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Seanad Éireann debate -
Tuesday, 26 Jun 2012

Vol. 216 No. 4

European Stability Mechanism Bill 2012: Second Stage

Question proposed: "That the Bill be now read a Second Time."

Before I outline the purpose and contents of the Bill, I thank the Seanad for agreeing to discuss it today. I look forward to a constructive debate on the legislation and the ESM treaty. Although a short Bill, it is of critical importance to the public finances and to our country. Enactment of the Bill is required to allow Ireland to ratify the ESM treaty which was signed by euro area member states subject to ratification on the 2 February 2012.

With regard to recent developments, Ireland has made significant progress in implementation of its EU-IMF programme of financial support. Our programme is on track, we have met all of our commitments and exceeded many while completing more than 100 actions to date and we are on track to reduce our deficit to less than 3% of GDP in 2015. We have also negotiated a number of improvements to the programme since taking office, including the reduction in the interest rate, reversal of the minimum wage cut, the jobs initiative, the deferral of the promissory note payment and, most recent, the agreement to reinvest at least 50% of the proceeds from the sale of State assets into viable projects. However, we all know significant external challenges remain.

The Government believes the recent positive vote to approve the ratification of the stability treaty reflects a desire on the part of the people to take another step on the road towards economic recovery. The stability treaty will not solve all Ireland's problems but it is one of the many foundation blocks we need to put in place to ensure our economy will stand on the ground for the future. The people of Ireland have recognised the importance of restoring confidence in a stable euro and ensuring Ireland has the assurance of access to EU funds under the ESM treaty, should this be required. They also recognise the importance of good housekeeping for our economy. We cannot continue to spend more than we raise in taxes, thereby increasing our debt and draining the resources intended for stimulating economic growth, job creation and public services. In order to service our spiralling debt, we must manage our economy and debt. Ratifying the stability treaty would demonstrate a commitment to doing just that.

More broadly, the economy needs an effective resolution to the eurozone crisis as the crisis has weighed on economic growth over the past year. The crisis has been the principal reason for all forecasters to revise downwards our economic growth forecasts, and their assessment of our ability to return to market-based funding. In striving to meet the growth challenge for Europe, the Government is convinced that it will not have finished its work until what has become the major source of the loss of confidence in the eurozone, namely, the crisis in the banking sector, is addressed. Too many banks in Europe are responding to the crisis by tightening credit conditions for enterprise, thus damaging investment and job creation. As Senators will be aware, the European Council is to meet later this week. Developing a credible growth strategy agenda for Europe will be the foremost item for discussion. We will participate proactively in that discussion to agree a credible solution.

Turning to the ESM, the Government believes the availability to Ireland of credible funding backup, as provided by the ESM treaty, will be very important in respect of market re-entry and leaving the EU-IMF programme of support. Enacting this legislation and ratifying the treaty will ensure that Ireland will have access to this funding safety net if its efforts to re-access the markets are delayed in any way and it needs to resort to further assistance.

The effective lending capacity of the ESM will be €500 billion. Following the euro group meeting held on 20 March last, it was decided that the EFSF would remain active until July 2013. The ESM will be the main instrument to finance new programmes from July 2012. The EFSF will, as a rule, remain active only in financing programmes that have started before that date. For a transitional period until 2013, the EFSF will engage in new programmes in order to ensure full, fresh lending capacity of €500 billion for the ESM. After 2013, the EFSF will continue in an administrative capacity until all outstanding bonds have been repaid. In this context, there is provision that the ESM may assume the rights and responsibilities of the EFSF. Such an event would not, however, affect the existing terms and conditions of our EFSF loans.

Turning to the ESM treaty and its provisions, the treaty set out in the schedule to this Bill was signed by euro area member states on 2 February 2012. The original version of the treaty was signed on 11 July 2011 but was subsequently modified to incorporate decisions taken by the euro area Heads of State or Government on 21 July and 9 December 2011 aimed at improving the effectiveness of the mechanism.

The ESM will perform the same activities as the European Financial Stability Framework, which it is to replace, namely: issue bonds or other debt instruments on the market to raise the funds needed to provide loans to countries in financial difficulties; intervene in the primary and secondary debt markets; act on the basis of a precautionary programme; and finance recapitalisations of financial institutions through loans to Governments, including in non-programme countries.

All financial assistance to member states will be provided under appropriate conditionality, appropriate to the financial instrument chosen. The ESM will use an appropriate funding strategy so as to ensure access to broad funding sources and enable it to extend financial assistance packages to member states under all market conditions.

As Senators will be aware, there has been considerable attention on the challenges facing the banking sector in Europe in recent weeks. There are increasing calls for the ESM's tools to be extended to allow the ESM directly recapitalise systemically important financial institutions rather than recapitalisation through loans to ESM members for the purpose of recapitalising its financial institutions, thereby not adding to national debt by separating sovereign and banking debt.

As well as aggravating the financial crisis, the insistence to date that taxpayers in each member state must stand behind the entire liabilities of banks regulated in their jurisdiction has damaged the Single Market. The solution, in the Government's view, is to accelerate moves to develop a joint response to the banking crisis in Europe. It is important from here on in that we avoid the mistake of allowing bank crises in individual countries develop into sovereign crises in those countries and beyond, by way of contagion. Ireland has painful experience of that approach. It is not the best way to help recovery. What we need, as we stated before, during and after the election of last year, is a pan-European political solution to this banking crisis.

Europe badly needs a success story as it seeks to recover. Ireland can provide that success story if the correct framework is put in place. We will continue to monitor closely developments in Spain and elsewhere and we will seek a solution that works for Ireland — that assists our economic and financial recovery to ensure that Ireland's bank debt is made more sustainable.

I want to make it abundantly clear, as has the Minister for Finance, that if the terms and conditions change in respect of any of the programmes for applicant countries concerning bank recapitalisation, we will demand as of right that those terms and conditions be made retrospective in respect of our situation. If the terms and conditions improve for other countries, they must improve for this country. The Minister for Finance, as late as last week and in the previous conference call of eurozone Ministers on the previous Saturday week, made that perfectly clear to colleagues across the eurozone and the European Union.

The ESM treaty will enter into force as of the date when instruments of ratification, approval or acceptance have been deposited by signatories whose initial subscriptions represent no less than 90% of the total subscriptions set out in the treaty. To date, France, Greece and Slovenia have ratified the ESM treaty and the remaining euro area member states are on track for ratification and the coming into force of the ESM by 9 July.

The ESM treaty provides that the granting of financial assistance in the framework of new programmes under the ESM will be conditional, as of 1 March 2013, on the ratification of the stability treaty by the ESM member concerned and on implementation of the balanced budget rule as specified in the stability treaty within the agreed timeline which is one year after entry into force of the latter. The stability treaty contains a mirroring provision relating to the grant of assistance under the ESM.

As Senators will also be aware, the linkage of both the ESM and the stability treaty refers to new applications for assistance under the ESM and will not affect the transfer to the ESM of undisbursed amounts under the EFSF to Ireland and other programme countries. Thus, while the ESM will replace the EFSF and may assume the rights and obligations of the EFSF, this will not affect the terms and conditions of any amounts consequently transferred to the ESM and subsequently disbursed to Ireland.

To put this in straightforward terms, the terms and conditions applicable to Ireland under the EFSF will continue to apply once the funds transfer to the ESM.

To obtain the highest possible credit rating the capital structure of the ESM will have total subscribed capital of €700 billion, of which €80 billion will be in the form of paid-in capital by the euro area member states to be paid in five equal instalments from July 2012. The balance of €620 billion will be callable capital. The contribution key for each member state is set out in Annex 1 of the treaty and based on the European Central Bank capital contribution key. For Ireland, the key is 1.592% of the total paid and committed capital. Ireland's share of the €80 billion in paid-in capital, based on the contribution key, will be slightly above €1.27 billion. We will pay this into the ESM in five equal instalments of €254 million. The total contribution will be paid before the end of the first six months of 2014. Unlike the EFSF, there is no "stepping out facility" in the ESM when members enter a programme of support. Every ESM member must, therefore, contribute its paid-in capital.

The ESM will fund any programme through borrowing on the financial markets and lending the funding to programme countries. The capital base, both paid in and callable, provides the backup for the borrowing. The capital base is not used to directly lend to programme countries. The €80 billion sum will be used as leverage to obtain moneys on the money markets which can then be used for the disbursement of funds to successful applicant countries.

The ESM is being established as an intergovernmental organisation under public international law. Ireland's contribution will be treated as a financial transaction. This means that while it will impact on Ireland's Exchequer borrowing requirement, it will not impact on the general Government deficit. Ireland's share of the €620 billion callable capital is based on the same key, that is, 1.592% of €620 billion, making the callable capital €9.87 billion, which will be accounted for as a contingent Iiability on the State.

Following the decision of the euro group on 30 March, the paid-in capital will be made available more quickly than initially foreseen in the original ESM treaty. Two tranches of capital will be paid in 2012, the first in July and the second by October, with another two tranches to be paid in 2013 and a final tranche to be paid in the first half of 2014. In line with the ESM treaty, the payment of the capital will be further accelerated, if needed, to maintain a 15% ratio between the paid-in capital and the outstanding amount of ESM issuances. Any decision to change the authorised capital stock of the ESM will require a unanimous decision of the ESM's board of governors. The Minister for Finance, Deputy Michael Noonan, will be governor for Ireland at the board — I am sure he loves that title — and will serve to ensure Ireland's interests are represented.

The purpose of the European Stability Mechanism Bill 2012 is to further facilitate, in the public interest, the financial stability of the European Union by establishing a permanent stability mechanism to assume the tasks of the EFSF and the EFSM in providing, where needed, financial assistance for euro area member states. For the information of Senators, I have provided a brief note on each of the sections which we can discuss in greater detail on Committee and Report Stages.

I look forward to a constructive debate on the Bill. This is a time for unity among euro area countries to ensure financial stability in the euro area. The purpose of the Bill is to facilitate the stability of the European Union and the safeguarding of the euro area as a whole. Ireland must play its part as it is in its interests and those of the eurozone. For this reason, I urge Senators to support the Bill.

I acknowledge the positive comments that had been made by the Leader of the Opposition and others who have agreed to fast-track the legislation and to take it in the manner set out for today and tomorrow. We appreciate the co-operation and support which is very much in the national interest.

I will not detain the House. The establishment of the ESM was central to the debate on the referendum. The stabilisation of the European situation is something all citizens want, regardless of their political allegiance or whether they agree or disagree with the recent referendum or with the stability treaty itself. It could be said that the treaty and the Bill which reinforces the European Stability Mechanism is a step. It is not the solution to Europe's problems. I agree with most of what the Minister of State, Deputy Brian Hayes, said. The ESM is required as a permanent stability mechanism for EU member states.

I urge those who are of a mind not to support the Bill to reflect on the benefits that would be evident if a mechanism such as the ESM were in place when we introduced the bank guarantee scheme in 2008. Already that will be clear to the Spanish who did not have a blanket guarantee and whereby the €100 billion they are now securing from Europe will sit on the sovereign. The Minister of State is aware that further work must be done. He referred at the end of his speech to solidarity among European citizens, which I share. All of us know the difficulties Irish people are going through as well as those in Greece and other countries, including Cyprus as of yesterday. That is not something we want to see because on balance the European project over the past 35 years has been a positive force. I accept we have had a global financial crisis, a failure of the banks and regulators and, in some instances, governments. That is something we do not wish to repeat.

The lack of pace in dealing with the crisis is of concern to me, as I am sure it is to others. The crisis has been going on for three and a half years. I have discussed previously with the Minister of State on numerous occasions the degree of urgency evident from governments in central Europe, particularly Germany, which has a different view on the matter and is very important to the stability of Europe. I understand that states cannot go in with a big stick and demand certain things but I would expect the Government to have a negotiating position that is more than just to give us the best deal equivalent to what some other country gets. Perhaps the Minister of State would reflect on that. It is the one criticism I have.

I am aware that the negotiations are not easy, but it is not a sustainable position for the Government to state that we are going to insist upon the best deal that other countries get. I would like to think that we would have a position ourselves and that we would look for a better deal on the basis of the fact that our citizens in the past four years have taken on the burden and seen their standard of living reduced substantially. People are paying extra taxes and suffering the cuts that have been imposed and they are doing it in the main in a way that implies understanding if not acceptance. We have not seen the type of unrest we have seen in other European states. It is commendable of people in this country but it is extremely difficult to look forward to the next three or four years.

The ESM will make a difference. That is why I and my party support the Bill and supported the referendum. We will facilitate the expeditious passing of the Bill through this House as much as possible because it is crucial, but it needs additional amendment. We must expand the ESM so that it can inject funds directly into banks that require help. That will happen but it is a pity it is not happening yet. Everyone can see that as the situation evolves and gets worse, neither Germany nor Europe will not be able to hold off. It is inevitable that it is coming down the track but it is a pity it is taking so long. We need the ESM to go hand in hand with pan-European regulation of the banking system. I do not fear oversight of the banking system at a central level. That should be done properly. There is nothing to be feared from that. It is not a diminution of sovereignty. We are ensuring that we work together as best we can for the good of our citizens. We do need a Europe-wide deposit protection scheme. That was a promise the Government mentioned before the election. A mechanism absolutely needs to be put in place whereby senior bondholders share the burden of the further debt that will be foisted upon European citizens and that has been foisted upon our own citizens. It is as plain as the nose on one's face. The Greek people were able to secure a write-down, but I would not want to be in Greece. I am not saying it was to their advantage, but if it had not been arrived at, the situation in Greece would be even less sustainable than it is now. Our citizens, Government and Oireachtas may be able to move forward with budgets that bridge the deficit between what we spend and what we take in, but we can still call for a write-down and for burden-sharing in the banking sector.

I am sure the Minister knows what else needs to be done in Europe. I have outlined, from my own party's perspective, areas in which we feel Europe needs to strengthen legislation and regulation and, more importantly, to allow a wider remit for the ESM and the ECB in dealing with the banking crisis. The most important message for the Minister is that I do not believe that simply waiting for another state to get a better deal and then piggybacking on that is the best negotiating position. We should have a position. I will not go back over the phone call with Chancellor Merkel and what transpired there. I have spoken about that in the House on a number of occasions. I would like to think the Minister for Finance and the Taoiseach have a real position that is not simply an intention to wait and see. We need to be securing allies across Europe among the smaller and peripheral states, but in addition, the larger states need to understand that this country and its citizens, back in 2008, saved the euro and the European banking system. Anyone who looks back at the events of 2008 and everything that has happened since then — events that have hurt our citizens immensely and resulted in a significant drop in our cost of living — will see that the position taken by Ireland, whether we agree or disagree on it in hindsight, was that no bank should fail. That is what we were told at the time. The previous Government was bounced into a deal at that time and was bounced into taking the external assistance. I would like to see Europe acting much more quickly, without waiting for other countries. We should consider what happened with Cyprus last night. If it is the case that nothing will happen until a German bank is threatened with failure, that is not sustainable.

There could be more to the stability mechanism Bill. In addition, there should be more to the European Stability Mechanism, and I think there will be more to it. However, our Government needs to press more in that regard and to seek the things I and other colleagues are asking for today.

Without the referendum, we would not have this Bill. Much work was done by Fine Gael and the Labour Party to get the proposal passed. That tends not to be noticed, because the expectation is that Government parties will get a proposal over the line.

I have long been critical of the stance Fianna Fáil has taken on various issues, and I have always believed its members put Fianna Fáil first, rather than the nation. That was not the case on this occasion. After 2011, the Fianna Fáil Party put the nation first, which was the right thing to do on behalf of the people of this country. I say that in a very earnest way. Unfortunately, there is a new Fianna Fáil, and it is also unfortunate that its representatives in this Chamber are not present to hear what I have to say, namely, the new Fianna Fáil is Sinn Féin.

It is not. The Senator is reading too much of John Drennan's work.

The Senator has not allowed me to finish. He should hear me out.

Senator Michael D'Arcy to continue, without interruption.

Sinn Féin is the new Fianna Fáil on the basis that it puts the party ahead of the nation. That is not good for any political party. I do not say this lightly, as I respect Sinn Féin's three representatives in the Chamber. They are people of ability, but anyone with ability could see that passing the referendum was the right and intelligent choice on behalf of the people. There is a problem within the party, in that the emperor of Sinn Féin is wearing no clothes, but everyone in the party is too afraid to tell him. It needs to be said within with, as it is no good coming from me.

The main question is not about the Bill before the House — it must be passed and become part of the armoury to address the fiscal insanity in Europe — but about whether the European Stability Mechanism will be given a banking licence. This question has been asked by many academics across the world. If it is given a banking licence, will it be allowed to capitalise financial institutions directly?

Five countries require funds from their European counterparts. Cyprus, Spain and Ireland have suffered banking meltdowns.

Senator David Cullinane heard the Senator's comment.

I welcome him to the Chamber. It is good to see that he is wearing clothes.

Three of the five countries that have required funding to date did not experience deficit-led difficulties but banking difficulties. The banking institutions within Europe managed to ensure the sovereigns took on the debts and were locked out of the market.

It is clear that we will contribute €1.27 billion of the €80 billion in cash that will be held on account for the ESM. Will our contribution form part of the general Government deficit or will it form part of a contingent liability external to the general Government deficit? A further sum of €9.87 billion could be called on. If it is, will it form part of the general Government deficit? We need to consider this question, given our deficit targets stemming from the referendum result.

According to certain commentators, if one tells the markets the size of a firewall, how much will be available, what the collateral will be and the amounts to be lent, the people working against Government agencies will know how much they will need to attack currencies, as occurred previously. Is the firewall large enough? The funding that will be required by Ireland, Spanish banks and, potentially, the Spanish sovereign is in question. People wonder whether a sum of €500 billion will be enough. If we tell the markets that this is the amount being put up, they can claim it is not enough. If the ESM was allocated a banking licence, it would have the firepower of the European Central Bank available to it. According to commentators, the bank's funding can be limitless, if it so chooses. Owing to the German psyche and political circumstances, however, there appears to be no willingness to take that route. If the fund needs to be increased, will the governors of the ESM have the authority to do so? Must it revert to the parliaments which passed this type of legislation? Will each country's parliament have a veto? What happens if a country says "No"? My reading of the legislation is that this process must be unanimous with Ministers, who are the governors. If it must be unanimous among governors, does it also need to be unanimous within all the member states?

There is a question regarding the inviolability of ESM staff with regard to prosecution. I understand this is the case with other lenders of last resort, specifically the IMF. Does this meet with other international norms or the provisions of other international treaties? There is a similar question regarding tax exemptions. Are the tax exemptions similar to those in place for other personnel?

There are a couple of quotes which are very relevant to where we are as a Continent. It has been said, specifically about Spanish banks, that a short-term fix could store up longer-term problems. Spanish banks took ECB money and may well use it to buy more government debt. That is what can be described as the loop of doom, with weak banks propped up by weak sovereigns and falling value. That must be broken. If we do not break that cycle, who knows where we will end up.

There may be geopolitical consequences in this process that we cannot yet predict. There was only one world war in the last century, as opposed to two, as World War I was paused for a little over 20 years because one of the nations became impoverished. Europe has been shown to be more savage than any other continent in fighting wars, and unless the ECB and government institutions sort out these issues once and for all, we do not know where this will end. I do not say that lightly.

I welcome the Minister of State as I always look forward to his visits here. As noted, this is a moment of crisis. We were bounced into the bank rescues, which brings us back to the design faults in the euro in the first instance, with no banking regulation, exit mechanism or anything to protect small countries like us from tsunamis of credit from large countries like Germany, and the one size fits all interest rate policy. Fiscal transfers and fiscal federalism were not enough. I wonder if, despite the best efforts of our Minister, we are getting any closer to the solution.

A German court in Karlsruhe last Thursday asked German President Gauck not to sign the legislation for a permanent bailout until judges ruled on several constitutional complaints likely to be filed as early as next week. A report in The Irish Times notes that eight countries besides Germany have yet to ratify the legislation. There is the list of countries in serious difficulty, including Greece, Portugal, Spain, Ireland, Italy and Cyprus. How long can we continue to hold this show together? Did we confuse the European currency — the euro — with the European ideal that Senator D’Arcy spoke about? Was it a step too far and has it created more problems than it solved? As has been noted, it certainly has for this country, as we were put on the front line to defend the banking system and bounced into saving outfits like Anglo Irish Bank. One doubts, in rational discussion, if anybody would have recommended such action, and it is a pity we did not have a chance to explain to our German colleagues that the bank really was not worth saving or any good to us. It was not worth saving and would not have done much good for us. I do not know in what direction the future of Europe will go. Of the northern countries with which Germany compares itself, Norway, Sweden and Denmark did not join and it is likely that Finland might leave along with Switzerland right next door. How far Germany is willing to go to pay for this operation has to be dealt with and we await what the constitutional court says. Chancellor Merkel has been heavily criticised but what she says makes a great deal of sense to people in Germany. The worry is that despite so much effort being expended and so many summits — the Taoiseach must attend another at the end of the week — Europe is not able to resolve the underlying design faults in the euro. While most of us were not in the House at the time, on joining the euro, we should have debated these issues and perhaps some of the problems we have encountered might have been foreseen. I wish the Minister of State well in his efforts and I acknowledge his request for support from all sides of the House. I agree with Senator O’Brien on that as well.

Ireland is required to put in €254 million but we do not have it. That is our problem. If we had €254 million, many Members would be delighted. Is it a design fault that countries that have been rescued are being asked to contribute to their own rescue?

Political union is seen as the solution, particularly by Germany, but that will raise problems in many countries. Fiscal union raises problems for us because we want to preserve our low corporation tax rate but Germany does not want monetary union until a political union is in progress. We have an ongoing crisis and I wish the Minister of State and the Minister for Finance the best of luck in trying to deal with it but we are in such choppy waters that it is distracting from long-term discussions about where Europe should be and what kind of Europe people want. It is difficult to see when we are dealing with a failed European project, that is, the currency, how more fiscal and political union is the answer when we are trying to absorb the consequences of a failed policy.

Going back to day 1 in case anything like that ever happens again, we should have put the bankers who arrived at 8 p.m. at the Department of Finance on the planes to Frankfurt and Brussels. We did our country a great deal of harm and Europe a fair amount of good, as Senator D'Arcy said, by taking on that burden ourselves but we have borne it for the best part of four years and it has held the country back. The next time round we will have to know which problems are domestic and which are European to distinguish between the two. We also will have to have a plan B if the eurozone breaks up because many people outside the continent think it will not survive and that is the message the markets are sending. The German Government is paying others to take their bonds while other countries are being charged 6% or 7% to have their bonds purchased. The markets, therefore, have decided that the German way of running public finances does not extend throughout the eurozone and, until that is resolved, a heavy penalty will be paid by countries in deficit, of which we are one through no fault of our own.

I wish the Minister of State success in dealing with this dilemma which is the major reason the composition of the both Houses of the Oireachtas changed so much following the last election. We have inherited this problem and we all have to work together to find a solution.

I welcome the Minister of State. The recent referendum campaign offered us a good opportunity to have a robust debate about the ESM and, at times, it seemed the treaty we were debating was the ESM treaty as opposed to the fiscal stability treaty. We should not rehash what was said at that time but it is sufficient and important to note there was much misinformation circulated. I hope the sovereign voice of the Irish people will put an end to this type of politicking.

I was not sure at the time and am not sure now how anybody could have proposed a position that would see us turning our back on a fund we might need if we cannot return to the markets next year. In the next couple of months, when the NTMA floats three-month money, we will determine whether we will be successful and see how the markets react. If the transaction is successful, we will have an indication as to how the markets will view us next year when there is a more substantial auction of Irish debt. I expect we will be successful and that this will facilitate a return to the markets and, consequently, a return to our economic sovereignty, which was given away so casually and carelessly through the policies of the previous Government. This will be a massive step in our gaining control of our economic sovereignty.

We will be successful in our return to the markets and will not require the assistance of the ESM, but access to the ESM will act as a fallback position in our negotiations. Can one imagine the position, in the approach to 2014, if we did not achieve a return to the markets or pass this legislation, thereby shutting ourselves out of the ESM? In January 2014, a sovereign bond worth €11 billion is due for repayment. I refer to the so-called funding cliff. To this, we can add perhaps €8 billion or €9 billion in borrowings to fund the gap in the public finances.

If we had no access to the ESM, we would have two choices, the first of which would be to return to the market at punitive, unsustainable rates that would risk a return to pre-2008 figures, thereby devastating the economy absolutely and the slow and painful progress made to date. The other option would be to find the money among the moneys available for current expenditure. We can see the difficulties facing us this year as we try to save €3.6 billion. There would be a social catastrophe if we had to find a figure a multiple of that sum.

Even if the opponents of the ESM could convince me that there is another funding route available, we should still pass this Bill and play our part as full partners in the EU project. People stated during the course of the treaty debate that the IMF would fund us. This is contested. As we know, we have already borrowed up to 1,200% of our IMF quota. Normal conditions require that IMF funding be no more than 300%. Consider the view that the IMF, which relies for funding on members, including those countries which are considered to be part of the Third World, would come to our rescue and offer us up to 5,000% of our quota. Suggesting this is a viable alternative in the absence of passing this Bill is certainly to misunderstand the functioning of the IMF and, perhaps, to delude oneself deliberately.

It is stated that for the ESM to be established, there is a requirement to amend Article 136 of the TFEU. This could well be so but there is also a school of thought that the ESM is established outside the architecture of European law, which would require that the European courts would not be the final arbitrators at all. The establishment of the ESM by way of an international treaty could come under the Vienna Convention on the Law of Treaties. Therefore, the argument about Article 136 is uncertain, to say the least.

I have heard strange arguments as to why we should not pass this Bill or sign up to the ESM. Some ask whether we would not be better off keeping our money rather than putting it at risk and whether it would be best to spend it on ourselves. They ask why should we give money to Greece, Spain, Portugal Cyprus or any other country. Their talk seems strangely similar to that which I hear from the more bellicose or belligerent German commentators, who are making exactly same case for not funding Ireland. That is a little ironic.

On Committee Stage, I will have a few questions for the Minister of State, particularly on the stepping-out mechanism found in the EFSF. In regard to Article 9(4), there may be some flexibility. Tomorrow, we will hear some of the Minister of State's comments on this. It is important that we pass this Bill. It is vital to our economic well-being and recovery. I look forward to discussing it further on Committee Stage.

I welcome the Minister of State to the House. I remember when he was an active participant in this House and a valuable contribute and I congratulate him on his appointment to such a significant post.

As he might imagine, I have certain questions about this entire arrangement. I sympathise with him and the gradualist position of the Government, in holding its nerve and incrementally improving the position of Ireland. It is morally repugnant that Ireland, which has obeyed all the rules, met every request made of it and conformed to everything demanded, still is consistently punished.

What has happening here in Europe is analogous to what happened in the Famine, where there was a doctrinaire rigid economic theory imposed from a central authority on the satellite areas of a large and powerful political entity. Germany is imposing such an arrangement on us against the wishes of the people.

The difficulty is that one will always get into a mess, if one starts with the establishment. Every decent Government should start with the welfare of the people, assess the impact of measures taken to protect the welfare of the people on the system and adjust the system accordingly. That is particularly true when we have got to the sophisticated stage in the 21st century where money is notional. That is quite clear from the operations of the ratings agencies.

I know not how the ratings agencies have the cheek to continue operating because they helped precipitate this entire crisis. They put the skids under the world economy and it is still apparently tolerable that they are rating. It is appalling that they derated 19 banks in Spain yesterday. I reiterate my call here for an international financial court to try individuals, companies and groups for economic crimes against humanity because companies such as Goldman Sachs and the ratings agencies have certainly done so.

I understand what the Minister of State means, and it is part of this gradualist approach. I hope it works but I do not believe it will. Of course, he is correct in stating, "There are increasing calls for the ESM's tools to be extended to allow the ESM directly recapitalise systemically important financial institutions", and that the sovereign people should be absolved.

However, there are aspects of the treaty itself that are completely laughable. The opening, "THE CONTRACTING PARTIES, the Kingdom of Belgium, the Federal Republic of Germany, the Republic of Estonia, Ireland, the Hellenic Republic, the Kingdom of Spain, the French Republic, the Italian Republic, the Republic of Cyprus, . . ", is a list of countries, half of which are bust. We are contributing, and we have no money. We are agreeing to put €11 billion in.

I recall asking in this House during one of the first bailout situations what our ultimate exposure could be and being told it was €400 billion. When I asked what was our gross national product, they did not know. The Department officials had to go out and make a telephone call to find it was €200 billion. I stated even I could see it amounted to everything we would have for the next two years and asked what would happen if they called in the chips. There was no answer, except that it could not happen. It did happen.

That is why I say there is no vision. There is no leadership in Europe. We are still tinkering with the system. The fiscal treaty requires not 12 of the 25 European Union members, but 12 of the 17 euro area members. The Minister of State has not made that mistake but many other commentators, including members of the Government, have made that mistake publicly. The entering into force of the ESM treaty requires, as the Minister of State stated up-front, ratification by those contributing 90%. That means the eight largest economies in Europe can trigger it. It requires not 12 but eight, which represents half the eurozone and one third of European Union membership. It is a minority controlling matters.

I would like a little openness every so often in the middle of all the financial gobbledygook that is contained in this Bill. I like things that are accessible and which people can understand. I can understand very well what is being done on page 52 of the Bill and have tabled a series of amendments to address this. Article 32.3 of the treaty states, "The ESM, its property, funding and assets, wherever located and by whomsoever held, shall enjoy immunity from every form of judicial process". This is an horrendous provision. Do people realise that the ESM is not subject to the law?

Article 32.4 states, "The property, funding and assets of the ESM shall, wherever located and by whomsoever held, be immune from search, requisition, confiscation, expropriation or any other form of seizure, taking or foreclosure by executive, judicial, administrative or legislative action." Where does this leave us? I would describe this as a dictatorship.

Article 32.5 reads, "The archives of the ESM and all documents belonging to the ESM or held by it, shall be inviolable." Article 32.6 reads, "The premises of the ESM shall be inviolable." Where does this stop? It means there is absolutely no accountability in this body into which we will shove as much as €8.5 billion. The first tranche will be more than €1 billion and this week we will squirt away another €1.5 billion when we pay the bondholders. This is madness. There is no radical thought evident throughout Europe and I wish to God there was.

I thank the Leas-Chathaoirleach for his indulgence. We are witnessing the death throes of capitalism, a kind of slow motion mortality, and I wish they would hurry up and get on with it. Let capitalism die and get off the stage in order that we can get back to human values.

I welcome the Minister of State and extend best wishes to him in his efforts. As he outlined, the delicate position in the eurozone and a lack of growth are creating an obstacle for Ireland as an exporting nation. While Irish exports are doing well, the eurozone crisis needs to be addressed in order that we can explore the potential to open up new markets.

The Minister provided figures on the sums Ireland must pay into the European Stability Mechanism. I understand Ireland's total paid-in capital will be €1.27 billion to be paid in five equal instalments of €254 million, although Senator Norris referred to a figure in excess of €11 billion. This strikes me as similar to how Anglo Irish Bank conducted its business in that we will borrow money to make these payments.

I appreciate, however, that we must stay in the game. After all, where would we be without EFSF funding and the European Union? The Government's preferred option is to re-enter the bond markets in the second half of 2013. While no one is willing to say this, the alternative to re-entering the bond markets is to seek a second bailout. If funding is available to Ireland at an interest rate of 1%, even on condition that we obtain a second bailout, why would we contemplate returning to the markets where we may have to pay interest of 4% or 5% to borrow money? I seek clarity on this matter.

I welcome the Minister of State and the Bill he has introduced. It is unfortunate this Bill marks another small step when giant steps are needed to address Europe's economic problems. It has not reassured the markets and one wonders what ultimate policy initiatives will achieve that end. I spoke informally to someone earlier and I predict that it will happen in approximately 2020 when it will dawn on politicians over a prolonged period that these minor steps will not achieve the outcome they seek and we will have had a decade of stagnation at that stage. I do not say that lightly or with any degree of exaggeration. When all of this happened in 2008 it was unprecedented since the Wall Street collapse of 1929. Both the bureaucrats and politicians right across the globe, not just in Europe — the same could be applied in the United States — have failed to grasp the seriousness of the issues that face us.

I hold the Minister of State, Deputy Brian Hayes, in high regard but I am concerned about some of the decisions made by his more senior colleagues. I am a critic of the Department in which the Minister of State serves and in particular of the senior Minister. The previous budget was nothing short of disgraceful. It failed to grasp the seriousness of the issues. The soft options of cutting capital expenditure and increasing VAT by 2% were taken in preference to taking the fundamental decisions that needed to be taken in the economy. I do not just say it now. I said it when we were in government that our salary levels are far too high both in the public sector and in the private sector. Public sector salaries are in excess of private sector salaries. It was a serious mistake to have allowed it to happen. There has been no recognition of that. We must have an ongoing debate on cutting social welfare rates — it is not popular for politicians to say it and very few are willing to say it — and cutting public service salaries, from which I benefit myself. It is my only source of income, as is the case with many Members of the House.

Correspondingly, we must bring the cost of living in this country under control. I would have thought it would be a priority for the incoming Government to establish a new Department of competitiveness and consumer affairs. If we had done that we would have driven down excesses which occurred in many particular areas of the economy. We have often referred to the legal profession in this House and I will not chase after that chestnut now but it is an example of the abuse of privilege within our economic structures. Politicians of all hues seem to be afraid of tackling it.

Senator Barrett posed the interesting question, which if it was made two years ago, people would have scoffed at, but nobody is scoffing at it now, namely, whether the euro will survive, and if the European Union will survive. He asked what damage the collapse of the euro would do to the Single Market. We are at a crossroads. What we are doing is introducing a series of minor adjustments and meeting each crisis with the minimum required to prevent going over the precipice. When we had to borrow we were followed by Portugal and Greece. Subsequently, Spain has met with serious difficulty.

The ESM is interesting. It is a good initiative which has a significant difference for us to its predecessor in that countries in the bailout were not expected to subscribe to the fund from which we borrowed. That is a significant and substantial difference. This time we do contribute and the amount is in the order of €1.25 billion. The question is this: is €700 billion, of which only €500 billion can be lent, anywhere near adequate? I do not believe it is. The amount required by Spain alone, if it needs to be bailed out, will exceed that figure. When I expressed my opinion recently, one of the other Ministers said I must have read it in the Financial Times. It is true that I came across it in certain articles written by economists. I am no expert in the area, but from my own business experience, the one thing we need to do is to get ahead of the curve. The minimum required to get ahead of it — it might not even achieve this — is €2 trillion, or three times the amount planned for the ESM. The reason for not doing it is the imposition it would place on certain countries.

While I welcome the Bill, we need to do far more. Although the Minister has the support of my party, it is clear from contributions on all sides of the House that there needs to be a recognition within the Government and the European Council that unless we are to leave the European economy to stagnate and act as a drag on the global economy for at least a decade, much more significant measures need to be taken to tackle what is admittedly an unprecedented economic and financial crisis.

I welcome the Minister of State for this important business. During the referendum campaign many people to whom I spoke while canvassing asked what the ESM proposal meant. The best way I could describe it was based on my own insurance business. Let us imagine someone comes into my office and says, "I am not going to insure my house next year because it probably will not burn down and even if it does, my neighbours are all very good and they will probably help me out." We all know that when the event does happen, the neighbours have the same problem as the person who does not want to insure his or her house. Many believed the misconception propounded by those on the "No" side that we did not really need this measure because, if the worst came to the worst, the European Union would help us out. The best way I could explain it was that the measure was an insurance policy. Most Members in this Chamber and most people in the country will never have a major insurance claim, but if the house burns down, we will need that backup. One could use another analogy: if a person is going to lend me money to buy a house, he or she will say I need to insure the house because, if anything happens, I will need money to replace it. It is simple economics and common sense.

Many used the referendum campaign for different purposes such as electioneering and to propound their own views. It got to the stage where people were saying they would not vote for the treaty because their neighbours did not cut the grass. There were so many excuses. It is a very simple treaty, but until we passed it, that insurance policy was not in place. It was a lot to ask of people and many voted without knowing exactly what they were voting for, but they trusted the Government. They also trusted Fianna Fáil in opposition, the members of which, as Senator Michael D'Arcy said, stepped up to the plate. They saw the merits of the proposal and did not use it as a political trick to gain a few extra points in an opinion poll. Everyone recognises this and I commend them for it.

In its present form, the ESM may not be perfect, but it is like any house insurance policy. It cannot be exactly as everyone wants it; there are always bits and pieces that might not be covered. However, the ESM is the only show in town.

As to where the EU will go from here, like many people I attended the European football championship in Poland and I read about the country's history during the Second World War. More than 6 million Polish people died during the war, the highest per capita loss of any European country. That conflict came about because of hundreds of years of war in Europe. This financial battle does not compare with the First World War or Second World War.

The European Stability Mechanism, ESM, is only one part of the solution and the situation will work itself out in the long term. Without the ESM and like Greece, investors would not view Ireland as a country with a future. Greece's write-down of approximately 53% had consequences in that public spending and wages were cut. Many people point out that Greece received a write-down, but it was severe. Although it cut the debt, it cut the standard of living and wages as well. Now that our referendum has passed, a more measured debate can be held without a septic tank element being thrown into every argument. I commend the Minister of State, the Minister for Finance, Deputy Noonan, and the rest of the Government on their work.

Someone mentioned my party's position on the ESM treaty and claimed that the emperor had no clothes.

An awful thought.

I caught up while trying to figure out what Senator Michael D'Arcy meant. The analogy is a good one.

Did Senator Cullinane leave to read the children's book?

I would change it slightly, in that the empire has no clothes in light of events in Europe. Clearly, we are stumbling from one crisis to another. We have endless EU summits, the pre-summit commentary, which——

I referred to Sinn Féin's emperor.

——is concerned with building expectations and hyping considered responses from our European leaders, the inevitable fallout and policies that are being put in place despite their not meeting the needs of Europe or the Irish people.

One month after the austerity treaty referendum, we are entering another period of negotiations that, as the Minister of State will accept, will see a shift in authority and sovereignty away from the people of this island. Sinn Féin contends that Ireland is giving power to unaccountable and unelected EU bureaucrats. Our negotiators' attitude has not changed and the focus of this and previous Governments has been on protecting the system of international capital above and beyond ordinary working people and their daily needs.

They are all elected Ministers.

This attitude is inherent in the design of the proposed ESM. We should have a financial mechanism on which countries that need help can call for support in difficult times. We also accept that we need a mechanism that protects the integrity of the euro. However, of more importance is protecting the livelihoods and standards of living of ordinary Europeans, be they working or unemployed. However, the ESM as constituted and as outlined in this Bill does not meet these needs.

I will address our five chief concerns quickly. First, there should be an explicit option to use ESM funds to invest in job creation and growth measures as part of a credible deficit reduction strategy instead of maintaining the current focus on austerity. Our European leaders have spoken a great deal about the need for growth. We welcome this and wish to be part of the solution. We must ensure growth across Europe, particularly in Ireland. Continuing austerity would make it more difficult to deal with the economic situation.

Second, there should be an option for direct European Central Bank, ECB, funding of the ESM to provide the necessary firewall to stabilise the euro while limiting the liability of taxpayers and individual member states.

Part of the remit of the ESM is not just to bail out troubled states but to bail out banks. The ESM will be used as a mechanism for states to apply for funding which they, in turn, will give to the banks.

On three days this week, four separate bond payments relating to Anglo Irish Bank and Irish Nationwide will be paid, costing the taxpayers €1.15 billion. I mentioned the emperor having no clothes and we know that Cyprus and Spain need to be bailed out and Ireland is in a bailout programme. Italy may also need assistance. There is no doubt this stability mechanism will not work and it is the wrong approach. It is nonsensical to continue to heap more debt on countries, as we are doing, or seeking countries, especially those in a bailout scenario, to contribute to this fund. We are also calling for a clause to ensure programme countries are not required to contribute to the fund, as is the case with the European financial stability facility, EFSF. It is bizarre that countries in a bailout position are borrowing money to put into the fund from where they will borrow again.

There must be a requirement to carry out strict stress tests and provide for a write-down of toxic debt as a pre-condition for ESM funds being used to recapitalise banks, either directly or indirectly via loans to governments. We could have a position where banks are essentially seeking more money from taxpayers, either directly from the ESM or through the Irish Government repaying bonds. It still amounts to governments using taxpayers' money to put into banks and bail them out. There is no conditionality attached to the process and toxic debt is still serviced, with bondholders receiving repayments with no significant haircuts. Significant haircuts should be part of any solution.

There is a need for greater accountability at EU and member state level, and the immunity granted to the fund and its board members should be removed. Senator Norris raised this point a number of weeks ago, even before the Bill came before the House, when he indicated that there is a democratic deficit and accountability issue. Will the Minister of State respond on why those immunity protections are in the Bill and what they mean?

The Minister of State is welcome. He gives much of his time in this House, which we appreciate. I welcome the Bill and the establishment of the ESM, and during the course of the treaty referendum campaign it was the key selling point of the treaty, even for me. It is another piece of the puzzle in stabilising our currency and the Irish and eurozone economies in order that we can get on with the business of growth. We know this will not be the panacea for all our problems but last week it was said we have a week to save the euro. It is a concern.

I read in the The Wall Street Journal that there is speculation that the ESM will not meet its effective lending capacity of €500 billion due to the fact that countries like Spain, Greece, Portugal, Cyprus and perhaps even Ireland cannot possibly meet the required contribution to the fund. Figures from that newspaper a few days ago suggest the ESM might have a lending capacity closer to €420 billion. Will the Minister of State comment on that? We are all tired of relying on market reactions — the markets have too much power — but the reaction to the ESM being launched with such a shortfall might be dangerous for the eurozone. Germany is unlikely to contribute the balance to the fund due to the effect it will have on that country’s bonds, and another potential problem is that investors may not be quick to invest in the bonds guaranteed by countries whose own bonds trade at unsustainable levels. The Minister of State might comment on those issues. Despite the fact we are in shifting sands all the time, we need to ratify the treaty even if markets react badly at the launch. This is the safety net we need for confidence, and its lending capacity will still meet the eurozone’s needs, despite the problems I mentioned.

Is there a maximum figure that Ireland can draw down from the ESM fund and is it based on input? Are there limitations on what the money can be used for? For example, could the money be used for investment in youth and employment or as a jobs stimulus? I share concerns about the secrecy and immunity from prosecution or law for the governors of the fund. Despite the comments of the previous speaker, these are elected officials, as they are Ministers.

It is like the UN.

I appreciate that but how is this provision healthy? There is no point in us looking back in ten years and asking how we let that pass us by. The Minister of State might comment on it. Senator D'Arcy touched on the next issue. Will the ESM will get a banking licence and will it have an independent regulator?

These are the questions for here and now. Others have referred to the bigger point about the need for a long-term view on the euro. I am concerned and, having canvassed in the recent referendum campaign, I know the Irish people are concerned. We are tired of hobbling from one crisis to the next. We need a political as well as an economic solution for Europe. We need a ten year economic plan to save the euro, and that will require leadership. I am not so sure where that leadership is in Europe now.

When we take on the European Presidency on 1 January next, we must be magnanimous and think of the entire Union. There is no doubt that Chancellor Merkel has a great opportunity to give that leadership, but we have not seen it. Helmut Kohl showed such leadership when he reunited Germany, and we should remember that Chancellor Merkel comes from the former East Germany. It is not easy to lead when one is looking behind at people, trying to keep them happy, and we should remember that Germany makes up a third of the eurozone. Will the Minister of State comment on the political leadership needed in Europe and where he believes it is coming from?

I know our position and was delighted to hear our Taoiseach, Deputy Kenny, talking about the need for a European banking union. It is long overdue and if we have a common currency, there should be a common banking union. Our people want renegotiation of our banking debt and the Minister for Finance, Deputy Noonan, is working very hard on the promissory notes issue. It is very important for us to focus on the growth and jobs agenda but we need a loud and assertive voice to wield that weight in Europe and shift the narrative away from Chancellor Merkel, as I do not see the leadership there.

I look forward to hearing the Minister of State's views. We will have an excellent opportunity on 1 January with the European Presidency and we can step up to the plate as a country. Perhaps we can provide the leadership Europe does not have right now. Although we do not have all the money, we can provide the inspiration.

I welcome the Minister of State to the House and the legislation before us. We supported the Government's position on the treaty and the establishment of the ESM, which will certainly give us options other than entering the bond markets again as a guinea pig to satisfy the egos of the people in the NTMA or Europe. If money is available at 3% interest, I would prefer that to funding at 7% interest.

I apologise for not being present for the entire debate but I was listening to it on the monitor. I have an issue with our negotiating position, and the Minister of State mentioned that if anybody else gets a better deal, we will look for the same one. This is a wait and see approach of noting whether other parties get concessions or more favourable terms. We should be pioneering in this regard, trying to design our own deal. There is no question that the bank debt will be added to. We are a number of years down the line from where Spain is now, Italy is probably next and then Portugal after that in a larger way. There are banks in France and possibly even in Germany that are at risk. Going back to Senator Walsh's point, €500 billion will probably not be enough. The Irish position should be to build alliances to secure a pan-European bank debt pooling resolution organisation to take the debt off the heads of people in the programme countries. We all hope something comes out of the summit later this week.

Some people might laugh at the concept of debt write down. I am not an economist but we managed as one of the wealthy nations of the world, as we thought, to cooperate with people from the world of celebrity in lobbying for the write down of debt in developing countries. It was done and that was appropriate. We will kick the can down the road with band aids such as the ESM, which is needed, until we get an overall solution to this crisis. For political reasons in certain countries, we are some distance away from that. The Irish Government should lead on the position of trying to develop a situation that is better for us and that will ultimately put the people front and centre. We have all said that the banks still seem to be problem, and the bondholders are foremost in everyone's minds. Everyone wants the people to be put first and in that context the solution must look at sovereign debt write down.

There might be economic implications if that is done in a particular way but if it can be done with agreement on a pan-European basis, it could take ten years from a crisis that could be 20 or 25 years long. That should be done.

I have no doubt the Minister of State will check the record to ensure he heard everything I said. Rather than waiting, however, to see if Spain gets a better deal, or if Italy does better, or to see the circumstances in Greece, we should be leading the way, saying we have done all we can in terms of austerity and to facilitate the European process. We want a situation that will be better for the people. Nothing that is currently being proposed will make much difference to the people on the street. We can then get into the issue of the mortgage and debt crisis here as opposed to the country's debt in European terms.

It is almost a year now since the Family Home Bill but we still have nothing concrete from the banks. Senator Barrett's backstairs to the Department of Finance for the bankers seems to be alive and well. Solutions that are coming to the surface are bank-driven. Parts of loans will be shelved for a number of years. I would support that but the banks are going to charge interest on the loan. That is ridiculous. Do we want to help people or is this another way of creating a complexion that the banks are doing something to help when all they are doing is helping themselves while giving a false impression that they are trying to help people?

At European level we must lead, not wait, on what can be done in the context of adjusting the deal open to us, come up with a new deal, look at pooling the bank debt, at sovereign debt write down and at the growth programme. On a national basis, the Minister should take the initiative back from the banks and take control of the situation of mortgage arrears and the debt crisis, and put in a place a programme where people could shelve part of their mortgage for a period without being charged for it. What is the point of that?

It is better to charge interest than have a bad debt.

That is the Senator's opinion but my opinion is different. We must do something to help these people. We must put them front and centre in this crisis. For far too long the banks have been in that position.

This has been a useful debate and I thank colleagues for their interesting observations on this legislation. Tomorrow we can get into the detail of the Bill on Committee and Report Stages.

Ireland is a small country and our ability to get out of this difficulty depends in the Government's view, and I suspect in the view of the great majority of the Houses, on negotiating our way out and using the opportunity we have to resolve the problems we face. We are not going to do this by taking some dramatic unilateral position. That is the view of most moderate people in the country.

We face a very challenging situation. I agree with the comments about the appalling financial crisis we face. It is the view of the Government that a broader, pan-European solution to this problem is required. The Taoiseach, the Minister for Finance, the Tánaiste and others are on record as looking at what would be required for a banking union. Any cold, calm assessment of a banking union would give three answers. It inevitably requires a degree of supervision across the entire banking system within the eurozone at a much heightened level of integration than has been the case up to now. That is inevitable. There would have to be some form of deposit scheme as a bedrock for the banking system. It would also require a form of bank recapitalisation by European authorities where banks get into difficulties.

I want to be clear about this Bill in case there is any confusion. The ESM as currently constituted does not provide for that banking resolution. It does not provide for funds in the ESM to be directly used for recapitalisation purposes. If, in the future, it was chosen to be the vehicle for such bank recapitalisation, it would require a change to the treaty and at the very least a change to primary legislation in these Houses. People who talk about this being a vehicle for bank recapitalisation must understand the facts. It is currently not that vehicle, despite the growing body of opinion across the eurozone that to break the link between bank debt and sovereign debt, a fund authorised by the European authorities to fund bank recapitalisation is needed that is then not placed on the sovereign. That is the fundamental problem we have been foisted with and that resolves itself in other countries, Spain being the latest. Even though it has used a new vehicle to fund recapitalisation, the debt still lies with the Spanish sovereign. Until there is a change in policy, and not just in Germany but in Finland, Austria and the Netherlands, that will remain the case. We might want that to occur, as articulated consistently by the Government. In the most recent conference call of eurozone Ministers, the Minister for Finance, Deputy Michael Noonan, made this patently clear. If there is a change in that policy, we will be seeking a change in terms and conditions also. However, our wanting it to happen and it actually happening are two separate things. We need to be honest in this debate about where we stand.

We are moving towards much closer integration, particularly in the area of banking. The current policy has not worked. Let me consider the view expressed, referred to by some Senators, of the €170 billion write-down for Greece. I was at the eurozone meeting representing the Government on the night the second Greek bailout was agreed. Senator Jimmy Harte was absolutely right that there was public and private sector involvement and an agreed debt write-down of €170 billion. One must ask, however, whether this has actually worked. One could argue it worked for two months until the problem in Spain re-emerged. I ask whether the arrangement has worked because there is a default position among commentators that if there is to be a radical write-down of debt, it will allow us to recalibrate economies, increase demand and get people back to work. That is a presumption people make at their peril because there is no evidence that such a radical course of action across the eurozone — one could argue that there was a Lehman Brothers mark 2 in Greece — would actually solve the problem we face. Those who speak with certainty about what is required also need to understand the depth of the crisis. It is not just an economic crisis but also a political crisis. I say this in all honesty to those who recognise it as such.

The great problem we faced in the course of the past 12 months was that of the gigantic game of catch-up. Last July we took very clear positions. Then people in Europe went off on their holidays to the Mediterranean and came back in August and September only to wake up to the next phase of the crisis. We said we would put together a firewall. That is what we are now discussing. It is what we said we needed last October——

The next great idea.

We are putting the firewall in place and it will happen.

It is a genuine criticism that up until now, where solutions have been found, they have not been implemented. One could argue we are putting the firewall in place and that we have the fiscal treaty in place. The latter sends a very important signal on all the issues Senator Sean Barrett raised in regard to his fiscal responsibility Bill, the debt brake and the clear view on bringing deficit budgeting to an end. However, we have been very slow to react to these events. We have been behind the curve, as some Senators stated and I very much agree with them. That is why it is crucial for a small, open economy such as Ireland which does not have much leverage or room for manoeuvre to implement the various measures proposed as quickly as possible to obtain the certainty required to put our house in order.

There has been an air of despondency in the House today, which I can understand given the crisis we face, but it must be noted that the position we face is better than the one we faced last year. Our bank recapitalisation plan has been a success in that not only have we had tier capital ratios significantly higher than those of other countries, our banks are also better capitalised than Swiss banks. We have also saved a lot of money.

Lending to them.

The Minister of State was doing really well until now.

We have a bank recapitalisation plan in which we have saved money because we managed to sell off a chunk of Bank of Ireland.

The engine is full of fuel, but we are not driving anywhere.

I did not interrupt the Senator.

It is arguable that our banking position now is better than that in Spain which is facing a crisis. It will actually have a lower tier capital ratio than ours. It is experiencing what we experienced 12 or 18 months ago. I refer to the process started by the previous Government. At least we should recognise we have gone through the process and put our banking pillars in place. It has been cheaper than we expected, albeit at huge cost to the taxpayer. Importantly, we are making a success of our programme. Not every country can say this; Greece cannot do so. Another country is now involved in a programme. We are doing what we must do, irrespective of finding the bigger solution to the eurozone crisis; namely, fixing the deficit. We have a big, fat deficit, less than one quarter of which is banking debt and the great majority of which is due to our overpaying ourselves and not raising the requisite capital through taxation as a means of funding services. While we are making considerable progress, let us not forget that the majority of the debt we must pay has nothing to do with the banks. It is due simply to the fact that there is a fundamental disparity between tax revenue and expenditure. We must get this right over a number of years.

I do not want to comment on Article 136 which was referred to by number of colleagues, not least because the matter is before the courts. I have far too much respect for the concept of the separation of powers to intervene in an issue being adjudicated on by the courts. I will address a number of the points raised by colleagues.

Senator D'Arcy raised the question of our contribution and asked how it would be treated in the accounts. It will have an impact on the Exchequer borrowing requirement but not on the general Government deficit. The callable capital will be accounted for as a contingent liability. In the worst case scenario, if the money was called in, it would be a contingent liability carried by the State. There are other aspects also, about which I will talk later.

The Senator also asked whether a unanimous decision or legislation would be required to increase the authorised capital. I understand to increase the authorised capital stock of the ESM a unanimous decision of the ESM's board of governors will be required. In Ireland's case, an increase in the authorised capital that should increase Ireland's contribution or subscription above the threshold of €11 billion would also require an amendment to the legislation before us.

On the question of immunities, I listened to what the Senators had to say and the doomsday scenario. The same rights, privileges and immunities under the ESM apply under the United Nations, the World Bank and the European Commission. These are international bodies corporate and there is no distinction between the immunities, rights, privileges and protections that apply to them and those that will apply in this instance. To present the ESM as some kind of mad 007 agency that will follow a trail of mad financial destruction across the world is to reflect the desire in all of us for a thriller, but the reality is that the agency is no different an animal from any international organisation. It has been set up as an international organisation because it will have leverage to borrow money on the international money markets at a rate that will probably be more credible than that which can be obtained by many sovereigns. We can discuss this issue further tomorrow.

On the stepping-in and stepping-out facilities, Senators are correct that under the EFSF scheme, one no longer makes contributions on becoming a programme country. In the case of the ESM, however, the stepping-in and stepping-out facility will apply. Irrespective of whether one is a programme country or obtaining funds, one must continue to make a contribution. It is like a gigantic credit union, although I am sure the credit union will not like me comparing it to the ESM. In order to draw down funds, one must put funds in. That leads to my fundamental point, that if anyone can show me a part of the world where we could obtain money at a rate of 3% or less, he or she should do so. Senator Marc MacSharry who thinks I was not listening to him made a valid point.

The Minister of State can multi-task.

The Senator asked why would we put at risk the prospect of being able to draw down money at a rate of 3% or less. Effectively, when we put money into the fund with all other countries to a maximum of €80 million, the fund will borrow money in the money markets which will then be lent to countries for the purposes set out. A tiny margin will be charged on that money. Why would we want to resist this — a question posed before the referendum — particularly when one looks at our ten-year bond yields which have not gone down? Our ten-year bond yields are static by comparison with those of other countries, which, in itself, sends a message. Why would we want to resist the opportunity of obtaining money at a rate of 3% or less when the markets are charging 7%? It is a no-brainer. If one stops paying money into the fund, one will lose one's voting rights, which also would not make sense. Why would we not want to have an Irish person as a board member of the new body? That is an issue to which we can return tomorrow also.

Many colleagues have asked why the institution is so unique. We will be putting in €1.27 billion between now and the first six months of 2014. There is another €9.87 billion that is callable, which leaves a total liability of €11.1 billion. It is no different from the World Bank or the Asian Bank. Ireland is a member of the World Bank, to which it contributes money. In circumstances where the World Bank was subject to extraordinary exposure, it would call on all of its constituent member banks to give it more money. We are not expecting such a situation to emerge, but the system that will apply to the ESM is no different from the one that applies to the two banks mentioned. That is a fair analogy.

We will have an opportunity tomorrow to go through other points colleagues want to make and I look forward to dealing with them. As I stated, there is no magic bullet to solve this problem, but we must incrementally work with our partners to ensure we arrive at a better place. If I learned anything during the most recent referendum, it was that the people had given us a mandate to continue to negotiate to try to get the country to a better place. They recognise and will stay with this process as long as we can see light at the end of the tunnel. Who knows where we will end up. No one can speak with certainty about what the outcome will be. Certainly, it is the view of the Government and I suspect of everyone in this House that a much bigger pan-European solution — it will take some time to work out the details — is required, but it is in our interests to stay in the game and continue to do what we can to improve our situation by having access to relatively cheap money in circumstances where the country cannot borrow in the international money markets at sustainable levels. That is our objective in putting this mechanism in place and looking for the support of colleagues for it.

Question put and agreed to.

When is it proposed to take Committee Stage?

Committee Stage ordered for Wednesday, 27 June 2012.
Sitting suspended at 5.35 p.m. and resumed at 6.30 p.m.
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