcome this important legislation. A commentator on the euro crisis wrote it was Archimedes, the ancient Greek mathematician, who observed how a lever can let a single man move the world. The commentator then asked how could difficulties in the Greek economy, worth less than 2% of the total eurozone income, nearly overwhelm the entire eurozone economy and prompt the need for this legislation.
Several reasons behind these events give us an understanding as to why this legislation is required. Before the economic crisis, there were certain subjects in national and global economies that were out of bounds for discussion. Criticising our country's economic performance during the Celtic tiger or Irish banking practices was out of bounds and sometimes deemed unpatriotic. This narrowed the parameters in which we were evaluating how the economy was performing and those economic forces outside of our control.
Another factor to take into account is the incredible amount of economic integration that has taken place in Europe in the past decade. What happens in the Greek economy or the Irish banking system can suddenly be very important to other European banks and larger economies across Europe.
In the eurozone, we have monetary union with the same central bank and currency but not fiscal union. National economies maintain the same currency with the same interest rates set by the European Central Bank while making their own spending and taxation decisions without any co-ordination across national boundaries.
The Stability and Growth Pact was put in place to ensure the problems in one national economy did not cause problems for the rest of its eurozone neighbours. Between 2000 and 2007, Greece was in breach of the pact's rule that its deficit on public expenditure over revenue could not be over 3% of its gross domestic product in any year. Economic growth, however, at the same time was slipping. The European average between 1981 and 1993 was 2.25%. Between 1993 and 2003, it slipped to 2% and now the outlook forecast is 1%. At a time when the economic growth was desperately needed to cope with the debt levels in Europe and those we now find in Ireland, we find such growth is not there. This measure, although important, is one of a suite of broader measures introduced and acknowledged by the Minister of State. We have already seen put in place a bilateral aid plan for Greece, the stabilisation fund, which is under discussion today, and another measure of great importance, although we are unsure of the extent of its importance, that is, the role the European Central Bank is now playing in supporting Government bonds in secondary markets. The week before this agreement was put in place it became apparent that many European governments were facing great difficulty in financing national debts. The European Central Bank is not allowed to play a role in primary bond markets under the terms of the treaty which created it. However, it is allowed to play a role in bond market roll-overs and it is doing so at the moment. The IMF, International Monetary Fund, plays a role in dealing with the difficulties faced by some national economies as well. It is setting out the terms under which a country may access funding. All of these measures would have been unthinkable one year ago and beyond the imagination of many two years ago. This is happening now because, for a period, the European banking system and bond markets, upon which we all desperately depend, faced profound difficulty. These measures were prompted because of the difficulties we all faced. For a long time, to discuss these difficulties was viewed as not the right thing to do. It was deemed unconventional. I have no doubt that, as a result, some of the difficulties which we now must face and manage have been increased or made worse.
In that spirit, I will raise several concerns about this Bill and the direction in which we are going. Notwithstanding that, my party supports the Bill because there appears to be little choice at the moment with regard to how we are going to manage these difficulties in the short term and since there is not much choice, these Bills must be supported. However, broader concerns exist which we must begin to consider now and upon which we must act.
I firmly believe there is an absolute obsession with evaluating all the difficulties we face in exclusively budgetary terms. I was struck by a survey carried out last week byThe Economist. It examined the consequences of the vast amount of debt with which companies, individuals and Governments must deal. The report concluded with the fact that the only historically proven strategy to allow economies to deal with such issues has been a relentless focus on generating economic growth. When such growth takes place, it delivers the buoyancy which allows the debt level to come down. As a result of the difficulty in which we find ourselves, such a level of focus is not in place. There is not sufficient focus on asking what we can do to generate employment and growth rather than simply asking what we can just do to deal with the budgetary difficulties we face.
In discussions on the Bill there is occasional reference to the unthinkable and I will refer to the unthinkable on Committee Stage. The Minister of State referred to "the unlikely event that a guarantee is called upon". Such phraseology appears again and again. However, the financial markets do not believe such events are unlikely at the moment. They believe several economies, thankfully not our own, at some point in the future will face the need to restructure their debt and will find themselves in a position where their debt and the plans to deal with it are not realistic and will not work. Most of that concern relates to Greece at the moment. However, until recently, other economies were included within that horizon of concern. It is important to discuss these unlikely events more, not because we hope they will materialise — nothing could be further from the truth — but if they do, we can ensure the measures are in place to avert the unthinkable from happening.
This leads me to what I believe to be the greatest weakness with the package and the plan laid out in the Bill. It refers to the conditions upon which economies will be able to access funding from the new fund but it does not refer to what such conditions will be or what would happen if those conditions were breached. It suggests a role for the IMF in laying out a plan for national economies to follow but it does not go into the detail of what that plan would comprise or what would happen were than plan to be breached. This point is vital because it relates to the one question hanging over the future of the eurozone, that is, at what point so called fiscally strong countries, such as Germany, will tire of supporting other countries which have not run their national finances in the same order. My great concern is that we cannot expect the solidarity which has been the driving force of the European Union political project to be there forever with regard to economic matters. It is important that as legislation is introduced and reviewed by countries we must ask such questions and question what might happen. If we ask such questions we will produce better plans and strategies to avert the unthinkable from happening.
The Bill and its measures are driven by a consideration of this point, which is the reason we support it. However, greater questions are at stake regarding the extent of the focus on European economic growth overall, on how a new stability and growth pact will work and on the conditions required of countries to access the fund. I have a dreadful feeling these will be the great questions to dominate our economy and others in the years to come.
I welcome the Minister of State and I welcome the opportunity to discuss the European Financial Stability Facility Bill 2010. I have no intention of going back over the causes of our economic crisis again. There have been countless opportunities in recent months to make a variety of points in the House. We are where we are. For the most part, we fully realise why we are in the position in which we find ourselves. Some mistakes were made but it is clear from the actions taken, especially by this Government, in the European context, that we have learned from any mistakes made and we are taking the appropriate measures with our European partners to deal with them.
I refer to the purpose of the Bill, which the Minister of State has outlined in extraordinary detail. It enables the Government to participate in the proposed system of financial stabilisation along with other members of the eurozone. The three stabilisation features include the European financial stabilisation mechanism, under which €60 billion may be borrowed by the EU Commission and loaned to member states; the European financial stability facility, the purpose of this Bill, which is a €440 billion facility; and the assistance the IMF can provide, which is in the region of €250 billion. As the Minister of State noted, this was decided in May. Under the Bill, Ireland will contributepro rata to the €440 billion eurozone special purpose vehicle, available to member states under strict terms of conditionality. I fully accept that we would all prefer clarification on what conditions are likely to be included. As Senator Donohoe remarked, perhaps we can tease out these conditions further to get an indication of the relevant conditions, which will have to be very robust, on Committee Stage.
As the Minister of State noted, Ireland's contribution to the SPV, special purpose vehicle, will not exceed €7.5 billion and the IMF will also provide an additional €250 billion. The Bill is in addition to and distinct from the Euro Area Loan Facility Act 2010 which committed the Government to participating in €80 billion of support to Greece. The Minister of State went through this in some detail.
Why is it needed? We are all clear on why it is needed. The Minister for Finance stated in the House that to develop and implement bespoke instruments each time a member state faced difficulties is not a sustainable or prudent approach. Although I am not a finance graduate, I believe that in unison with all the measures being introduced we should apply basic common sense to what has been going on. I am not at all confident that on a Europe-wide basis the necessary regulatory reform will be introduced in the financial services industry. I would like more regulation to be introduced in Europe. Ireland has begun a process to deal with that but I am not comfortable that is the case throughout Europe and I hope the Minister of State will use the opportunities that arise to pursue that issue.
The facility will be governed by the intergovernmental framework agreement between member states and the special purpose vehicle, SPV, which will be used to implement the facility. The SPV will raise money on the markets using government backed credit guarantees and will last for approximately three years. The financial implications for Ireland mean the Government will provide €7 billion. The new financial stability facility company remains liable for funds paid under any guarantee and will endeavour to secure payment of any underlying loan and default with a view to returning such funds to guarantors.
The commentary on the proposal has been interesting. Dominque Strauss-Kahn, the managing director of the IMF, stated:
I strongly welcome the far-reaching steps unveiled today by the European Union and the European Central Bank (ECB) to restore confidence and financial stability in the euro area. These are strong measures that will help to secure global economic and financial stability, and preserve the global economic recovery. Implementation of actions to put public finances on a sustainable footing is key to restoring economic health in Europe.
The chief economist of Citibank said:
The creation of the European Stabilisation Mechanism (ESM) and the accompanying announcements of the ECB have...eliminated the prospect of sovereign liquidity crises turning into sovereign solvency crises and the prospect of major EA [euro area]/EU bank failures due to EA sovereign exposure. They have also reduced the risk of the fiscally stronger and more competitive EA members leaving the currency union.
I am more interested in the issues raised by Senator Donohoe, which can be teased out on Committee Stage but I was taken by the comments of Arthur Beesley, financial correspondent ofThe Irish Times. He stated:
In the face of relentless market pressure, euro zone finance ministers have taken key steps to avert any repeat of the fiscal meltdown in Greece with a deal on the final shape of their €440 billion guarantee fund for distressed single currency members...This is the state of play. When not fighting fires, the European authorities are trying to rebuild the house. It ain't easy.
That captures where we are. This facility is another cog in a wheel that will need continued attention. We have much work to do in the regulatory area. I do not have confidence that other European governments will take the necessary measures, which have been taken here. I ask the Minister of State to reflect on that for Committee Stage.
I am in two minds about this Bill because I was struck by Senator Donohoe's comment that the Opposition parties support this because they have no choice in this matter. We are in such an extraordinarily difficult situation that not to be part of this rescue operation would leave us vulnerable. There are two ways of looking at this and the Minister of State looks at it mainly from one angle rather than the other. One either looks at it as either the guarantor or the guaranteed. In this we are guarantor and guaranteed. As guarantor, it does not make much sense for us to be guarantor of any more debts. We have guaranteed many debts recently, including domestic debts. How much money has the State guaranteed at this stage? What is the total amount of the guarantee? I include all the semi-State guarantees given by the Minister and the implied guarantees. I gather the debt owed by, for instance, the DAA is not officially guaranteed by the State but, in effect, if it went belly up, which is quite a possibility, the State would have to fork out the €1 billion owed by the authority. Plenty of other semi-State bodies are in this position where the State has either implicitly or explicitly given guarantees.
I worry when the Minister of State says, apropos of nothing, that the Government will guarantee another large sum of €7 billion in this case on top of what we guaranteed to Greece. I worry when this is done in a cavalier fashion how much we are on the line for, particularly as there was a certain complacency in the Minister of State's comment that the amount is guaranteed and no money is being called on. That is absolutely true at the moment but guarantees are there for only one reason, which is to be called on. We must consider the scenario where this money will be called on and how we would cope with it. Given the amount involved and the money guaranteed for Anglo Irish Bank and others, we would find it difficult to pay. I am not sure this makes great sense for us, therefore, as guarantors.
As the guaranteed, we are getting a pretty good deal. The reason we are in this fund is that we are pretty much next in line. The facility was introduced in the wake of an attack on the euro and on the Greek economy by speculators and this is a challenge to them. Their immediate response was not to be impressed and I am doubtful whether by forming a shadow fund such as this the speculators will be put off and frightened away. There has been no resurgence in the euro and there has been no leap in confidence in Greek debt since this fund was formed. The opposite has happened and it has junk bond status now. I suspect the reason for this is the markets for whom we must have respect, whether or not we like them, have given a verdict that the only way to strengthen the currency and revive confidence in the Greek economy is by getting our house in order. It is not by setting up big funds that are just a challenge to the speculators. This is not that big a fund to speculators if they get going against it.
When the Minister of State says states are unable to access funding on international markets due to exceptional circumstances beyond their control, he is not right. In almost all circumstances, the nations in trouble have dug holes for themselves. It is certainly true in the case of Greece, which, as Senator Donohoe correctly pointed out, breached the Growth and Stability Pact seven or eight years in a row and it is certainly true in our own case. To keep peddling the myth that we are in a mess that we did not create ourselves or we are facing a temporary crisis that we did not create ourselves is just not right. We will need this facility because we ran up the large deficit and allowed the banks to go absolutely bananas and we have run the economy into the mess it finds itself. If we go knocking on the door of this fund looking for money, we will not be able to plead that it is a matter beyond our control. It is a matter for which we are directly responsible.
As guarantors, the facility does not make sense but we are pretty wise to be involved because we are likely to need it next and it is there for nations like us. TheFinancial Times quoted the bond margins over Germany today. Greece must pay 8% more; Portugal, 3.4%; Ireland, 3%; and Spain, which is in the dock at the moment, must only pay 2.11% more. The markets are saying that, if any country is going to call upon the fund, first it will be Portugal and then Ireland. We are, therefore, reasonably sensible to be involved.
The Minister mentioned the issue of budgets being submitted to the European Commission. This is an extension of the Europeanisation and globalisation of the discipline being imposed upon us. On reflection, I welcome this. With one or two exceptions, the nations of Europe have proved that they are not running their economies responsibly. The danger is not so much that the European Commission will expel Greece, that Greece will default and leaving the euro or that Ireland will do the same, but that Germany which will finance the fund we are discussing will decide that it is fed up and will not fund it further. Every other country is breaching the terms of the Growth and Stability Pact and making it absolutely irrelevant in a way and to an extent that Germany is not doing. Germany could decide that the political pressures are too much. We saw the result of the election in Germany recently when the bailout of Greece was being contemplated and about to be agreed. The ruling party got a drubbing in the polls. Germany could state it will not expel a country from the euro, that there is no mechanism to do so, but could decide to pull out of it itself. That would be catastrophic.
It is reasonable, therefore, for the European Commission and other European nations, led by Germany and France, to wag their fingers at us, point out that we have proved that we are not prepared to abide by the rules and ask to see our budget in advance, or at least the budget parameters, to be approved. We are asking them to bail us out. A bailout has not yet happened — these are just guarantees, although they are serious matters — but being bailed out means that somebody must do it and that the bailout is conditional. It is conditional, unfortunately, upon the most powerful nation or person doing the bailing out, which in this case happens to be Germany. We should, very reluctantly, say "Yes" to the Bill, not as great Europeans and pretending we are doing our duty as great Europeans, but out of pure self-interest because we are likely to be next or second in line.
We should not be starry-eyed about the prospects of a sum of €750 billion somehow deterring the speculators. That type of figure presents a challenge to them and they will ride roughshod over it, if we do not get the economy in order. That said, we should point out — this is the appropriate Bill in which to do so — that the Minister for Finance has done a great deal to convince overseas markets, although not enough, as they are wobbling again, that there is a determination on the part of the Government to bridge the deficit. We should give credit for the fact that — I do not know how it has happened — the budget measures introduced have been reasonably successfully implemented without too much difficulty and trouble and with great skill. The message has certainly got across to those who needed to hear it, particularly the trade unions, that we are in a situation where we require their co-operation, not their undermining. It is fair to say the public service unions have behaved in a reasonable way and that is an acknowledgement I do not give easily. Ireland has been fairly successful in achieving the objectives it has set, even if they do not go far enough. There are great difficulties to come in the budget in December. However, we must be part of this fund because this might be the next country to call on it.
This Bill, the second legislative measure to emerge following the recent meetings of the Council of Finance Ministers and the European Council, is the response to the crisis engendered by the instability in the Greek national finances. This measure seems to have gained the most confidence. I accept what Senator Ross said about the current instability in international markets, the flaws in the euro as a currency because it is a transnational currency, the fact that fiscal policy is not a uniting instrument among all its members and the fact that the criteria that were meant to over-ride the existence of the currency are not in balance as regards national debt and the proportion of GDP. The Senator spoke about Ireland being in the same ball park, at least in terms of market lending rates, as Spain and Portugal. That is due to the undeniable fact that our budget deficit remains the highest in the eurozone and the European Union. However, it is also undeniable that our overall level of borrowing, despite issues such as the banking crisis, is still within an average ball park and in a far better position than that of countries in greater difficulties such as Greece, Spain, Portugal and Italy.
At a recent European Green Party seminar in Brussels I had an argument with the Italian delegate as to which of our countries had the greater fiscal problem. Recent figures for Italy's national debt show it to be €1.8 trillion, proportionately far higher than ours. Consider the general angst and media commentary that attended the special emergency budget of the new British Government which provides for an adjustment of £6 billion sterling on a national debt of £894 billion, given that this country started a €4 billion adjustment process last year, with a figure of €3 billion next year and €3 billion the following year, in a series of adjustments to 2015. It can honestly be said we have made the difficult decisions and are prepared to address the imbalance — we can argue about how that happened — in the quickest time possible. It is also not debatable, although I suspect others will make it a debating point, that in addressing the need to get out of the difficulty as quickly as possible, one must front-load such decisions. That is the situation in which the Government found itself. Nevertheless, the decision to establish a stability facility fund is a good one for the future of the euro. It asks short-term and medium-term questions on how the stability can be strengthened further. There will be pressures about a common fiscal policy and questions about whether the criteria in terms of the money supply can and should be relaxed more and whether the ruling set at the beginning, at the behest of the Germans, on maintaining the rate of inflation at around 2% is a good one. Could a relaxation to a rate of 3% or 4% be one of the instruments we should use to help ourselves get out of the difficulties? These are debates that must take place at Council of Ministers level and we must wait to see what will transpire.
I suspect the inclination will be one to serve the euro currency well, that is, to remain cautious, conservative and effect as little change as possible. We are well served by having Jean-Claude Trichet, the person leading the European Central Bank, making such decisions.
We must realise also that the tolerance the European Central Bank has shown in recent years may not always exist, and we are seeing signs of that now. In recent weeks alone there have been question marks over the way that might affect lending to banks, and inter-bank lending. That in itself might have a retarding effect.
Given the release of the CSO figures yesterday and the recent IMF report we should be thinking more on the positive rather than the negative side. We are getting the balance right but what we should not do is create an expectation. I say that knowing there is a wider political context where expectations are purposefully dampened in Opposition and put in the most negative light possible, but the indicators are that at least things are going in the right direction. They will move slowly but that slow movement and growth is probably to our betterment as a society and economy because we have seen the effect of quick-fix fast movements in economic growth in the past. We were not able to handle it. It was not to our betterment. If we are to learn from the mistakes of the past we should claim more of the approach we have seen from Jean-Claude Trichet and the European Central Bank and introduce as many instruments like this European Financial Stability Facility Bill as we can.
Gaps remain, however, and some of those gaps may not be able to be filled because of the inconsistency of the euro as a currency. The euro is currently weak, and some seem concerned about that, but a weak euro is to our benefit as a nation and if we are to have export-led growth, the current position is not detrimental to us.
There are other international factors, however, such as the way the Chinese put out economic statistics about themselves that are now being questioned and the valuation of the Chinese currency against the dollar, which will have a knock-on effect in terms of the current links with the dollar, sterling and the euro. The indications, however, are that because a speculation game is afoot against particular members of the eurozone that will keep the euro in a relatively weakened state. As long as we can avoid default of any of the members, any of the members coming out of the eurozone or any worsening position in the individual countries, we will be well positioned to make use of these and other instruments for the improvements and growth our economy needs.
Listening to the contributions of colleagues, the note hit in the first instance by Senator Donohoe and repeated by others and which comes across in the debate is the sense of inevitability and unavoidability in regard to this measure. The Minister of State described it in his contribution as a logical follow-through of the steps the European Union and the IMF took in response to the Greek crisis. He is right to describe it as logical but it is also inevitable. It literally flows from it. It is an essential requirement of that policy decision that this type of fund be put in place.
Unlike some of the other financial debates we have had, and I include the debate we had almost two years ago on the guarantee where as we know from Professor Honohan's report there were other options, and we can argue about the effectiveness or lack thereof of different options available to the Government, there was at least a possibility that we could have a debate, but unfortunately in this debate whereas it is important for us to tease out as best we can what the Government is proposing and to have the Minister set out the basis and rationale for this measure as he has fairly done, we are left in circumstances where there is no choice but to support this measure. I will be supporting it. I do not want to sound mealy-mouthed in the sense that is the only reason I believe it is necessary to express solidarity through a mechanism such as this one. Having said it is inevitable and that there is no choice, it is extremely important that this measure be put in place and passed.
It is true that we may end up having to avail of the fund at some point in the future. I very much hope that will not be the case but no one can avoid being concerned when we examine the European league table in respect of the countries that are at greater risk than others. It may be true that an "I" was taken out of the PIIGS at some point in terms of some of the international commentary, and Ireland is no longer coupled in the first instance with Greece, Portugal and Spain, but we are not that far off. Any reasonable observer or participant in this discussion would have to see that we are in the frame in terms of a future risk but because we are, relatively speaking, such a small economy may be one of the reasons Doomsday does not arrive for us. There are many things to criticise the Government for, and I am not making this as some sort of debating point in this instance to take from this proposal because I believe this proposal should be adopted and passed.
People spoke about Greece in this discussion and we had this debate previously when the specific measures were being introduced in regard to Greece, the Stability and Growth Pact and the mechanism in place since the Maastricht treaty and some of the other related treaties. It is true that Greece was not in compliance with the 3% rule but it was not the only country not in compliance with it. If my memory serves me correctly, some of the larger countries were in default in that respect. I recall a controversy five or six years ago in regard to that. That tells us, in terms of sheer logic, that it cannot simply be the failure to be in compliance with the 3% rule that got Greece to where it is now. There must be other factors. It cannot be the only factor.
For lengthy periods we were in compliance with the 3% rule but we find ourselves in a difficult position notwithstanding that. Admittedly, many, if not a large proportion, of our difficulties are self-inflicted but, regrettably, staying within the 3% rule did not save us from them.
As I mentioned here on the previous occasion we had this debate, profound consideration will be necessary on how we harmonise economic policy across the eurozone in circumstances where we have a single currency. We have one piece of the jigsaw in regard to our currency but so many other economic policies would inevitably require to be harmonised if that system was to hold true in the future. I look forward to that debate emerging in the coming months, not just in this House and in this country but across the European Union. It is necessary that should occur because the 3% requirement is essentially a dead letter now. We may aspire to returning to some sort of test of that kind but as we understand it, it seems to me to be a dead letter.
I am interested also in the conditionality of these measures, which was touched on by a number of colleagues. In other words, where a country applies for support from the fund it has been signalled or stated in Article 2 of the framework agreement that there would be requirements for budgetary and economic policy to be managed in a particular way. We are all familiar with that from previous decades in regard to the IMF and the notion that if a country borrowed from, was funded or backed by the IMF it would dictate basic essential economic policy to a country dependent upon it. We are considering the same issue here. What would be the nature of the requirements that would be dictated to a country were it ever to require assistance from the fund? We should at least consider that or have some sense as to whether there has been much debate at European level on the nature and extent of those kinds of requirements. The Minister of State might comment on that when replying. It is all very well for people to say that if a country gets the money it must do something in return such as slash and cut and so on. I understand the basicquid pro quo point people are making but we must not lose sight of the impact of those kinds of requirements on citizens. These are political choices that ultimately must be made in a country. When did we have this debate about sovereignty? There was a bit of a phoney debate a few weeks ago when the Leader of the Opposition made some point, perhaps an ill-guarded remark, about loss of sovereignty and then, somewhat inevitably, he was hopped on by Government spokespersons and told that he was being a Eurosceptic or whatever. Certainly, the way the remarks were couched was a little unfortunate.
To have an intelligent assessment of what is happening here, those of us who support the European project still believe there should be a high measure of economic sovereignty and decision-making available to decision makers and politicians, those who are elected by the citizens of a country. In the choices we make, for example, about how much money we want to invest in the health service, education, child care or whatever, we want to be able to make these decisions in our own country. It is not a Eurosceptic or Neanderthal position to state that we want to hold on to those decisions. We need to understand and be able to assess to what extent there is a risk that such decisions about those vital choices would be ceded from our own jurisdiction. It is not an unreasonable issue to raise. These are essential political questions where we should be sure that we understand what the risk would be if we, or Greece or some of our other partner countries, could no longer take them or have that measure of control and sovereignty over our own economic well-being. That touches on the debate here on economic policy, and we will be back here on many occasions in the autumn dealing with these issues in the run-up to the budget.
Senator Boyle made a point that there was a major debate in Britain about its budget and he used this phrase, that we had got the balance right, by which I am not really quite sure what he means. On public services, when a country must make an adjustment, as we debated last year, what is the balance as between cuts in services or revenue measures such as taxation increases? These are central political questions. When one cuts public services, whether in Ireland, Britain or Greece, it has been demonstrated repeatedly that it has a disproportionate effect on the less well-off, the poorer in society who are more vulnerable. Right up the chain, among the lower paid right across the board, when one cuts public services it has a disproportionate effect. No doubt that is what is causing the emerging political tensions in Greece and in Spain. Ultimately, that is what is occurring. There is no point in us standing here talking about financial measures in billions of euro unless we remember that we are talking about individuals and families who work to earn a living. They have aspirations for their future, to which they are entitled, and which, by the way, I say to Senator Ross, are mediated through trade unions. I have no difficulty with that. People organised in trade unions are entitled to do that and are entitled to organise to defend their interests. That is where this debate is at. That, it seems to me, is where the fault lines are.
I welcome the Bill. The Minister of State outlined clearly how it works. Senator Ross put his finger on it when he stated that it is certainly a good idea that we should be involved in this support for the European currency.
The European Community has been playing catch-up since the eurozone was set up. There were no facilities within the eurozone to protect the euro at any stage. This is an effort, and it is only an effort. In fact, it is a small effort to address how we will run our budgetary measures and the entire European system without having oversight of budgets throughout the European Community, how tightly those will be run, and whether we have the figures to produce that we work within a certain system.
I hope we will be able to meet the demands Europe will probably set for us over the coming years. That will be important. If there is security in the eurozone by way of the stabilisation fund which will now be put in place in each country, we will be able to take part in that and support each other. That is the idea of the Community, where we work together.
We have taken extraordinary measures in the past three budgets, and Europe has seen that we are prepared to deal with our budgetary strategies. On that basis, I believe we will be able to look after our sovereignty because it is important, as Senator White stated, to ensure that we have good health services and good public services.
We will be a little more demanding on our public service, the health services and the various services that we run. There are approximately 350,000 presently employed in the health services, in the public service and in all the various services that we need so badly and they provide such a good service to us, but even the unions have realised that nobody owes us a living any more and we must meet budgetary constraints. We saw in the Croke Park agreement where commonsense prevailed. Why did we not have the same uproar as the Greeks, Italians or whoever? Commonsense again prevailed. We have a well-educated sensible people here who could see that what needed to be done was important. All they needed was the leadership to do it and the Government has shown leadership in that regard, and it is important to say that. There is far more to do in terms of the EU situation.
It is important to bear in mind that figures published yesterday contained a mixed message. There was 2.7% growth in GDP in the quarter and then there was a very bad message on the live register. We had a fine quarter in exports, with growth of 6.9%. The aspect of those figures that encouraged me was the 2% increase in imports because that will stimulate the economy in the goods and services market. It will take time to start to see the growth come in the economy.
Europe has a part to play in that and it must introduce various stimulus packages for European development. No later than last week President Obama stated that it was important that Europe would play its part in ensuring that there is not a double dip and we do not go into a further depression. That is vitally important.
I am critical of Europe in terms of it not being prepared for the present situation. It had not prepared for a downturn in the world economy. It had not prepared for a banking crisis. We can blame ourselves, maybe, for many of the problems of our economy but if one looked at the European Union, nothing was happening there either. We have a major role to play to ensure we bring our budget back under control and this is being done. Our current agricultural policy in Europe is wrong. The European agricultural policy is wrong and we should argue for change. We could create many more jobs in the agricultural community here, providing there are proper market conditions, something we do not have at present. The conditions are artificial and until the present situation is changed in the European Community and we have a competitive market, we will not succeed in the agriculture business.
I support the Bill. I thank the Minister of State for bringing it to the House and for his clear explanation of its provisions.
I support this Bill. I note it results from the difficulties for sovereign states in raising funds. We have provided the facility and we are part of that facility, along with the European Stabilisation Fund and the IMF. We must question why this facility was necessary in the first place, the reason being the supranational nature of international funding. Given the supranational nature of international funding, it is time we also had supranational regulation. This funding was absolutely necessary for Greece but it was not absolutely necessary that Greece would fall into the trap into which it fell. In other words, it was a problem created for Greece by the international markets. I am cognisant of the fact that a fund of €15 billion by the Chicago Mercantile Exchange was set up to sell sovereign debt in Greece short. In other words, selling off the bonds at a hugely reduced rate with a view to buying them back later, given there is going to be a run on the market. In many cases and in other states, these people who have purchased sovereign debt funds at a discounted rate have held out for the full payment from the sovereign nation. In welcoming the €750 billion fund it is essential that light is thrown again on the misdirection in international finance. I am conscious that EU regulation will be introduced to prevent this happening again. If proof positive were needed as to the sequence of events, the Greek Government refused to sell to either hedge funds or banks that might off-load their debt quickly. Instead, the Greek Government insisted on selling to insurance companies and pension funds that have a certain stability and long-term view as they would be the only ones to hold their debt.
We should consider the way the Irish Government managed in the 1980s. In the 1980s Ireland had an unemployment rate of 18%, interest rates of 18% and a debt to GDP ratio of more than 120% and yet we paid every penny owed. It was significantly more difficult in the 1980s for a nation like Ireland to pay its debt than it is for Greece today, if it was not for the outside influences. Those outside influences are a danger because there is no morality with these hedge funds. In fact, having created from the international funding the problem in sub-prime lending, some of these very hedge funds took a stand against the banks that were in difficulties, such as Lloyds TSB and HBOS, whose shares were sold short by hedge funds in the middle of the financial crisis.
It is quite correct to set up this fund but we must also consider the reason for it. It will be useful but the second part has to be an examination of the nations that are currently part of the euro and whether they are achieving what they set out to achieve or what they claimed to have achieved when they joined the eurozone. If individual sovereign debt can be picked off, it undermines the euro which is part of a very positive whole and which we are attempting to defend properly. However, this should be in conjunction with other measures to defend against the type of speculation that took place against Greece and would readily have taken place against Ireland if there was any credibility. However, there was no credibility in taking a stand against Ireland because the management of the economy here was correct.
There is every international indication that we did the right thing at the right time. When we reached a fork in the road, in many different instances we always took the difficult and the right road. This has been proven right and right again. There was no real credibility in going after Irish sovereign debt but the predators certainly went after Greek sovereign debt. We have a position in which we have a stability fund and there are other mechanisms that could easily have been brought in, including Germany borrowing the funding in the name of the sovereign nation and benefiting from the reduced rates but this should never have happened. We introduced very strong regulation but we need to have supranational regulation so that if a hedge fund is trading within a nation and that trade is a particularly high trade, it must subscribe to the local national regulation and to the supranational regulation.
I welcome the Minister of State to the House. I also welcome the political agreement which lies behind the Bill. When the markets seek to undermine the solidarity of the eurozone, prompted by the funding difficulties of the Greek Government, the finance ministers of the eurozone came up with the package on a big enough scale to carry conviction, namely, resources of up to €750 billion in financial support to euro area member states if required. All too often, when there is a financial market crisis, governments do too little, too late and fail to impress the markets. On this occasion, as Senator Hanafin stated, our Minister for Finance, Deputy Brian Lenihan, along with his ministerial colleagues in the eurozone, stung the markets with the sheer size and imagination of the support package and he has succeeded in setting aside doubts over the ability of member states to raise funds. The power of the total package is shown by the fact that it enables Greece to borrow up to €80 billion over the next three years without having to go to the markets which would have charged prohibitive rates of interest even if they were prepared to lend to Greece at all.
This package gives Greece and its citizens the chance to get their financial house in order before they need to return to the depth markets in some years. The Greek crisis led to the euro ministers devising this package and in doing so, they came up with a solution which can help other eurozone members if the need arises and they have to reinforce the solidarity and credibility of the euro.
This Bill provides the ceiling on guarantees which Ireland is asked to provide at €7.5 billion. It is unlikely that Ireland will ever have to be called upon to pay on foot of these guarantees which are preventive in nature. I welcome this Bill and the Irish commitment included in it, since as a small country, Ireland benefits disproportionately from being a member of the eurozone. As Senator Hanafin said, we did the right thing at the right time.
I thank the eight Senators who contributed and I thank the House for its unanimous support for the Bill. Many interesting and important issues were raised in the course of the debate. One would go back to what caused the need for this type of legislation. It was the inability of Greece to borrow at sustainable rates from international markets and the rise of contagion in terms of financial instability to other sovereign debt issuance. This gave rise to the euro area loan facility to Greece, which enables it to meet its funding requirements without recourse to the markets for the next three years. At the same time, Greece is required to meet strict policy requirements, including cuts in public service pay, cuts in pensions and increases in VAT and excise duties. At a broader level, ECOFIN last May decided on a package of contingency measures, including the European financial stability facility.
Senator Donohoe raised the continuing critical issue in referring to the obsession with evaluating all difficulties in financial terms and suggested it was better to generate economic growth. The value of generating economic growth is not disputed by anyone but the question is how that is achieved. I have often expressed the view that increased and improved competitiveness, which we have done substantially over the past couple of years, is the key to restoring growth and increasing exports. We must strike a reasonable balance between budgetary consolidation and stimulus programmes. We must be realistic in the European context. We are taking measures to stimulate the economy, including the capital budget, various labour market measures and financing measures for small and medium-sized enterprises. However, a net financial stimulus is not possible in the current situation for us or for most European countries. It is imperative we reduce sovereign indebtedness. If we are talking about net fiscal stimulus, the experience is that while we can maintain or increase activity for a certain limited period — the last time we tried it was in the early 1980s — ultimately we end up with greater indebtedness. The tolerance of the markets for increasing indebtedness to provide a stimulus does not exist at the moment. That addresses some of the points raised by Senator Donohoe.
Senator Ross asked how much we have guaranteed. The figure in the 2008 finance accounts was €5.015 billion but this excludes the bank guarantee of €440 billion. He considered this from the point of views of guarantor and guarantee. In terms of European solidarity, it is not possible to say that a country is only interested in being a guarantee. We must show solidarity despite the difficult financial situation and that has a cost. We must carefully monitor the situation in respect of guarantees but we must consider the opportunity cost of not having such guarantees in place. Senator Ross was quite clear about the benefit of having the guarantee. The phasing out of the bank guarantee will be achieved over time, consistent with any requirement for continued support of the funding conditions of the banks and the maintenance of financial stability overall.
Senator Ross was correct in saying we must continue to put our house in order. We do not have a choice when it comes to relenting on that but we must do so as intelligently and as effectively as possible. We must do it in a way that minimises economic and social damage. Senator Ross has frequently commended the budgetary measures pursued by the Minister and his continuing endeavours to promote market confidence.
When discussing the German situation we must be very clear that Germany is an enormous beneficiary of the euro and the eurozone. If there was no eurozone, the German currency would soar, making its exports much less competitive. We must bear this in mind when analysing Germany.
I was in this House for five years and I have been here for many financial debates as a Minister of State. This is the first time I can recall Senator Ross praising the public service unions. The praise is deserved and I commend him for so doing.
Senator Ross envisaged Ireland borrowing from the facility in the near future and wondered whether we would be before or after Portugal. The markets have increased the margin of our bonds over German bonds in the secondary market but the Government is of the opinion that we have taken the necessary steps to convince the markets of our determination to rectify our finances. Senator Ross is correct in saying the markets have a tendency to wobble frequently over the past number of months but this drives home the need to take sustained and repeated action with regard to our finances. We have time to take further steps and we are in a comfortable position with regard to funding for 2010. Even if we did no further borrowing this year, existing cash reserves would cover requirements for the remainder of the year, including the repayment of all short-term borrowing.
The NTMA has targeted a total bond issuance figure of approximately €20 billion in 2010 and by mid-June had raised €16.4 billion or 82% of the full-year target. A total of €5 billion was raised through syndication on 14 January, €10 billion in bond auctions from January through to June and €1.4 billion in the domestic retail debt market. In addition, the NTMA holds large cash balances which stand at approximately €20 billion. This allows it to time its long-term issuances to take advantage of opportunities in the bond markets and avoid periods of volatility. Ireland is some way down the path of addressing the main challenges facing it. This has been recognised internationally and the credit rating agencies have recently reconfirmed Ireland's rating. However, the net point is that it is still within our own hands to decide our future and I firmly believe we are equal to the challenge.
Senator Alex White, having spoken about the inevitability of this process, went on to discuss what harmonisation of policy might consist of, what the IMF might dictate, if Ireland or any other country were to need its help, as well as the importance of maintaining the ability to make decisions within the country. I could not agree with him more on this point. If one were to sum up the entire purpose and determination of Government policy in the past two years, it has been to take whatever measures are necessary to keep decision-making within our own hands, rather than throwing up our hands and allowing outside bodies to dictate that we do this and that. Although the struggle is not over, we have maintained a course of action and, as necessary, taken further measures, which was particularly the case last year, to achieve that goal.
I do not wish to exaggerate or put too much of a positive gloss on it, as we are coming from a very low level, but there are signs of an upturn. I hope such progress will be sustained gradually. Increased competitiveness is leading to the creation of more jobs, but, unfortunately, we still are losing more than we are creating. However, I certainly hope that over time the balance will begin to shift.
There are unpalatable choices or options, including some discussed in the last year or two, on which a general political consensus has emerged, despite economists' suggestions such measures should be taken such as on third level fees, property taxes, water rates, etc. While some of these may be introduced gradually, one may take it for granted — I include a possible raising of the corporation tax rate — that if we were in a position where we would be obliged to call on aid, many such decisions would be taken out of our hands. Moreover, it is doubtful whether outside bodies would be concerned about the social impact of some cutbacks on which they would insist. Again, my point is that the general thrust of Government policy, including in what one might call the community and social spheres, has been to try to keep in place as much as possible of the system and the advances made in recent years. Unfortunately, it is not possible to do this totally, but the aim of Government policy is to minimise the damage to the social fabric of our society. Moreover, there are some areas in which it is still possible, despite everything that has happened, to achieve some advances.
Senator Hanafin spoke about speculation against sovereign debt which, undoubtedly, has taken place. Unfortunately, that is one of the hazards in the world in which we operate. While it is easy to denounce the ethics and morality behind it, unfortunately, that does not necessarily remove the hazard.
I thank all Members for their contributions and support for the Bill.