JOINT COMMITTEE ON EUROPEAN UNION AFFAIRS (Sub-Committee on the Referendum on the Intergovernmental Treaty on Stability, Coordination and Governance in the Economic and Monetary Union) díospóireacht -
Tuesday, 3 Apr 2012

Views on Treaty from Across the EU

Chairman

I welcome everybody to the first meeting of the Sub-Committee on the Referendum on the Intergovernmental Treaty on Stability, Coordination and Governance in the Economic and Monetary Union. Following the decision of the Government to hold a referendum on the treaty, the Joint Committee on European Union Affairs established this sub-committee only a few weeks ago. Our intention is to hold an intensive, informed and balanced debate on the merits and demerits of the treaty and how it will impact on Ireland and its relationship with the European Union.

This week we plan to hold a total of eight meetings over the next three days. We will hear a cross-section of views from various organisations and groups under three headings: first, views on the treaty from across the European Union; second, the realities of what the treaty means for Ireland, looking at the facts and what the various measures entail; and third, the reaction of Irish society to the treaty.

There are two sessions today: this one which will conclude by lunchtime and another session in the afternoon. In both of these sessions, we will focus on the views on the treaty from across the European Union.

Addressing the committee this morning there are a number of ambassadors stationed here in Dublin. I welcome His Excellency Dr. Tomas Kafka, the ambassador of the Czech Republic, Her Excellency Ms Diana Zagorianou-Prifti, ambassador from Greece, His Excellency Mr. Marcin Nawrot, ambassador from Poland and, once again, the ambassador from Denmark, His Excellency Mr. Niels Pultz. We will ask each of them in turn to address the committee on their perspective on the fiscal compact and how it will affect their countries if they have signed off on it. I will begin by inviting the Czech Republic's ambassador, Dr. Tomas Kafka, to address the committee.

H.E. Dr. Tomas Kafka

I am honoured to be given the opportunity address the committee. At the beginning, I must clarify why I have this eye-patch. It is not a hint that we Czechs are about to become a pirate within our EU family but only the consequence of my successful surgery. It is short-lived and it will go away.

Deputy Timmy Dooley

Dr. Kafka was not having a heated debate over the fiscal compact with somebody in a hostelry.

H.E. Dr. Tomas Kafka

No.

The Czech Republic joined the EU in 2004, and in the eight years since then it has been suggested that we have developed the reputation of having become a bit of a troublemaker. I am not sure whether it is helpful to relativise that sentiment and I am also not eager to speak about the circumstances which may have helped establish that status. It is true that the EU of today does not resemble too much the one we joined which presented itself as a happy organisation and the ultimate answer to the relevant question of how to manage sustainable growth. It reminds us rather of the end of the unconcerned happiness. Nonetheless, this finding is not a product of our bad choices but of the plethora of legislative and economic challenges we are all facing now. The fact that the Czech Republic has so far decided to stay away legislatively from the fiscal compact should also be seen in a proper context.

I wish to tackle in my brief introduction three questions that may be attached to the statement with which I started. First, is the fact that the Czech Republic had problems with the ratification of the Lisbon treaty and is still facing objections to adopting the fiscal compact a valid enough reason to see the Czech Republic as a troublemaker? Second, is it the intent of the Czech Republic to be regarded this way? Third, what might be the reason behind the Czech Republic being somewhat reticent to join its European peers in terms of their legislative efforts? I will try to provide the committee with answers and make them as short as possible in order to provide space for follow-up debate.

The Czech Republic has still not signed up to the fiscal treaty. This is something that may happen in the future, especially as the inclusive character of the treaty itself literally invites reconsideration. For now, we will stick to the present. Besides, the adoption of the treaty is not the only important factor we have to consider in restoring both economic health and mutual trust within the EU as well as outside it. Other points deserving mention are the following: the Czech Republic is adopting an austerity agenda at the domestic level in order to comply with the conditions of the Maastricht treaty; the Czech Republic - the Czech Government and the Czech National Bank, respectively - agreed to do their fair share by enhancing the fire power of the existing financial rescue mechanisms voluntarily when they agreed to provide the IMF with a not insignificant loan from our foreign currency reserves; finally, the Czech Government is also one of the signatories of the common letter of 12 member states, including Ireland, which made a strong case for establishing a growth agenda, especially in terms of deepening and accomplishing a Single Market. These facts, I hope, may put the Czech Republic in a more convivial and less trouble-making light.

On the second question, it is not difficult to see that the Czech political establishment is being seen as troublemaking by intent. The fact is that Czech politicians are currently involved in a very serious political debate on our European strategy. This debate is proving difficult for our Government at the moment and it could potentially decide the future of our ruling coalition. It is no secret that our highest constitutional representatives present very different opinions in this debate, and yet our internal European debate is not only about politicians - it also means engaging with the public. In the Czech Republic, our recent perception of the EU is not the old one encompassing a win-win situation but it increasingly amounts to a clash of political ideas. The truth, therefore, is that our external brand is more a fight than an image. I dare say that it is perhaps better, at least for Czech society at present, not to contaminate both big debates on Europe - the internal debate within the Czech Republic and the institutional one within the EU - but to carry them out separately.

Last, but not least, is the third question on what might be the Czech-specific reason behind this. I do not want to teach the committee some boring lesson from recent Czech history. It may be sufficient merely to stress that Czech society underwent much disjointedness in the past century. The feeling of cohesion and, moreover, the belief in progress were repeatedly wasted and compromised. It led to a certain scepticism which seems to be a new feature of the Czech political self-reflection. It would be counter-productive to deny this and yet scepticism does not mean negativism. We are far from being negative. We may, perhaps, only need to be more convinced than our more lucky peers. This finding seems at least to me a relatively optimistic conclusion of my presentation. I hope that members will agree with me and I thank them for their attention.

H.E. Ms Diana Zagorianou-Prifti

I thank the Chairman and members of the committee for this opportunity to present my country's views to the Houses of the Oireachtas. I am certain that all of those present are aware of the current situation in Greece and that they have been closely monitoring the developments which have been taking place. We are also monitoring both the situation in Ireland and the developments taking place here. Given that ours are both programme countries, perhaps my views may resonate with members.

The economic and financial crisis which began in 2008 has undoubtedly resulted in one of the most pronounced recessions of the world economy since the 1930s. Even though the world and EU economies are gradually recovering, they still face headwinds. The world crisis had a delayed effect on Greece. In the past year, Greece has moved ahead with major reforms which aim to restore its fiscal balance, support its financial sector and transform the economy as a whole in order to improve the country's competitiveness and long-term growth prospects. Reforms have tackled the areas of statistics, fiscal management, tax administration, public administration, the pension and health systems, labour and product markets and liberalisation of closed professions. A number of other reforms are in the pipeline and these target virtually all aspects of economic activity.

The Greek Government is implementing its privatisation plan for the divestment of state assets and enterprises by also including real estate development, with the aim of collecting €50 billion in the medium term. Through all the above actions, which our Government is determined to fully implement, our country will be able to overcome the headwinds it is currently facing and enter a path of sustainable growth, while ensuring the long-term viability of public finances. It is true that, in this process, there are many setbacks, particularly the deep recession which the Greek economy is facing. There is a need to point out though, that the sacrifices of the Greek people are producing results. I refer, for example, to the fact that the primary deficit has been significantly reduced in just two years and that it now amounts to 2.4% of GDP, while the Greek economy has regained 50% of its competitiveness towards its global trade partners.

On a European level, important steps have been taken in a short period to enhance economic and fiscal union by strengthening the economic pillar of the economic and monetary union. The new Intergovernmental Treaty on Stability, Coordination and Governance in the Economic and Monetary Union, the ESM treaty, and the euro plus pact definitely move us in that direction. The new treaty constitutes a solid fiscal framework, which would effectively discourage fiscal deviations and eventually lead to sound public finances. The fiscal part of the treaty, referred to as the "fiscal compact", requires contracting parties to respect and ensure convergence towards the country-specific medium-term objective as defined in the Stability and Growth Pact, with a lower limit of a structural deficit of 0.5% of GDP. Correction mechanisms should ensure that automatic action will be undertaken in cases of deviation from the medium-term objective or the adjustment path towards it, with escape clauses for exceptional circumstances. Independent institutions should monitor compliance with this rule.

The new treaty sets in stone a reinforced surveillance mechanism and makes provision for the co-ordination of economic policies, with ex-ante co-ordination of debt issuance plans among contracting parties and economic partnership programmes for member states in the excessive deficit procedure. The latter detail the structural reforms needed for an effective and durable correction of their excessive deficit. We believe it is high time we combined this effort with the further enhancement of the effectiveness and powers of EFSF, the ESM and-or the ECB, as well as a staged, criteria-based common debt issuance. This could provide a safety net to our common currency and show us the way out of the crisis. These steps echo the views and advice of many decision makers and financial experts around the world. Furthermore, we are of the opinion that the element of growth should be central in our strategy to address the current crisis. This should now be placed among the top EU priorities. In this respect, we should make use of several tools and means to generate growth, such as the completion of the Single Market, credit-related measures to increase liquidity, better mobilisation of Structural Funds and the use of project bonds to stimulate private financing of key infrastructure projects.

The necessity for the conclusion of this treaty arose from the need of governments to maintain sound and sustainable public finances and prevent the excessive deficit of general government as essential issues to ensure the stability of the euro area as a whole and hence the establishment of specific rules, including a balanced budget rule and an automatic mechanism for establishing corrective action. The new treaty will institutionalise - although at an informal level - the holding of eurozone summits at least twice a year. These summits will involve the President of the European Commission, the President of the ECB and, where appropriate, the President of the European Parliament. The non-eurozone countries which are parties to the treaty will participate in the summits of the eurozone as appropriate and at least once a year.

As members are aware, Greece has accepted the treaty because the final text satisfied our views. This is because it contains provisions relating to respect for the role of social partners, as recognised in the national legal systems of member states, reference to sustainable growth, employment and social cohesion and an assurance that the automatic penalties imposed by the European Commission for exceeding the deficit are not to be imposed for exceeding the debt. Greece, like the majority of member states, has accepted the treaty. On 28 March last, the ratification law on the new treaty and the ESM was discussed in the Greek Parliament, voted on and then passed to become state law. It has been ratified by the Greek Parliament and our Government will implement it accordingly.

I wish to stress our strong belief in Europe and its potential. It is our conviction that we can all make it out of the current crisis with the hard work that is needed, with faith in our shared values and common institutions and with - this is absolutely essential - solidarity among member states. I thank members for their attention.

H.E. Mr. Marcin Nawrot

Chairman, distinguished members, excellencies, colleagues and friends, it is a great honour for me to participate in this meeting and to present my remarks to such an eminent audience. I wish to briefly present Poland's view on the fiscal compact treaty - the Intergovernmental Treaty on Stability, Coordination and Governance in the Economic and Monetary Union - and its consequences for Poland and Europe.

I will begin with some general remarks. The new treaty, which comes into force on 1 January 2013, will further strengthen fiscal discipline in the euro area. Commonly agreed fiscal rules will be inscribed in international legislation which, in turn, should help the eurozone to regain trust and credibility. The latter are the values which are absolutely fundamental in the context of overcoming the economic crisis. The treaty confirms that the euro summits shall be preceded by the European Council meeting. In that sense, the European Council will maintain its central role as a co-ordinator of the European agenda, including economic policy. This is crucial for the maintenance of the institutional order of the EU. According to the treaty, the non-eurozone countries which have ratified it shall participate in euro summit meetings on competitiveness or changes to the architecture of the eurozone and the fundamental rules that will apply to it in the future. They will also take part in discussions on specific issues regarding implementation of this treaty. The eurozone 17 will be entitled to discuss only the issues which concern governance and internal economic policy of the eurozone. The President of the European Council declared that before organising a euro summit, under the European Union 17 formula, he will consult on the agenda with all signatories of the fiscal compact. One should underline that this treaty remains open for future accession. It will be possible for member states to opt in and to accede to the treaty without any other requirement.

Regarding the Polish position, we are thankful for the understanding of our position by European partners, especially by Ireland. Together we manage to reach a political compromise on fiscal compact. At the same time we were able to preserve the integrity and cohesion of the European Union to the extent possible given the current circumstances.

The following issues are of key importance for Poland. The treaty does not envisage creating any new institution and informal summit meetings do not limit the powers of the European Council. The European Union institutions will have a key role in implementing the pact - the European Commission will provide the Council and the Parliament with the European Union legislative proposals necessary to implement the pact. An important role is also assigned to the European Union Court of Justice. Parties to the pact committed themselves to take measures to fully incorporate its provisions into the European Union law within a maximum of five years. The agreement will be fully open to the accession of the European Union member states that have not signed it in early March. This will not require any additional decisions.

As a party to the pact, Poland will be able to participate in key decisions and as a consequence to influence the way the fiscal and economic policies of the European Union member states are conducted. Moreover, in our opinion it will strengthen the image of Poland as a country actively participating in the most important political processes in Europe and caring for the common interest of the European Union.

To a large degree the real importance of the European summits will be determined by their practice. Accession to the treaty will allow Poland to shape this practice, and thus to influence the future direction of the changes in this area.

The accession of Poland and other European Union member states outside the eurozone to the treaty will thus contribute to a reduction in the adverse process of deepening division between euro area countries and the European Union member states outside this area. It will also allow us to reduce the scope of this division in terms of taking key decisions influencing the economic situation in the European Union.

Accession to the treaty will enable Poland, as a future member of the eurozone, to participate in works on its future and functioning as well as shaping the rules applying to its members.

Because of the possible consequences of the entry into force of the treaty for budget planning in the European Union, Poland's accession to the agreement may increase the chances for the implementation of the Polish proposals concerning the European Union's multiannual financial framework and also potentially other European Union policies. Bearing in mind Poland's modernisation needs this is of key importance in the medium term, for our development and economic growth prospects.

That concludes my presentation of the Polish view on the treaty and its consequences for Poland and for Europe. I am grateful for the opportunity to set them out to the Oireachtas committee. I will be very pleased to hear the comments of committee members and I will be happy to respond to any questions they may have.

H.E. Mr. Niels Pultz

I thank members of the sub-committee for giving me the opportunity to participate in today's meeting on this important subject. I am pleased to be invited and shall do my best to present the views of my Government on this treaty. I am happy to be here with my three good colleagues to my right.

As members know Denmark is not a member of the euro and we have an exemption to the treaties of the European Union in the form of protocol No. 16 on certain provisions relating to Denmark. Nevertheless, Denmark is among the 25 European countries which managed to agree on a legally binding instrument on the future fiscal policy in less than two months. The Danish Government holds the firm view that the fiscal compact is a necessary instrument to have in our common toolbox and should be seen as an important part of the EU's wider efforts to combat the debt crisis by restoring credibility and ensuring future sustainability of public finances, which is a prerequisite to growth and jobs. It is not an end in itself, but a means to an end.

Many European countries failed to consolidate their public finances in the good times preceding the crisis and therefore when the crisis struck in 2008 and 2009 it turned into a sovereign debt crisis. Moreover, a number of countries failed to address in due time structural problems in their economies, such as insufficient labour supply and poor competitiveness. If all the European countries had conducted sound and sustainable economic and fiscal policies in accordance with the fiscal compact, Europe would most likely not have experienced the sovereign debt crisis we are facing today.

The current crisis is to a large extent also a confidence crisis. Consumers, businesses and markets are uncertain as to what the future will bring which has serious consequences for growth prospects owing to its effect on both investments and consumption. Bringing public deficit and debt ratios back on a sound and sustainable path through credible fiscal strategies is a precondition for restoring confidence and thereby stimulating growth.

The consolidation initiatives cannot stand alone, which is why Denmark's EU Presidency - the programme for which I had the pleasure to present three months ago - is not only focusing on a responsible Europe of consolidation, but also on a dynamic Europe with strong growth and job creation, based on structural reforms and on bringing forward the specific initiatives of the Internal Market. However, growth and employment initiatives will have a limited effect as long as confidence is lacking. That is why we must use all our efforts to put our own house in order.

Like Ireland, Denmark is a small and open economy. We sell almost 70% of our exports on the European markets. Approximately 500,000 Danish jobs depend on our exports to EU member states and in 2010 the euro countries alone accounted for 38% of all foreign direct investments in Denmark. In other words, like the Irish economy, the Danish economy is very much dependent on having a stable and well-functioning eurozone.

That is the reality and explains why the Danish Government and a broad majority of the Danish Parliament hold the view that the treaty and its commitment to structural balance on the public finances represent sound economic policy. Moreover, it is in line with the fundamental principles of the Danish economic policy during the past 25 years. Part of this stability is our fixed exchange-rate policy with the euro, which means we are very dependent upon the situation in the euro area. As this treaty will enhance the credibility of the macroeconomic policy in Europe, our participation will also enhance the credibility of our own economic policy.

The commitments of the treaty in Denmark will be implemented through a so called "budget-law" which will be presented shortly to the Danish Parliament. The aim of the policy is to meet what is termed the medium-term objective, MTO, already known from the Stability and Growth Pact. Member states will have to fulfil a country-specific objective for the structural balance of minimum 0.5% of GNP annually.

A much debated element of the treaty is the so-called "automatic correction mechanism" which has to be triggered automatically in the event of significant observed deviations from the MTO. Member states will have to correct such deviations over a defined period of time. It is agreed that the Commission will produce proposals regarding common principles for the national correction mechanisms and it will be up to member states to define and implement such mechanisms. Once received the Danish Government will look into how best to establish the principles in our context and, if necessary, adjust the budget law accordingly.

An eminent Irish economist has said that the treaty will define the first line of defence against excessive public debt at the domestic level. He has called it "subsidiarity in action" and said that it is more legitimate for the monitoring of fiscal policy to be primarily a domestic responsibility than conducted from Brussels. Within a broader EU framework, he recognises the negative contagion effects associated with high public debts and procyclical patterns in an integrated European economy. We agree with his description.

It is positive that the euro area and the EU have taken decisive steps to combat the sovereign debt crisis. The renewed focus on stronger economic governance and fiscal discipline in the Six-Pack and the new fiscal company is an important prerequisite for re-establishing the credibility of economic policy in Europe and, thus, moving on with the growth agenda. I thank members for their attention.

Chairman

I thank the ambassador. A number of members have signalled that they wish to ask questions. First is Deputy Dooley.

Deputy Timmy Dooley

I thank the assembled ambassadors for their attendance, opinions and ideas. In great detail, they clearly set out what the impact of the fiscal compact will be on their respective countries. The purpose of our deliberations is to distil the compact and its impact in Ireland. We are also trying to assist the Irish people in reaching the right decision for Ireland. I have a number of questions in this context.

First, is it possible for Ireland not to agree to the fiscal compact and what would be the impact of that decision? We have a general understanding of what will happen if we sign up, but what would Ireland not signing mean for our guests' respective economies? Some people hold to the view that a better deal can be achieved. This is not my opinion, but it has been presented.

Second, would it be fair to assert that the Czech Republic's decision not to sign the treaty is based on the fact that it is not a participant in the eurozone? While the euro is important to that country, it is not as important as it is to us.

Third, what was the thought process in Greece concerning the question of a default? In Ireland, some people's solution is that we should refuse to pay our debts and default. Greece came closer to that situation than most. Will Ms Zagorianou-Prifti explain what impact she believes a default would have had on her country?

Senator Fidelma Healy Eames

I welcome the ambassadors. The committee has met some of them previously, but many of them are new. I apologise for missing Dr. Kafka's presentation.

This is my first opportunity to speak to the Greek ambassador. As Deputy Dooley stated, we are aware of the tough times that her country is going through. Greece will sign up to the fiscal compact. What are life and investor confidence in Greece like now? What could the EU and Greece have done earlier to prevent the country's crisis?

I welcome the Polish ambassador, but why was his country initially hesitant about the fiscal compact? Poland needed to go through a process and it is now signing up, but will Mr. Nawrot outline some of his country's major considerations?

I welcome Mr. Pultz back. In his view, structural problems across the EU caused much of its economic crisis. He highlighted the issues of poor competitiveness and poor labour supply in particular. How will the fiscal compact address these? Some countries, including Ireland, have large supplies of labour. Was he referring to a mismatch of skills?

Chairman

I will allow one more questioner in this batch.

Deputy Seán Kyne

I apologise for being late. I have a general question for all of the ambassadors. Stability is the world's priority. The passing of this treaty will require the balancing of budgets, which will aid stability. Will the passing of the stability treaty increase the likelihood of euro bonds becoming a reality? This would require the agreement of those countries that believe that certain other countries have been too lax in their budgetary processes for a number of years. Greece is inside the eurozone, but do the countries outside the zone believe that euro bonds would aid its stability as well as international confidence in Europe?

Chairman

A range of questions have been asked and another batch of questions will follow the ambassadors' answers. If they wish to speak, they should by all means do so, but I suggest that they limit their responses to approximately three minutes. Members will then be able to ask further questions. Would Dr. Kafka like to respond first?

H.E. Dr. Tomas Kafka

I thank members for their questions. I will try to pool Deputies Dooley and Kyne's questions on an alternative to signing up to the treaty and the euro bonds.

The Czech Republic is outside the treaty and the eurozone. Our world is volatile and can change quickly. We could be in the same boat. In December, it was believed that the Czech Republic's rating could be enhanced by one notch, but it dropped instead because we were too exposed to the eurozone. None the less, we are still building a kind of unit. Given our status, we have more time than countries within the eurozone, which are confronted with a more urgent situation in the markets.

I hope that members will not mind it if I use a rugby term. Generally speaking, we are all in a kind of sin bin. We used to live in a beautiful world. The Czech Republic is a post-communist country and a relatively fresh EU member state and we used to see our chances in the EU according to the old rule, that being, control is good, trust is better. Contrary to this, we used to work as if, while trust was good, control was better. Our controlling mechanisms were debilitating. As such, we were flattered to be seen as sufficiently responsible to govern ourselves with weak controlling mechanisms, if any. However, we are now paying the price.

It is not for me to say how Ireland would cope with being outside the treaty, but its people are aware of the sea change in the world in which we live. I am confident that they will view the treaty in terms of the cost of being separate versus the cost of enhanced integration within the eurozone and the EU. It is fair to say that we are all struggling and doing our homework. Everyone must figure out whether it is better to be singularised or part of the pack. As regards the euro bonds, in my view the treaty, which has taken on the title of treaty on the fiscal compact, is a treaty on restoration of mutual trust and confidence within the EU. If the medicine works, I am sure the growth agenda will be much more focused than is currently the case and that one of the options, provided mutual trust is restored, will definitely be reconsideration of the euro bonds.

Chairman

Perhaps Ambassador Zagorianou-Prifti would like to respond to the questions on Greece.

H.E. Ms Diana Zagorianou-Prifti

Members have, in their combined questions, asked about everything in Greece. I will try to address all aspects of the Greek situation. As I stated, acceptance of the treaty was relatively easy for us because we were involved in the negotiations and had presented proposals on it, many of which were accepted. We recognised the need for a new tool to co-ordinate and put in place a break in respect of deficits and so acceptance of the treaty was natural for us. We were aware of the usefulness of such a tool and as such it was almost natural for us to accept the treaty. Following completion of the negotiations, we had a good result and the treaty is now state law.

As regards default, as politicians Members will be aware that there are two realities, namely, media reality and actual reality. Media reality is always a little more dramatic and attractive. Actual reality is a little more sober and is what counts. As regards the economy, I am not sure which reality is more valuable or dangerous. Impressions often have a heavy impact on the real economy. Media reality in Greece is a little over-dramatic, even for the Greek people. Often when I hear the news on television or read the newspapers I wonder where Greece is at. I also get the same feeling from the international press. Members will be aware - I am not complaining - that Greece was the objective of some polemic, some against Greece and some in favour of it. There were different approaches towards Greece's problem. I do not suggest that it was a small problem or that we were not to blame. However, we did not deserve what we got from the national press, that is for sure.

We signed up to the first programme and tried to implement it, in respect of which we had solidarity from the European Union and member states. While we had more support from some countries than others, European countries were there. Greece was part of an experiment in that it was the first country to pilot the new mechanism. It became the focus in terms of thinking in regard to how to address economic financial disasters. The mechanism was created and we signed up to it. We then had to implement it. The mechanism was new as was implementation of such programmes by Greece. We implemented it as best we could. We made many mistakes. In retrospect, we know where these mistakes were made. However, we could not see that at the time and, more important, nor could our European partners see where the mistakes had been made. When we proceeded to make cuts, everyone told us how well we were doing and encouraged us to continue. No one told us to stop what we were doing. On the contrary, we were encouraged to continue.

Senator Fidelma Healy Eames

Encouraged by whom?

H.E. Ms Diana Zagorianou-Prifti

Everyone.

Senator Fidelma Healy Eames

Who?

H.E. Ms Diana Zagorianou-Prifti

We were implementing, delivering and reducing. In the first year, we reduced our deficit by 5%, which was extraordinary. We were delivering. This meant we were doing well. The statistics and so on were according to the programme. The impact on the people was severe. No one could have foreseen the outcome. We now know that we should have put more effort into structural reforms rather than cuts. However, the emphasis was at the time on cuts. The second memorandum, which was needed because of the mistakes made under the first memorandum, requires us to make more cuts, the outcome of which meant that Greece entered deep depression, of almost 7%, in 2011. We are now experiencing a depression of approximately 4.3%. We hope we can remain there. We are implementing the programme well and have reached the point of having surpluses. We have ticked all the boxes and everything is in order.

Senator Fidelma Healy Eames

What about investor confidence?

H.E. Ms Diana Zagorianou-Prifti

If the population is in a difficult position, yes it is. It could not be otherwise. As regards investor confidence, I cannot say. I think investors are beginning to regain confidence in Greece. We are creating an atmosphere which produces much more confidence than was the case in the past.

With regard to our investment environment and confidence, we do not know if in the near future we will have to adopt more measures. That leads to uncertainty, rather than the idea that we will not comply fully with the programme or implement our obligations to deliver. There is no doubt in that respect, and we have already proven ourselves. We need more measures all the time. Now we know, for example, that we must proceed with more cuts to total €11 billion.

We have heard lately that perhaps the cuts will not only amount to €11 billion but they could amount to €12 billion, €13 billion or €14 billion. We must see where it stops. As I have said, we are 50% more competitive and our salaries have decreased to a point where we consider them extremely competitive, even if members of the programme think we can do more in that respect. We believe we have reached a very good level. Of course we must proceed to structural reforms and we will try to do this very quickly.

We will have elections in the very near future, although we do not know the exact date yet. It will either be 6 May, 13 May or thereabouts, as the date will be declared in a week or two. The Government is trying its best to push forward all necessary reform. I have mentioned the closed and protected professions. We have a plan to decrease the public sector by 300,000 civil servants up to the end of 2015.

Chairman

What percentage is that?

H.E. Ms Diana Zagorianou-Prifti

I do not know the exact percentage as there are different ways of measuring the numbers. It should be more than 30% but it depends on how one counts them. We have approximately 1 million people in the wider category of civil servants. If we are talking about the narrower category of civil servants, the number is approximately 400,000. Much will depend on where the 300,000 will go. If we talk about total numbers and those who are already out, the percentage is more than 30%. Default will in no way happen; it has not happened in the past and it will not happen in future. It is as simple as that.

Chairman

We will take some more questions before asking the ambassadors from Poland and Denmark to make some comments.

Mr. Paul Murphy, MEP

I thank the ambassadors for their presentations. I have three specific questions for different ambassadors. To the Czech ambassador, I note with interest that he said the Czech Republic has not signed up to the fiscal treaty but may do so in future. He stated that the inclusive character of the treaty invites reconsideration. Does that mean he considers an option for countries that choose not to join the fiscal treaty at this stage to join at a later stage, such as after January 2013, for example? Without embroiling the ambassador in domestic political controversy, would that be contrary to the view expressed by the Taoiseach on Sunday night, which is that the train leaves in January 2013? In my opinion that is the wrong legal interpretation of the text.

Does the Greek ambassador agree that Greece is an example of the absolute failure of austerity? If we compare the predictions of the troika for Greece two or three years ago with the reality of the continuing collapse of the economy, we have seen the failure of austerity policies. I visited Greece approximately five weeks ago and saw the devastating impact on people's lives. There was a significant level of homelessness and prostitution, with people giving up their children because they cannot afford to feed them. Society is being destroyed. I met with workers from the OEK, which is the social housing institute. It is being closed down and social housing is effectively being abolished in Greece. There is devastation in people's lives and a continuing decline or collapse in the economy as a direct result of the austerity being imposed.

I went to a meeting with representatives of the troika last week which concerned Greece and unfortunately, they did not agree that Greece is now very competitive. They are saying Greece still needs to achieve extra competitiveness of approximately 15%, and being honest, they said the only way to do this was through internal devaluation, which is what is being imposed in Ireland. That means savage cuts in order to depress wages even further. The minimum wage is €400 per month for young people but €600 per month for older workers. Could another 15% of wage cuts be imposed to try to create some sort of competitiveness? When is Greece due to exit the official bailout programme and when will the structural deficit target potentially apply to it? Ireland is shielded until 2015 but what about Greece? Is there a projected structural deficit envisaged for that time?

I ask the Danish ambassador if it is the case that the Danish Government and the Commission are in conflict about how to measure a structural deficit. In 2011, for example, the Commission had a structural deficit for Denmark of 3% but the Danish Government and its central bank argued that it was 1%. There has been an amount of correspondence and disagreement between the Danish Government and the Commission about how to calculate structural deficits. The Danish Government has argued that the Commission's method is biased against countries with high levels of unemployment benefits.

Is the Danish Government not worried about that in signing up to the treaty? The Commission may reconsider its methodology but it is not likely to do so. It is more likely to continue with current methodology and rule out country-specific structural deficits. Therefore, the Danish Government could argue that it does not have massive structural deficits but the Commission could argue that it does, and a serious amount of cuts would have to be applied.

Deputy Eric Byrne

I extend apologies to the witnesses for not being here for their contributions and unfortunately, I will not be here for the remainder of the meeting because of a commitment to a meeting with an Estonian speaker. I congratulate the Chairman on the choice of panel, as it is a very interesting. It comprises representatives from two countries which are long established democracies and two countries emerging from the yoke of Soviet domination. Those of us on this side of the table come from different political perspectives and the obvious collective struggle is to see if we have the methodology to create and maintain fiscal stability in the eurozone.

I will pose questions that may not be appropriate; if they are not appropriate, the witnesses will not answer but if they are appropriate, they may answer them. The questions concern the role of political ideology in Europe. In Ireland we have a "Yes" side made up of the establishment parties and on the "No" side there is the combination of romantic socialists, anarchists, Trotskyists and republican nationalists.

Senator John Gilroy

Where is the Deputy in that?

Deputy Eric Byrne

If some of my colleagues do not understand the definition of Trotskyists, socialists or social democrats, I will give a private lesson afterwards.

Senator John Gilroy

The Deputy moved around so much, it is hard to figure out.

Deputy Eric Byrne

We saw the great socialist programmes of, for example, Mr. Papandreou in Greece or Mr. Zapatero in Spain, but both of them are no longer in office and were blamed by their electorates for contributing to the current mess. We know who we blame for our mess; there are reports which show who created the mess in this country. Leaving that aside, my question is about ideology and the forthcoming French presidential election. The socialist candidate is arguing that he will change the fundamentals of the treaty. Given the predominance of Germany, France and the European Central Bank, does it matter what ideological position countries such as ours collectively hold in influencing the route Europe will take with regard to fiscal and political stability in the eurozone countries that sign up to the treaty?

Senator Terry Leyden

I welcome the ambassadors from the Czech Republic, Greece, Poland and Denmark. It is great to hear their views on the fiscal treaty. The Czech Republic is not yet part of the treaty but it appears that it will sign up to it early next year, according to what the ambassador says. It is not in the eurozone so the treaty does not have the same effect that it would have on the 17 countries in the eurozone.

The Greek situation is fascinating from Ireland's point of view. The country is very close to the edge but it got a good deal, probably a better deal than Ireland got or will get. Congratulations and well done. However, the price was the removal of the Prime Minister. The country was also deprived of a referendum, which we will hold on 31 May. In fact, Ireland is the only real democratic country among the 27 member states. It is the only country in which the public has a chance to decide whether to vote "Yes" or "No" to this treaty. It is their decision, not the Government's or anybody else's. It is fascinating that Greece lost an excellent Prime Minister due to the fact that he was prepared to hold a referendum. That slipped by very quietly indeed.

I am interested in what is happening in Poland at present. It has been brought up at many forums in the Council of Europe. Denmark, of course, has the best of both worlds. It is not in the eurozone and is making great progress. The ambassador is smiling and is quite happy. I presume the country is signing up to the treaty because its general operation has been very impressive. From an economic point of view, the country has been excellent. It is therefore in a strong position to sign the treaty.

Rather than ask questions I am interested in listening to the points of view being put forward. However, we have a major decision to make on 31 May. We will be voicing the democratic view of the European Union and I hope we make the right decision.

Senator John Gilroy

I welcome the ambassadors. I realise and understand that they might be unhappy about commenting on how signing or not signing the fiscal compact treaty might affect Ireland. Mr. Kafka said the Czech Republic is moving in the direction of signing it, so clearly it sees the treaty as a good thing. What do the other ambassadors believe would be the consequences for their countries if the fiscal compact were not passed in their countries? Mr. Murphy, MEP, posed a series of questions to the Greek ambassador about the impact and consequences of the austerity programme in that country. Will the ambassador comment on what the alternative consequences would be if the country decided not to take the route proposed by the troika? In case the ambassador of Denmark, Mr. Pultz, feels left out, I note that the last time a major football championship coincided with an international treaty to be signed, Denmark won the championship. Perhaps this is good news for Denmark.

Deputy Bernard J. Durkan

My apologies for arriving late to the meeting. I had an important engagement that clashed with the earlier part of the meeting. I welcome our visitors and compliment them on their submissions, which I have read. Would we be where we are now if we had followed the guidelines proposed in this treaty? The answer, of course, is that we would not. We would have corrected ourselves long beforehand. In 1997, we did not have a deficit. We had a balanced budget and growth that was generating 1,000 jobs per week. Then, however, things slipped, not only in Ireland but throughout the European Union. What possibly contributed to that was the fact that not all countries are in the eurozone. That created a problem. It might have been an advantage to some countries, but we can discuss that later.

There was a Stability and Growth Pact in place but its guidelines were observed selectively when it suited countries. When it did not suit them, they were ignored. As a result, the entire European Union was destabilised. There are lessons to be learned from that. People can talk about austerity for as long as they wish, but when one overspends and over-borrows one must take corrective measures. They hurt. This country is in an extraordinarily painful situation and other countries in Europe are in the same position. It is not of our choosing. If we had the choice, we would choose an easier option. However, the problem is that there are no easy options, as everybody knows. To secure the funding and stability we require now and in the future, we must take a deep breath and try to ensure we meet our targets. We must observe the guidelines. It is not easy and was never going to be easy.

We empathise with our European colleagues. We note the points that some countries are hurting more than others and that some countries feel isolated. We felt isolated at the beginning. A delegation from this committee visited Brussels long before the actual bailout and at a time when the necessity of it was denied. We explained to all and sundry in the Commission that it would impact very severely on this economy and on other economies throughout Europe. We must cease thinking as individual countries and think more as a group or union. We must recognise that whatever one country does, which might be beneficial for it at a particular time, could well be detrimental to the common good in the long run. That is the lesson that must be learned from the situation in which we find ourselves.

Reference has been made to the Great Depression, and this committee has heard it mentioned over the last few weeks in particular. I was amazed that we did not hear more about the Great Depression in 2008. I could not believe it because it was the obvious corollary to raise at the time. Very eminent economists never referred to it. They said there was going to be a soft landing, a little dip and green shoots were appearing everywhere. I am still waiting for them, as I am sure you are, Chairman. The only place I see them is in the garden. Reality is now beginning to dawn. It was a struggle within all member states of the European Union to recognise reality. At last, however, the international markets now recognise that the European Union is intent on shouldering responsibility and taking the necessary decisions.

Austerity is not nice but it might be the only option. Households have to observe austerity. If somebody can tell me how they can avoid that, I would like to know it. I and my colleagues in this committee spend our lives advising householders on how to get through the difficult situation in which they find themselves. There is no easy way out. One cannot go into a lending institution and seek to borrow more money when one is in negative equity and unemployed. Nobody will accept that and give it to us. If they did, there would be further destabilisation multiplied across the EU, both within the eurozone and without.

I compliment the European institutions for pulling the threads together in the end and standing together. It is vital that all member states, as far as they can, stand together on this issue. In the past senior politicians in this country opined it would be better to have legislation to prevent Governments from doing the things that were done. This is what is being done here and it is the right thing to do. We must do the right thing and my question remains: is this recognised as a willingness on the part of everyone in the European Union to shoulder the responsibility required and work our way out of this situation?

H.E. Mr. Marcin Nawrot

It is much easier to answer the question after that contribution. Our approach to the fiscal compact is clear; it is based on our experience over the last 20 years. Our economy grew by 4.2% last year and this year it is estimated there will be 3% growth. That is good. We introduced this legislative approach to limit budget deficits into our constitution. We already have these limits and we are a good example that such limits work.

What about ideology? We know well from our experience that the communist time was a disaster, particularly economically. There was a direct ideological effect on the economy. Is it possible to be outside the EU on this? No. We act together, particularly in time of crisis. This is a time to be together and share the common goals. For us, what is happening in Greece and Ireland is very important. This is our affair; it is not simply the affair of Ireland or Greece. That is why we decided to join the pact even though we are not part of the eurozone. We are part of the European economy and the European Union. We struggled to join the EU not for ideology but for an idea that cannot be separated from economics. We have no choice but to pool our efforts and to share the good and the bad. I am optimistic, despite recent figures, because we are so strongly dependent on what happens around us that we can say we are one island. We are strongly connected with what is going on around us. We recognise this is not just about the European Union, this is what is going on around us.

Only if we recognise the community as the place where we can realise our individual state's ambitions will be able to survive. We are optimistic and that optimism is based on the reality of the approach presented in the fiscal compact.

Senator Fidelma Healy Eames

The ambassador stated this is all about us working together as a community so why was the Czech Republic reticent about ratifying the fiscal compact?

H.E. Mr. Marcin Nawrot

We have decided to ratify it despite the fact we are not a member of the eurozone. Also, there is another reason we must be a part of this pact; we want to avoid division in the European Union. Any sort of separation does not make sense and could spell disaster from a long-term perspective. We are strongly in favour of fiscal compact despite it not being easy. This is simply the time to say we must shoulder the burden and we must do it together.

H.E. Mr. Niels Pultz

Senator Healy Eames asked about competitiveness and labour supply. We see the compact not only as a fiscal treaty but as a broader macroeconomic policy. It is important we look into the broader macroeconomic developments such as the development of wages, productivity and other structural elements of importance to competitiveness, the situation in the labour market and balance of payments. This discussion was absent in the years leading up to the crisis and that is where this treaty is of benefit. When we mention competitiveness and labour supply, they are to the fore in our own economic policy. Our competitiveness has declined in the last ten years and we can see in the next five or ten years we will have a shortage of labour. The Government is trying with broad parliamentary support to remedy the situation. That is what we were hinting at.

Senator Fidelma Healy Eames

Does the ambassador believe the fiscal compact will assist the country in achieving competitiveness and a better labour supply? How will it achieve that?

H.E. Mr. Niels Pultz

There will be a discussion in the context of the fiscal compact. Member states in the fiscal treaty will have a focused discussion on the right economic policy as a whole and for each individual country. They can give recommendations on the policies that should be pursued to obtain sustainable economic development. To us that is the merit of the fiscal compact; that it will have that focus on economic policy discussed as a continuous policy instrument.

The idea of internal devaluation was mentioned. Denmark is not in the eurozone so theoretically we can devalue our currency but we are not doing that; we have had a stable relationship with the euro since it was established and before that we were linked to another important European currency because we believe that works to our benefit in trade and the stability of investments. Denmark experienced unsustainable economic development in the 1970s and early 1980s. All governments have tried to have a stable economic policy and in Europe we are very dependent on that policy. We see the fiscal compact as an element of the economic policy.

Mr. Paul Murphy, MEP, asked about the Danish Government's discussion with the European Commission on the structural deficit. We have our way of assessing it, which will take account of the fluctuating elements, such as income from tax receipts, especially from pension funds and oil and gas in the North Sea. The approach of the Commission is to find ways to compare the situation in each member state, but this does not take fluctuations fully into account. From year to year there can be quite a substantial difference between both methodologies but over a ten-year period, they will come close together. It is fundamental for us that we can use our own methodology in our assessment and that is what will be inserted into our budget law and how we will do it. I think the Commission has agreed to this.

Chairman

We have a limited period left, so I would like to hear the final comments of the remaining two ambassadors.

H.E. Dr. Tomas Kafka

Thank you, Chairman. I too wish to respond to Mr. Paul Murphy, MEP, without going into the Irish polemics. Our Prime Minister said that the Czech Republic succeeded on its own request and initiative in amending Article 15 in such a way that nobody can review accession at a later date.

In this respect, our reading of the treaty is a little more flexible. Perhaps what taught us to think in this way is the fact that as we struggled with the ratification of the Lisbon treaty two years ago, we were also told it was the last treaty for a decade, but yet now we must struggle with another treaty. In this respect I see that the context in Ireland is different from that in the Czech Republic. This is not only because the Irish Government must hold a referendum, is part of the eurozone and is struggling to return to the financial markets. Our common task is to regain credibility at both European and domestic government level. I fully agree with Deputy Durkan's remarks that we are more or less in the same boat and we need to enhance the credibility of the European Union. If we fail at European level, each of us will face the same problems in turn and it is just a matter of who will face the problem first, and then who will follow.

As the Czech Republic is not a member of the eurozone, we will now probably stand back, whether temporarily or permanently, and will take more time before joining the common currency. Time is not a currency, so in this respect we cannot rely on it.

I will respond briefly to Deputy Eric Byrne's comment on whether ideology matters. I am deeply convinced that ideology has not mattered for a long time, but what matters is our lifestyle. It is absolutely crucial that we adapt our lifestyle to the current situation, where we must face up to the costs and forego the benefits. This is painful. That would definitely help and would significantly benefit all of us to overcome our fear of the future. We were confronted with the fear of the past, now the 20th century is viewed as not such a nasty past, and we are somehow idealising it. However, the future is now viewed as being more troublesome than we would have assumed. The 21st century is relatively young and I am convinced that it cannot be the end of history.

Finally, I will comment on Germany. Originally, my expertise was in German affairs so members will forgive my short quip. I am relatively happy that at this point the Czechs are sceptics and the Germans are optimistic, rather than the other way around.

Chairman

I thank Dr. Kafka and I now call Ms Zagorianou-Prifti.

H.E. Ms Diana Zagorianou-Prifti

Chairman and members, I wish to stress strongly the importance of solidarity in the European Union. In response to Mr. Murphy, MEP, who visited Greece some weeks ago, I accept the austerity measures are very harsh and their imposition was a case of too much too quickly. We achieved the goals but the impact was negative. We are in recession and can expect only deeper recession. It would be much better for Greece if the policy mix was a little different and more balanced. We know we must accept austerity measures, but it would be better to have some growth also. That is just commonsense. Mr. Murphy said that on his visit to Greece he saw the devastating impact of austerity, with a significant level of homelessness and prostitution, and evidence of failure. I contend the situation in the country as a whole does not correspondence with his viewpoint . I do not know which part of Athens he visited, but that is not our view of the situation in Greece.

One can hear all viewpoints, and every ideology projects a different view of the problem. I acknowledged that the austerity measure had a very negative impact, but to say that Greece is now a county of homeless people and prostitutes is a view that I refute.

Chairman

On behalf of members may I thank the four ambassadors for their presentations and for answering our many questions. We are very appreciative of their time and effort and I think it will go a long way to help us consider what the treaty will mean for Irish citizens.

Sitting suspended at 12.40 p.m. and resumed at 2 p.m.

Chairman

I welcome the guests who are in attendance for this afternoon's session. I remind members, attendees and guests in the Visitors Gallery to switch off their mobile telephones. It is not enough to put them on silent as they will continue to interfere with the broadcasting system.

This is the second session of our examination of the views on the fiscal treaty of people from across the European Union. I welcome Mr. Bill Cash MP, who represents the Conservative Party in the House of Commons. He is the chairman of the European scrutiny committee of the House of Commons. We will also be addressed this afternoon by Ms Nessa Childers, MEP, who is a Labour Party MEP for the East constituency; Ms Marian Harkin, MEP, who is an Independent MEP for the North-West constituency; Mr. Paul Murphy, MEP, who is a Socialist Party MEP for the Dublin constituency; and Ms Phil Prendergast, MEP, who is a Labour Party MEP for the South constituency. They are all very welcome. Before I vacate the Chair, I ask Mr. Bill Cash MP to make his remarks to the committee.

Mr. William Cash, MP

It is a pleasure to be here. I have always been personally interested in and fascinated by Irish politics and history. My family was involved in some Irish issues in the 19th century. Both John Bright and Frederick Lucas, who was a Member of Parliament for Meath and a great friend of Daniel O'Connell, were cousins of my great-grandfather. I can add further context to my contribution by mentioning that my grandmother came from County Cork. Perhaps I can round that one off.

I was elected as chairman of the European scrutiny committee of the House of Commons approximately 18 months ago. The scrutiny committee has published its report on the fiscal treaty today. Therefore, it is very topical for me and - hopefully - for the members of this joint committee. I understand that copies of that report have been made available to the committee. I hope it speaks for itself. I ask members to understand that in making my remarks, I will speak through the scrutiny committee in regard to this report. In certain respects, I will no doubt express my own views on matters that may be relevant to my political views outside my chairmanship of the committee. Although I am a Conservative MP, I led the Maastricht rebellion in the early 1990s against the then Conservative Government. Some people have been good enough to suggest I may have been justified in believing such a rebellion was necessary. I will leave that for historians and others to judge.

The report of the European scrutiny committee of the House of Commons has endorsed the veto that the UK Prime Minister exerted a few months ago. We came to the conclusion that it was indeed a veto, although some people have suggested it was not. Otherwise, there would have been an EU treaty. It follows that it was a genuine veto. We have also said in our report that we regard the follow-up as being less than satisfactory. The report states:

The Government has made clear that it has reservations about the legality of what has been done, but the question of what it intends to do remains unsatisfactorily unresolved. Politically and legally, it is profoundly unwise to suggest taking action, and then not to explain how it intends to carry it through, or what concessions are now being sought and achieved.

That is a direct quote from the report.

We also think that referring to EU procedures in a non-EU treaty runs the risk of them no longer being considered exclusive to the EU. As the members of the joint committee may have gathered, we are deeply concerned about the use of the European Court of Justice and the European Commission in this context. We are also concerned about the issue of principle. We received some very powerful evidence from Professor Paul Craig. Our evidence sessions include the full detail not only of what he wrote but also of his cross-examination by us and by other legal experts on this subject. We concluded that the veto was justified because of the very real concerns about a breach of EU law. The UK Government started off by saying the reason the veto might be used, and then was used, was the need to protect the City of London and the Single Market. We are not saying that was not a wholly legitimate exercise of a veto in those circumstances. However, we believe that the breach of law by the European Union itself, in the manner in which the treaty the joint committee is considering was put together, is a far more significant question. To all intents and purposes, we regard the treaty, subject to any adjudication, as being unlawful. That is the general tenor of the advice we received from Professor Paul Craig and it raises the important question of whether this matters. Of course it does. As I was waiting to come in to this committee, I picked up a European Commission document available in this building which is described as one of a series of leaflets designed to provide information about the European Union to people living in Ireland. It is published by the European Commission and states the main functions of the Commission and goes on to say that it ensures that EU laws are respected. If a member state fails to abide by EU rules, the Commission has various powers to ensure it does so, including, if necessary, taking the member state to the European Court of Justice. If, on the basis of the evidence we have received and with which we concur, the European Union itself is in breach of the rule of law by implementing an intergovernmental treaty of 25 and through the use of the European Commission and the European Court of Justice - all of this is carefully and diligently analysed in our report, which the committee must judge for itself - this raises a serious question relevant to this committee's consideration with regard to the referendum on 31 May. If this is an unlawful treaty, what are the people of Ireland to make of it? This is, however, a matter for the people of Ireland. I am only putting our view.

We also conclude that this is something which is increasingly evident in the manner in which the European Union conducts its affairs. For example, with regard to the European Financial Stability Mechanism, which was the first tranche of bailout money, it seemed to some of us that Ireland had not made a request, as was prescribed under the existing law, but that the European Central Bank and others came to Dublin and started going through the books before a request had been made. I would regard that as another example of a breach of protocol and behaviour. When Madame Lagarde, now the Chairwoman of the IMF, was the French finance Minister, after the EFSM had been put together she said, and I paraphrase, "we violated all the rules because we wanted to save the euro". This is the kind of thing about which we have concerns.

We are also concerned about the breach of the Stability and Growth Pact itself, by France and Germany in 2003, and by the remarks of Mr. Monti last week about it. There is also the question of the "no bailout" provisions. How come we are now faced with bailouts when they are supposed to be prescribed under the treaties? We also regard the European Stability Mechanism as analogous to the treaty under discussion - which has not yet been ratified - particularly with regard to the amendment of Article 136. We set out our conclusions on pages 28 and 29 of our report and show serious doubt and concern about the manner in which Article 136 is being amended and the timing of that, as well as about the intrinsic questions I have already mentioned on the question of illegality.

I will leave the economics aside, although it is apparent - we have the evidence in our report - that the European Union is in the most almighty mess. Youth unemployment in certain countries is over 50% and there is a question of whether the Union needs as much as €2 trillion to sort out the euro and whether that will work. These economic questions will, no doubt, be examined by economists, but we have significant information on the issues in our report and we took evidence from economists.

One of the last things I will say is that we were concerned by the legal advice tendered to the European Council. It is worth reading carefully what was said in that, because there is a suggestion that the United kingdom should be folded into the treaties, within the five-year period, under Article 16. The advice actually uses the word "when". I regard it as strange that the advice presumes we will do it and that the legal advice is published.

In a nutshell, there are strong reasons for believing the existing European Union should review its manner of dealing with issues. In a private capacity, I would argue that we need a renegotiation of the treaties to find out what kind of Europe people really want. The referendum is a good means of achieving that. Whereas one might want trade and political co-operation, there are issues of democracy and sovereignty on the question of spending and taxing. There are also fundamental democratic questions which do not seem to mean so much to those in the European establishment, who seem to believe that more Europe and more integration is the only way forward. However, that is a matter for debate within each country. I take the view that it has gone too far, that the system has been failing and there has not been enough serious analysis of the dangers of continuing to dig ever deeper into a very black hole.

I hope the committee members find my comments useful and I will be happy to answer any questions they care to put.

Acting Chairman (Deputy Bernard J. Durkan)

Mr. Cash must leave at approximately 3.15 p.m. We will take all the submissions first and will then take questions, beginning with those for Mr. Cash.

Deputy Timmy Dooley

I do not wish to question the Chair, but would it be helpful if we agreed to deal with questions for Mr. Cash first?

Acting Chairman (Deputy Bernard J. Durkan)

My instructions are to take all the submissions first.

Ms Nessa Childers, MEP

Like many people in Ireland and other European countries, I have serious concerns about the intergovernmental treaty and its focus on controls and its lack of focus on creating jobs. However, although I have concerns, I will not campaign against it. Instead, I see it as a bitter pill we must swallow. The balance of risk for our economic security is far greater if we vote against it. I also believe and hope the Government is deliberately placing itself in a strong negotiating position. Therefore, it is not a question that the Government is being compliant as people have suggested, but that there is a negotiating strategy behind the Government's approach. However, I am an MEP and have a separate mandate. I am not a member of the Government.

My support for this treaty is not entirely unconditional. It is balanced against the need in the medium term for the Government, led by the Labour Party, negotiating with our EU partners and the ECB, to restructure our completely unsustainable debt. We need, in the words of Professor Terence McDonough in NUIG, "to bargain with deadly and serious intent" for that purpose. The Irish people deserve to be treated with respect and fairness by our eurozone partners. I am making an act of faith in the Government and my sole concern is to save my country, or to do what I can to achieve that. This is a political treaty to placate member states that are unwilling to continue to support bailouts for the EU countries in trouble. François Hollande has called it an illusion. In many ways this is true, but it is an illusion that we dare not ignore.

While some political parties here have the luxury of taking any position on the treaty, my party, the Labour Party, does not have this luxury. Instead we must take a position of responsibility and think for the long term, avoid unnecessary risks and act in the interests of the economic future of the country. If we were to follow others' advice and vote "No" and cut off access to the ESM, we could well have to rely on future bailouts from the IMF, which would inflict far worse conditions and put us more in the power of the US and China. Supporting the treaty will also place us in a strong negotiating position.

French presidential candidate François Hollande has promised to demand extra job boosting measures to be added on top of this treaty, if he is elected in May. There are signs that a coalition of the Social Democratic Party and the Green Party in Germany will also demand an overhaul of the treaty to include progressive growth if they are returned to power. We also need the EU to regulate the banking sector to stop the reckless lending which has brought us to our knees. This treaty is only a step in the long road back to stability. Quick fix treaties will not get us out of trouble; long term thinking will.

The socialists and democrats group in the European Parliament believe that we need to create opportunities to fund investment and create jobs through introducing a financial transaction tax, or FTT, and introducing eurobonds to stabilise credit within the EU. We face strong opposition to introducing these progressive mechanisms, and the financial sector claims that an FTT will damage the sector and many jobs will be lost across Europe. The finance lobby seems unable to supply figures to substantiate its claims that it would have a damaging impact. The European Commission also carried out an impact assessment which shows that this tax will have a beneficial effect on growth. Some in Dublin say jobs would be lost in the IFSC if Ireland participated in an FTT, but where is the independent analysis? Let us see the evidence. We also need eurobonds to pool the 27 separate national bond markets into one large European bond market. These new resources, the extra taxes and the security of eurobonds would help Europe invest in the sustainable economic sectors which will provide millions of new jobs.

I hope we can get this treaty out of the way as soon as possible, and then get onto the primary task of boosting sustainable economic growth, secure governance practices and creating jobs for ordinary Europeans. We need to re-evaluate the type of Europe we want for our children's future, the values we want, and to work to protect our ability to live securely and safely. These are the values of the Irish Government, but they are also the values of the Labour Party in particular.

Ms Marian Harkin, MEP

Good afternoon. It is a big change to be sitting on this side. I often sat over on the other side, so this provides a different perspective.

This is a difficult one. Like many people, I am very conflicted. We are being told this is about keeping to the rules but we know that we kept the rules in Ireland between 2002 and 2008. We never breached the Stability and Growth Pact, and neither did Spain, while many other countries did. We are now being told that if we keep to the rules, all will be well, but we know from our own experience that is not the situation.

On one level, there is a logic to keeping to the rules. It might be okay if we were all at the same starting point, but we are not. It is fine for Germany, Finland and the Netherlands to say that keeping the rules will work because they are in a stable position at the moment. However, we are not. Our debt to GDP ratio will peak at around 120%. I will not even mention the GNP figure because that will surely frighten the horses and the children. We know that we will not be able to grow our way out our debt, which has been estimated by the NTMA to be about €200 billion. Therefore, we know that this treaty will not solve our current economic and fiscal problems. It is good from a northern European perspective, but from our perspective, it will not solve any of our problems. Martin Wolf wrote in the Financial Times that the German Government needs to tell the German people that they are in fact rescuing their savings by rescuing the banks in the periphery, but of course that has not happened. That is one of the problems. From speaking to my colleagues from Finland, the Netherlands, Germany and Austria, their citizens think very much in the same way as their governments. I am very concerned that what is happening at the European level is not just splitting European governments apart but is also splitting the peoples of Europe apart.

This treaty does not address the banking problem. If we look at the banks in Europe, many of them are much too big to fail relative to the tax base of the country that is guaranteeing their deposits. That needs to be dealt with. The European Commission is bringing forward a Green Paper on bank resolutions, but none of that is much good to us right now. The big issue in Europe is that the gross debt of eurozone banks is about 143% of GDP. This treaty does not deal with this and it needs to deal with it. In the US, the figure is about 98%, so that is a massive problem which is being ignored by the treaty, which does not address the banking problem.

I also spoke about becoming more German than the Germans themselves. We hear that we have to become more competitive, increase exports and so on. That would be fine if we had our own currency and we could devalue but we are part of an overall European Union. The only way we can grow is to grow our exports, but the EU itself is not an export economy. The only way it will become an export economy is if other countries import from us and have an import surplus. There is no evidence that this is going to happen. This idea of austerity leading to stability is not going to wash economically either.

I am not going to talk much about what we need. Everybody says that we need growth, but equally we need some kind of eurobond that will mutualise the debt. I do not know how exactly that will be worked out, but the question is about how we get there.

The treaty refers to the 60% debt to GDP ratio from the Maastricht treaty. I was interested to hear that Mr. Cash was one of those who had a problem with that treaty. Perhaps if we looked more carefully at it then, we might have had a problem with it as well. There is also a reference in the current treaty to get the deficit to within 3% of GDP. However, one figure in this fiscal compact that is causing many problems is the structural deficit of 0.5% of GDP. It is not the actual deficit. We look at the actual deficit in the context of where the economy was at that particular time. That is open to interpretation and I imagine there may be many lawyers in the European Court of Justice who will have their interpretations; that is, if we ever get to the ECJ. That goes back to a point made by Mr. Cash. This is not a European treaty, but an international treaty. How are we going to link up the rules of this treaty with European legislation? I am no expert on this but I listened to somebody the other day speaking about Article 273, who said the article was a very weak legal base for using the ECJ as the final determinant as to whether a country had breached this infamous 0.5% structural deficit figure. I have heard experts say that the sanctions will be for not making the law, rather than for not implementing the law. This brings us back to the following questions. How does this treaty interact with all other European treaties? How does it interact with the European institutions? There is no clarity on any of that.

We have already spoken about the fundamental issue of democracy and how this links in with European citizens. I personally believe that we should not have rushed a referendum here. We should have waited for the French election and for outcomes in other countries. I believe that there may well be changes and that we should not have been the ones to rush, but we are where we are.

However, there are fundamental questions about democracy here. Ireland is part of the eurozone, which is one of the big differences between Ireland and the UK. The UK can make choices that we cannot because we are part of the eurozone. We are moving in the direction of fiscal union and that is the debate we should be having. Is that what we want to do? Somebody asked me yesterday if we are looking at a 100 year republic in this country. Will we give certain powers to the European Union, under a fiscal union, which would mean that we could no longer call ourselves a republic? These are the debates we should be having.

How long do we want to wait? How long do we want to bleed this economy dry? At present we are in the middle of procyclical economic policies. They are not solving our problems. We are asking the Irish people to vote "Yes" to a treaty that I believe will not solve our problems. Unless further significant actions are taken, we will grind along the bottom for a long time. I am not just saying that here; I have said it in the Parliament over the last two or two and a half years, as the record will show. As I said, we should not have rushed a referendum. The crucial issue is access to the European Stability Mechanism. If that were not part of this treaty, I would say we should vote "No", but it is part of the treaty. I was wrong years ago when I thought the euro would be our safety net; in fact, it has become our straitjacket. Regardless of what we are told, we will need access to the ESM, which is tied into the treaty. That is the straitjacket that binds me, as an Irish citizen, to this treaty, and I am afraid it may bind all of us.

I do not think this will be the last treaty. It is one of a series; there are many more to come. If it were to be the last, I would vote "No", but I do not think it will be or that it can be. As I said to my colleague, the difference between Ireland and the UK is that Ireland is part of the euro, and if we are to remain part of it, there will be further treaties and further movement towards fiscal union.

Mr. Paul Murphy, MEP

I thank the committee for the invitation to speak at the sub-committee. In the opinion of the Socialist Party and the United Left Alliance, and of the European United Left-Nordic Green Left group in the European Parliament, this is a treaty to impose synchronised, institutionalised austerity across Europe. It will mean billions of euro in further cuts and extra taxes for working class people in Ireland. It will mean tens of billions of euro, or more than €100 billion, in taxes and cuts across Europe, which again will affect ordinary people. The result, economically, will be absolutely disastrous. If implemented to the letter, this will result in a much deepened economic crisis. We currently are where we are because of the austerity programmes that have been implemented. The eurozone economy contracted at the end of 2011 and we are back in recession as a result of this austerity. The treaty goes further in institutionalising those policies. In doing so, it also represents a significant attack on the democratic right of people to elect their governments to decide on economic policies.

The media, or sections thereof, and those on the "Yes" side have accused us on the "No" side of scaremongering by saying this is an austerity treaty. I have produced a long submission for the committee, which includes a detailed textual analysis of how the treaty means austerity. To be honest, I have yet to come across an argument from the "Yes" side that actually engages with the text of the treaty. I will try to say in a shorter form here what I say in the submission and explain why that is the case. Article 3, in my opinion, is the most crucial provision. The structural deficit target is new. For Ireland, the structural deficit target will be 0.5%, as it will be for the vast majority of states signing up. If we do not meet that target, the treaty imposes an automatic correction mechanism. The statement "a correction mechanism shall be triggered automatically" must be read as meaning there is a process in the budgetary mechanism whereby, in the event that the structural deficit target is surpassed, a debt brake automatically kicks in and cuts and austerity are imposed, which means more misery for ordinary people and also worsened economic circumstances.

Ms Harkin spoke about the extreme difficulty of measuring the structural deficit. The idea that we will put an automatic correction mechanism into law is quite incredible. All of the institutions have different methodologies for assessing a country's structural deficit. Davy Stockbrokers produced a report, Ireland and the Fiscal Compact, in which it pointed out that the structural deficit is an abstract economic concept that cannot be observed with certainty, and described some of the vast discrepancies between the different organisations. For example, the IMF said in 2006 that Ireland had a structural deficit of 5.4%, while the Commission said that in the same year Ireland ran a surplus of 2.2%. The Commission also said we ran a surplus of 1.2% in 2004, while the IMF said we had a structural deficit of 4.4% in the same year. One can go through all the years and see similar discrepancies. As I suggested to the Danish ambassador in the first session of the meeting, receiving a positive response, the Commission's method of measurement discriminates against those countries that engage in higher social welfare spending and public spending. It discriminates against the sort of spending that the left is in favour of, and it is an incredibly political mechanism. We are signing up to something whose methodology we still have not seen, but we can assume the Commission will continue to use the same methodology it has used up to now.

Unfortunately, we do not have an estimate for 2015, when this provision will become applicable to Ireland, from the Commission, but we do have an estimate from the Department of Finance that we will have a structural deficit of 3.7% in 2015. If the Commission was to demand - which it could - that we had to meet the structural deficit target in one year, 2015, we would have to implement cuts worth 3.2% of GDP, which would mean an imposition of €5.7 billion in extra cuts and taxes on ordinary people. If the Commission was to say - which is more likely, in my opinion - that we had until 2016 or 2017, but probably not beyond that, we would have an extension of austerity over a period of years. The figure of around €6 billion is a massive underestimate. As we have seen in this country, in Greece and across Europe, when a country imposes austerity, it savages its own economy. The IMF works off an estimate whereby for every billion euro of austerity, an economy loses about €500 million in GDP. This would result in a downward spiral, with significantly more austerity.

Let us consider this from the point of view not just of Ireland, but of the EU as a whole and of all the countries that are signing up to this. It is there that the economic disaster represented by this provision becomes very clear. I have produced a spreadsheet which works off the Commission estimates. The best Commission estimates of structural deficit go to 2013. In that year, the Commission estimates that 18 out of the 25 countries to which the compact will apply will have a deficit greater than either 0.5%, if that is the figure that applies, or 1%. The Taoiseach will be pleased to know that Ireland is top of the class, with a projected structural deficit of 8.1% in 2015, which is miles beyond that of any other country. Other countries are projected to have deficits of 4%, 3%, etc. If the Commission were to state that all countries must meet their targets in 2013 - it will probably say they must meet them by 2014 or 2015, but it means the same thing over a longer period - then there would need to be €65 billion worth of cuts in France, €12.4 billion worth of cuts in Belgium and €6.7 billion worth of cuts in Austria. If every country was to meet the deficit target all at once, there would be €166 billion worth of cuts across the EU. That is absolutely devastating. The whole lot could not be implemented at once - it would be a case of €40 billion of cuts for four years. It is still absolutely devastating. To return to the IMF's figure of €1 billion of cuts resulting in a €500 million reduction in GDP, when the calculation is based on synchronised austerity across different countries that are trading partners, that ratio rises from 1:0.5 to 1:1, that is, with €160 billion of cuts across countries at the same time, GDP would fall by about €160 billion, which would be absolutely devastating. That is not just an opinion from the socialists. Roubini Global Economics last week produced a report that stated:

In our view, the terms of the fiscal compact require a fiscal adjustment by most [eurozone] countries that will significantly undermine their short-term growth prospects. If the treaty is not enforced, it will be positive for [eurozone] growth prospects and therefore for fiscal sustainability.

Similar things were said in the Lex column of the Financial Times, and many other capitalist economists have been extremely critical.

The next important point is about the interaction of Articles 3 and 4 of the treaty. Article 4, which is the debt reduction provision, states that if a country has a debt-to-GDP ratio of more than 60%, it must reduce it at a rate of one-twentieth of the excess per year. Ireland's debt-to-GDP ratio is around 120%, which means a reduction of about 3% per year is required. There are two ways to do this. Economic growth results in debt reduction as a percentage of GDP over time. However, if a country's economy is already being savaged by austerity, which is now being institutionalised by Article 3, that is not going to happen. The only other way for a country to reduce its debt is to pay the bondholders back and to pay the principal back on top of the interest payments. What it will mean for Ireland in 2015 is giving €4.5 billion back to the bondholders in principal repayments on top of the €9 billion in interest we will be paying in that year. Is it any wonder that a recent front-page headline in The Irish Times informed us that bankers are concerned at the prospect of a “No” vote? This is a treaty made for bondholders. On a Europe-wide basis, debts of €115 billion will have to be repaid, on a principal basis, each year for a 20-year period. Without economic growth this will be absolutely devastating in terms of its deflationary impact across Europe.

Imposing a structural deficit target of 0.5% will mean, in the long run, having to maintain debt at a level significantly lower than 60% of GDP. Several economists have predicted it will have to come down to 20% or 25%. One sees the neoliberal vision that is being driven here, with a reduction in public spending and increased privatisation. We have a crisis of unemployment in Ireland and across Europe, with 450,000 on the live register in this State. The only way to extract ourselves from this crisis is to get those people back to work. A significant factor in the crisis is the 70% collapse in private sector investment in this State, amounting to more than €30 billion, since the beginning of the crisis. Yet despite the continuing decline in investment - the only exception being the last quarter of 2011 - we have seen an increase in corporate profits. The private sector will not get us out of this crisis because it will not invest to the extent necessary. This treaty effectively rules out the public investment necessary to get people back to work and to restore the economy.

The treaty is also an attack on democracy in that it restricts the ability of people to elect a Government with a policy other than neoliberalism. It renders the socialist economic policies for which I stand illegal. In fact, it rules out even moderate Keynesian economic policies. As such, it is entirely undemocratic. Moreover, Article 5 should be reconsidered in terms of the transfer of powers. Access to European Stability Mechanism funding is not a reason to vote for this treaty. This blackmail clause was inserted with the complicity of the Government and agreed unanimously by member states. In addition, there will be no vote on the ESM treaty and the amendment to the Treaty on the Functioning of the European Union to allow the ESM to come into being until after the referendum in this State. If we reject the referendum, the pressure will be back on the Government. At that stage it must give us a referendum on the ESM, which we should have had from the start. At the very least it should veto the treaty, which it has the power to do, until the blackmail clause is removed.

Ms Phil Prendergast, MEP

In terms of the timing of the treaty, it is to be welcomed that the Irish people have an opportunity to have a comprehensive debate on its implications. There is a wide range of views to take on board, even from around the table today. Ratification of the stability treaty will hasten our recovery by boosting the confidence of markets, business investors and consumers in Ireland's economy. The rate of saving domestically and the level of investor interest internationally both point to a pent-up demand. By bringing a greater degree of certainty to our economic future, the treaty will have a speedy effect in unlocking some of that demand.

We are already seeing tentative signs of recovery domestically, with more people at work and large numbers involved in training and internship programmes. In the past week or so we have seen purchasing manager indexes and consumer sentiment indexes on the rise. There may even be reasons to feel better about the property market. However, signs of confidence and actual confidence are not the same. The Irish economy and the European economy need a confidence boost, which is precisely what a ratification of this treaty will provide.

To speak in support of the treaty is not to claim it is a cure for all our ills. I doubt even its most enthusiastic supporter would make that argument. There are disappointing elements to the treaty, including a sin of omission on one hand and a sin of commission on the other. In particular, the failure to include a provision to rectify the chronic trade imbalances with the Union is a clear indication of who called the shots in putting the treaty together. That has well been debated. In addition, a fundamental flaw that favours wealthy countries and works against financially weaker states has been ignored.

One of the factors in the shaky foundations underlying the architecture of the Union is the massive disparity between the core and the periphery. The richest countries have been the greatest beneficiaries of monetary union, with the current surpluses enjoyed by the core mirrored by structural current account deficits in the periphery. The way around this is to suppress demand in the periphery, which is already happening. However, there must also be stimulation of demand at the core, which requires tolerance of much higher inflationary targets and an expansionary wage policy. However, even though such an approach is in the interests of the Union as a whole, it is not happening because it does not suit the core countries.

It is a cause for serious concern that in negotiating this treaty, these states had the power to disregard the democratically elected Parliament of the European Union. The community method has been dispensed with and we have returned to crude intergovernmentalisation. This is counter to the principles of the European Union and an attack on the concept of a pan-European democracy. Nevertheless, we can still use our influence as a small member state to contribute to jobs and growth policies. It is vital to our interests that the debate should include a parallel aspect focusing on job creation. Despite being flawed in its conception, the treaty, along with other measures such as the European Central Bank's provision of additional liquidity for banks and the boosting of the ESM, will help to bring about stability. That is what it is all about. The treaty is a holding mechanism and we will simply have to see how we get along with it.

Stability is essential for recovery in the European Union, uncertainty being the enemy of economic growth. That has been well evidenced. Markets see higher risks and therefore want better yields on sovereign bonds. Consumers spend less due to worry over high taxes and job security. Foreign and domestic investors look elsewhere because they do not know what the economy will look like in the future. As we have seen in the past four years, this creates a vicious spiral where uncertainty in one areas begets uncertainty in others. This is what is referred to as the contagion effect. Investors ask themselves questions before making decisions. One of the questions they have considered in recent years in respect of this country is whether the Government will make deeper cuts in education, thereby reducing the availability of a skilled workforce and constraining research and development. Will we be able to support public spending in crucial areas for business such as transport, energy and next generation broadband? What will happen to the standard of living as a consequence of rising income taxes? Will Ireland be an attractive location for in-demand skilled workers and managers? Others will be more focused on domestic demand issues.

Since the general election last year, the Government has been working on restoring our damaged international reputation through our embassies, IDA Ireland and at a political level. I thank the Chairman for the opportunity to contribute to this debate. I will be pleased to answer questions from members.

Chairman

Thank you, Ms Prendergast. Members should bear in mind, in putting their questions to the delegates, that Mr. Cash must leave the meeting by 3.15 p.m.

Deputy Timmy Dooley

I extend a warm welcome to all of the delegates. I will concentrate on the questions I have for Mr. Cash in view of the time constraint under which he is working. We always appreciate our engagement with the delegates, who have been of assistance to us in the past, including when we visited the European Parliament as part of our work in regard to the referendum on the Lisbon treaty. Their views are always thought provoking and I have the greatest respect for the integrity of their arguments. I do not always agree with those arguments, but they are always well put together and well delivered.

Does Mr. Cash accept that despite the geographic proximity of our countries and our shared history, our economies are very different in their requirements in a range of ways not just from a jobs growth perspective, but more particularly in terms of the way the British economy is structured? Does he accept that we are much more dependent on our relationship with other countries in Europe because of our requirement to export so much of what we produce? As a small, peripheral economy with a relatively small demand within our own borders, the history of our engagement with Europe has been largely positive. This is despite the problems we have experienced in recent years arising from the difficulties with the euro and the light regulation that emanated from Europe and had serious consequences for our financial and banking system. Notwithstanding the latter, would Mr. Cash accept that Ireland has had a more positive outcome from its close relationship with Europe than has been the case for the country he represents?

Senator Fidelma Healy Eames

I welcome our guests. Mr. Cash stated that people should be given an opportunity to discover what type of Europe they want. He also indicated that far greater analysis is required and that the further forward we move, the deeper the hole we are digging for ourselves. How beneficial has a co-operative, stable and peaceful Europe been for the UK? Ireland is one of the UK's major trading partners. I contend that membership of the EU has made quite a difference to this country and, by inference, to the UK as well. Mr. Cash and a number of our other guests appear to be indicating that there is a lack of democracy at the core of the European project. I also gained the impression from them that the European Parliament is sidelined to quite a degree by the Commission. Has the time arrived for an elected President of the EU?

May I ask further questions, Chairman?

Chairman

In view of the fact that Mr. Cash must leave soon, perhaps we might just take questions for him and then take questions for our other guests later. I will return to each member when Mr. Cash has departed.

Deputy Mary Lou McDonald

Céad míle fáilte romhat, Mr. Cash. I listened with great interest to Mr. Cash's presentation and I am glad he raised the fundamental issue of an intergovernmental treaty arrangement presuming the use of the European institutions. That is a core matter, particularly in this country where the main public preoccupation regarding the austerity treaty and the ESM has been whether a referendum would be required in respect of them. Perhaps, as Mr. Cash has highlighted, there is an even more central question which needs to be answered in the context of whether it is legally allowable for an intergovernmental arrangement to make use of European institutions. My own instincts indicate that - to use a strictly non-legal term - such a premise is "dodgy". I am of the view that in their eagerness to get their own way, the powers that be, if they did not shred it and then throw it away, certainly deleted or redacted certain parts of the rule book.

I have a specific question for Mr. Cash on Article 136 and the amendment thereof. The report produced by the House of Commons committee he chairs indicates that certain evidence presented to the committee appears to indicate that said amendment would not be necessary in order for the ESM to come into effect. Will Mr. Cash expand on the position in this regard? It is my understanding that for the ESM to be constructed on any kind of certain legal foundation, such an amendment would be required. In turn, consent and ratification would be required from each of the member states, Ireland included. Mr. Cash notes in his report that the decision around Article 136 has not yet been ratified by Britain. Will he indicate whether Britain is minded to ratify the change in question?

Senator John Gilroy

I understand Mr. Cash's heritage is in Meath and Cork. That can only be a good thing, particularly as it reflects my own heritage. I would have liked to have an opportunity to consider the report produced by the House of Commons committee chaired by Mr. Cash in greater detail prior to today. There is no doubt that it is presented in a fine manner indeed and it appears to be extremely user friendly. I commend Mr. Cash on the report, which I look forward to reading.

It is always easier and more attractive to speak passionately against something than it is to make an argument in favour of it.

Mr. William Cash, MP

Anthony Trollope, who spent a great deal of time in this country, said the same in reference to John Bright.

Senator John Gilroy

I note that the legal opinions to which Mr. Cash referred in his opening remarks are just that, legal opinions. Had I had time to read the report I might not be obliged to ask the question which I am about to pose. There is robust euroscepticism among large sections of the political classes in the UK. Is that euroscepticism reflected in the report?

Deputy Bernard J. Durkan

I welcome Mr. Cash. I skimmed through the House of Commons committee's fine report. Rather unsurprisingly, I do not agree with much of what it contains but it provides much material that is useful for the purposes of debate. It has always been my belief that if the UK had joined the euro, the European Union would be a much stronger entity and that there would be greater economic, social and political benefits for everyone involved with it. However, I do not expect Mr. Cash to agree with me in this regard. It has been suggested on many occasions in the past couple of years that the euro caused the downfall of the European Union in fiscal and economic terms. That is not the case. I recall a time when sterling was in crisis and when the marketeers and others were working day and night to undermine its integrity. As Mr. Cash will be aware, they did this because there was a perceived instability in the context of the economic direction in which Britain was moving at that time. I recall Harold Wilson saying that he hoped the marketeers would have their fingers burnt. Ireland has a small, open economy and is, therefore, in a somewhat different position from the UK. To what extent has Mr. Cash evaluated that fact in the context of the overall benefit or otherwise of the fiscal compact for the entire European Union as opposed to just the UK?

Chairman

I have not read the House of Commons committee's report in full but I have managed to skim through it. The Right Honourable Mark Hoban, MP, Financial Secretary to the Treasury, stated: "It is not legally necessary for the Article 136 Treaty change to have been made before the ESM can come into force." When questioned, Mr. Hoban said: "It [the Treaty amendment] is desirable, but I do not think that it is necessary." That is quite significant evidence for the House of Commons committee to have received. Did the committee seek independent legal advice to ascertain whether Mr. Hoban was correct in what he stated? What is Mr. Cash's view with regard to whether Mr. Hoban's comments were correct?

Mr. Cash has stated that he is obliged to leave at 3.15 p.m. He can, however, take as much time as necessary to answer the questions that have been posed. I am aware that he has other commitments to attend to after this meeting.

Mr. William Cash, MP

I thank members for their extremely good and interesting questions. Deputy Dooley's question focused on the differences between the UK and Ireland. He made specific reference to the fact that Ireland is an exporting country. I wish to be absolutely clear about the fact that I am not trying to tell the Irish people what I think they should do. I have very strong views which are very much based on my analysis of the impact of the European treaties on all the member states, including the United Kingdom. From the days of the Maastricht onwards, my main concern has always been the issue of democracy and the right of the individual to choose - by means of the ballot box - the kind of government he or she wants. I believe that breaching European law is a symptom of the breach of the rule of law. That is what our committee has concluded. It is not just my view; it is an all-party committee and the views were very clearly expressed. I hope that when people have a chance to read it, they will evaluate the analysis rather than attach it to questions of euroscepticism or otherwise. I am only the chairman of the committee. I did not even vote on the individual provisions. I only have a casting vote, so it was the committee that came to those conclusions.

If I could just touch on that one question about the differences between our economies; yes, of course that is true, and we are very closely related in our relationship economically. However, I wish to put on record that I have strongly urged - it may well have had something of an influence - on the proposal for the Act of parliament that was put through to help Ireland on the bailout. I have never believed that these bailout provisions from within the EU, whether it is the EFSM, ESM or whatever, are the real solution. The real issue is not the symptoms as one sees it in Greece or in Spain, it is the causes, which is over-regulation, not enough oxygen for small and medium sized businesses and not enough growth.

To come back to the point; with respect, the economy of this country and ours both have one thing in common, which is the necessity to export. We have always been an exporting country. We have always looked out to the rest of the world, as has Ireland. We share an enormous amount in common as countries both as individuals from an historic point of view, a family point of view and also from a political point of view, up to a point with our differences, but we are now moving towards a much more satisfactory understanding of one another.

On the question of exports, it is not for me to go into the Irish implications of that but because I have been asked, let me give an indication of the manner in which it impinges on the United Kingdom. I wish to refer to the current account transaction between ourselves and the other 26 member states for goods and services, which is what I call the acid test in terms of our effectiveness in the European Union as an exporting country. This country puts a lot of emphasis on that. Let me give the figures. I do not know the answer in terms of this country but I know what it is for us because I have been looking into it. Between the United Kingdom and the other 26 member states, in 2009 we were running a deficit of £12 billion. In 2010 it had gone up from minus £12 billion to minus £47.6 billion. That is a monumental jump in one year. Although it has modified slightly in 2011 it is still more than £40 billion. For practical purposes, in terms of our need to grow from European growth, which is the basis on which this has always been presented by those who are advocates of further and deeper integration, it is not working. We cannot grow from a stagnant sclerotic Europe and I do not think this country can either. German labour unit costs have increased by only 2% in the past ten years while every other member state has increased its unit labour costs by not less than 24%, so they will not export.

Someone mentioned Martin Wolf. I give the committee Walter Münchau, who gave evidence to our committee. Members can read his submission if they wish. The assumptions on which the European Union have been presented, as if it is a virtuous circle, are simply not true. It is failing. There is massive unemployment and disorder of the kind that I predicted - forgive me for saying this, without satisfaction - when I wrote about this in the 1990s. For practical purposes I see this as a failing system precisely because it is not matching up to the expectations of people and there is a democratic deficit.

I thank Senator Healy Eames for her question on what kind of EU. I voted "Yes" in the referendum in 1975. I voted for the Single Market in 1986, but I did draw the line. I wrote a lot of articles in the The Times between 1986 and 1996 when I said that the EU was going off course, that it was becoming an undemocratic entity. The reason for my rebellion on the Maastricht treaty was about the creation of a European government, of which this treaty is yet another example of wilful determination to go ahead, as we say in our report - I am paraphrasing - with a determination to pursue political ends, irrespective of whether it undermines its own much vaunted self-promotion of the rule of law. If an organisation purports to be the rule of law and it then in a whole series of continuous and wilful decisions undermines that rule of law it raises serious democratic questions. I put that to the Senator as well.

I agree with Senator Healy Eames. I speak to many ambassadors and travel all over Europe. I have been to every single European country and I have met many people. I have friends in every country and I have those who agree with me and those who disagree with me, but I will say this - as it happens my father was killed in the last war - I can understand the question of peace and security, but I do not believe that the aspirations people had have been fulfilled. We are now facing disorder and the black hole I mentioned. We need to renegotiate the treaties in order to restabilise the situation. There will be some big consequences if that does not happen because this is a failing treaty which is leading Europe into dangerous water. In our report we use the words "this treaty is a very dangerous precedent". The government clearly agrees with that because it has issued a legal reservation, which again is referred to in the report, in a letter that was written to the secretary general of the European Council on the instructions of the Prime Minister. My bind with the government over this is that having established that it was not following the rules, it has not followed it up by doing anything about it.

On the question of an elected president, for all the reasons I have already given, I am not in favour of more and more integration, given the diversity that exists within the European Union. That is compounded by the huge amount of turmoil that now exists which I believe will increase, because I think we are facing tectonic plates to which people are merely applying sticking plaster. I am worried about the situation for the United Kingdom, even though we are not in the eurozone. If we were in the eurozone, I would be seriously worried on behalf of the people I represent. I would not go down the route of an elected president. That would simply be cosmetic and I do not think it would change anything. The real problem in my judgment lies in the structure of the treaties which have been seen to fail.

In response to Senator Gilroy on the breach of law, I think I have dealt with that as far as need be. Any further information can be obtained from the report itself. If he is interested I suggest that he read Paul Craig's analysis, which I described - as a lawyer myself and a former shadow Attorney General - as a piece of virtuoso analysis. It is an astonishing piece of writing. He does not come from a eurosceptic point of view at all. This is very important. We are talking about the rule of law. It is not to do with euroscepticism. This is to do with evaluation from an objective basis. It is not only a matter for the United Kingdom as to whether the European Union is breaching law, it is a matter for Ireland as well, as for all the other member states. I have friends in Germany who are very worried about it. If one reads Walter Münchau for example, one will see that he is deeply concerned about these questions.

I do not know whether the UK will ratify the treaty. The government is going to be in considerable difficulty over all the matters that arise as a result of what is being done.

Regarding Article 136, I could spend a lot of time on this one. We deal with it in our conclusions in paragraphs 61 to 62. To answer the Chairman's question as to whether Mark Hoban was right, the short answer is that we have said we are extremely surprised by the financial secretary's comment, responding to our inquiry as to whether, as the European Stability Mechanism, ESM, was now to come into force in July, ratification of the treaty memorandum would be brought forward. He went on to say it is not legally necessary for the Article 136 treaty change to have been made before the ESM can come into force. When we questioned the Minister about this he reiterated that the treaty amendment is desirable but he did not think it is necessary.

Quite frankly, this Article 136 arrangement bears all the hallmarks of the same kind of contrivance we have criticised with respect to the legal adviser to the European Council's advice on the whole business of the treaty itself. We do not have confidence in that advice. If the Chairman reads Professor Paul Craig's analysis of it he will form his own judgment but, basically, they appear to have stretched provisions like Article 273 which he referred to beyond breaking point.

We want to keep this show on the road. We want to ensure that we get this intergovernmental treaty. We do not like the fact that it has been vetoed, even if that was a legitimate exercise of the veto power, but we will still find a way around it. I believe this Article 136 provision is of a similar kind and that both the ESM and this treaty, and members can judge from the evidence, are both illegal or unlawful and yet for the purpose of keeping the show on the road, that is apparently something that does not seem to matter. That is a serious problem and it will have serious consequences in terms of being a very dangerous precedent undermining the whole structure of the treaties.

Deputy Durkan asked whether the United Kingdom should have joined the euro. No. He would not expect me to say "Yes".

Deputy Bernard J. Durkan

I am not surprised.

Mr. William Cash, MP

I think we demonstrated the advantages to ourselves in not being in the straitjacket. What caused the downfall of the euro were the assumptions that were made. I remember writing about this in the early 1990s. There was never any definition of price stability, for example. This was a political objective. The members should read Viviane Reding's article in The Wall Street Journal of a few weeks ago. They are still pursuing the idea of political union for the purpose of political union. The construction of the economics has always been to fit it into the proposal and the determination for political union. It is a complete and total failure. It will not work, although there have been benefits to individual countries as a result of the redistribution of moneys but, unfortunately, the money has not been earned and we have now got the BRIC countries offering the alternative in terms of international competitiveness which, for the reasons I gave on the German front about the unit labour costs and the competitiveness and the refusal to import, is causing problems for the Italians, the Spanish, the Irish and the Portuguese, and it will continue as long as those attitudes remain.

I do not know whether I have answered Deputy McDonald's question but I think I have dealt with it as well as I can by reference to what we have said on Article 136. Have I covered the answer to the Deputy's question sufficiently for the time being?

Deputy Mary Lou McDonald

You have, and thank you. I refer now to the evidence that-----

Mr. William Cash, MP

It is quite technical-----

Deputy Mary Lou McDonald

I appreciate that.

Mr. William Cash, MP

-----but it needs analysis and I believe that as this country moves into referendum mode many people may find it quite useful to have seen a report which is analysed not with any presumptions of euro scepticism, if I can put it to Deputy Durkan in those terms, but on the basis of proper and objective legal analysis. On that basis, I will conclude my responses.

Deputy Timmy Dooley

I can see the Tories and Sinn Féin being on the one side.

Mr. William Cash, MP

Do not forget that Frederick Lucas was the original signatory of the Tenant Right League. It is all in my book, John Bright: Statesman, Orator and Agitator.

Deputy Bernard J. Durkan

History does repeat itself, and Mr. Cash has carried the bloodline well.

Chairman

I thank Mr. Cash. We are delighted to have him before the committee today to take part in our proceedings. He has to leave now and we wish him our very best.

Mr. William Cash, MP

It has been an enormous pleasure. I am determined that I shall come back again sometime.

Chairman

We look forward to that. If not, we will see Mr. Cash at COSAC in the near future.

Mr. William Cash, MP

You certainly will. Thank you, Chairman.

Chairman

I will move on because I am aware other guests are under pressure for time. Does Ms Prendergast wish to make a few comments? I know she must leave shortly.

Ms Phil Prendergast, MEP

Yes, I do. I have a meeting with a Minister that involves a constituent and the time for it has had to be changed. I apologise for that.

As one who was in favour of having this honest and open debate I would say that Ireland has a good message to sell to investors. We have our regulatory environment, and the high-profile visits of Queen Elizabeth and Barack Obama have opened up a very positive image of Ireland. Our relations with China recently will be positive for us also. It is about restoring confidence in our country and getting out the message that we are ready to do business and recover.

I am delighted to be part of these committee meetings and will continue to listen to all sides of the debate. I will take from today the remarks of Mr. Cash and will examine the members' views as well because we have a duty of care to be informed about what is going on. When we put out the message that Ireland is open for business and we want to see a recovery we must also say, as mentioned by Mr. Murphy, that we have to have a jobs strategy and a return to growth. That must run in tandem with this programme. I thank the Chairman for allowing me to speak again and apologise for having to leave.

Chairman

I thank Ms Prendergast for attending. She is a regular attendee and we look forward to seeing her again in the near future.

Deputy Bernard J. Durkan

She is also a former member of the committee.

Chairman

If the three remaining MEPs are happy to remain we will be finished by 4 p.m. at the latest. I call Deputy Timmy Dooley.

Deputy Timmy Dooley

I have some brief questions for each MEP. I welcome them and thank them for their presentations. My question is to Ms Childers. In her presentation she said that she was encouraged by the French presidential candidate, François Hollande, who promised to demand extra economic and job-boosting measures to be added on top of this treaty. Does she have any concerns that Ireland is holding a referendum in advance of that presidential election? Does she believe we will find ourselves having ratified a treaty that, ultimately, might be null and void within a number of months if, as expected, Mr. Hollande becomes President of France? What is her view on that? Does she believe we have rushed too quickly into holding the referendum at the point we are holding it based on the statements emanating from Mr. Hollande? I will not make the political point that he might have done what most of the political parties here did, namely, said one thing before the election and did something different afterwards. That is just an observation. I do not expect-----

(Interruptions).

Deputy Timmy Dooley

I do not expect Ms Childers to answer. I throw that in as an aside.

Ms Harkin set out her stall and indicated that if this was the last treaty she would be voting against it but she believes there will be a succession of treaties. Can she briefly tell us what she believes those treaties will be seeking to achieve? We talk too much about treaties rather than what we want to do. I ask Ms Harkin to outline what she believes we need to do to resolve the crisis?

In his concluding statement Mr. Murphy said that we currently have a neoliberal Europe shaped in the interests of millionaires, big business, bankers and bondholders. Clearly, the delegates are not entirely happy with the way Europe is operating. Can they tell us where in the world there is an economic model that would best meet the needs of Europe at present or at least some elements thereof?

Chairman

I call members in the following order: Deputy Mary Lou McDonald, Senator John Gilroy, Deputy Bernard Durkan and Deputy Seán Kyne. When Deputy Kyne has contributed, we will hear answers from the panel.

Deputy Mary Lou McDonald

I am sorry Ms Phil Prendergast, MEP, has left because I am really puzzled by the position taken by Labour Party MEPs. I am probably puzzled by the Labour Party itself but I live in hope.

Chairman

I hope we can assist the Deputy.

Deputy Bernard J. Durkan

Hope springs eternal.

Deputy Mary Lou McDonald

Its members, individually and collectively, are on record in the European Parliament as having correctly slammed four of the six pack of measures. They have stated very clearly that more austerity will not help growth. More austerity runs absolutely counter to any strategy on growth and job recovery. Ms Childers, rather than Ms Prendergast, who is no longer present, described the treaty arrangement as a bitter pill that we must swallow despite her correct analysis that it is a very bitter pill that will not prove to be the cure and will in fact make circumstances a lot worse. Whatever about the six pack and its status within European law, the institutionalisation of austerity in an international agreement, and having it referenced in the Constitution of this State, brings the whole strategy up the pecking order to a wholly different order. It makes it binding, not just on this Administration but also on future Administrations.

I have not heard an economic commentator in Ireland state the fiscal compact, the austerity treaty, is a good idea or that it actually addresses the issues we face. Despite this, we are told it is a bitter pill that we must swallow. The Labour Party's position is extremely confused and confusing. It is disingenuous. The MEPs are batting a Government line rather than giving their own political assessment of the circumstances.

Mr. Paul Murphy indicated correctly to the committee that the legislation in respect of access to the ESM will not come before the Dáil in advance of the referendum. He also correctly identified the link between the austerity treaty and the bailout fund as a blackmail clause. It was a deliberate contrivance to try to leverage people into swallowing the bitter pill. What is the delegation's view on the Government being part of a scenario involving the inclusion of that link in the austerity treaty? Was that a good day's work by the Government, of which I am led to understand the Labour Party is an active member?

Some delegates referred to the duty of care. There is a chance that, on foot of an informed debate and in a scenario where the ESM legislation is on ice until the referendum campaign is over, the people will reject the treaty because they do not have the belly for more cutbacks and unemployment. I ask the delegates to address that. What do they propose to do in this regard, bearing in mind the duty of care to citizens, to ensure that after the people have made their democratic decision, this State and its citizens will not be disadvantaged? Would the delegates urge the Government, of which they are supportive, to return to the table and do what it should have done originally, and ensure that the blackmail clause is removed?

Senator John Gilroy

Before I make a comment, I wish to disassociate myself from some comments made by Mr. Murphy this morning. His comments on prostitution and homelessness seemed to irritate the Greek ambassador, so much so that she commented on them. I am sure the comments were not intended to be interpreted in the way they were.

Deputy Bernard J. Durkan

It is down to inexperience.

Senator John Gilroy

The argument on the loss of sovereignty has been rolled out again. It has been rolled out with every single treaty and every single amendment to every single treaty since accession. Those who make this argument were in good company at one time because, prior to 1972, the Labour Party shared that view. In the 40 years that have passed since, Labour Party thinking has evolved. We know that every vote on every treaty has moved us further along the road to convergence. The Irish never had any doubt about this. They never failed to recognise that this was the route in which they were being led. I will nail my colours to the mast; I am absolutely in favour of further convergence. The argument should not really be about the loss of sovereignty but about the nature of changing sovereignty and how we deal with that in changed circumstances. The hard left has rolled out the same argument as Mr. Murphy and Deputy McDonald on finding a new economic model and rejecting the one we are stuck with. The third group that has always appeared on the scene comprises the religious fundamentalists, who have not appeared yet.

It is interesting that we are having a debate. It is excellent that this committee is having one. Some of the language we are using in the debate, however, seems to leave one in no doubt as to where we stand. The phrases "blackmail clause" and "austerity treaty" are hardly conducive to proper and rational debate on these matters. That kind of language is very emotive and represents a misreading of the treaty.

Mr. Paul Murphy, MEP

I am sorry to interrupt. Could Senator Gilroy explain how the treaty is not an austerity treaty? Nobody has convinced me otherwise. Articles 3 and 4-----

Senator John Gilroy

If the Chairman gives me latitude, I will make one comment. I would really like to enter into a full and proper debate with Mr. Murphy on this but I doubt that the Chairman will allow me to do so.

Chairman

We have some time constraints. I will allow the Senator to continue for another minute.

Senator John Gilroy

One minute will be sufficient. The implication that voting "No" to the treaty will end austerity, if it is an austerity treaty, is just not true. I will say no more than that. I hope we can have the debate in a rational way, taking up honest positions as opposed to trying to persuade people with rhetoric.

I have one very simple and easy question for the three MEPs. Would they be in favour of pulling out of the eurozone altogether?

Deputy Bernard J. Durkan

I thank the participants for attending and expressing their views. I was looking forward to a longer discussion.

An interesting point is emerging in this debate and from the previous discussions we have had. Senator Gilroy referred to it. Deputy Mary Lou McDonald referred to the duty of care. This was referred to by other speakers also. "Duty of care" has two quite distinct meanings. The duty of care to the population of the country is the important point. Advising the population in its best interest, and not mine as a politician, is where the duty of care lies.

A much greater duty of care falls on political parties than on Independents. While I do not wish to lecture my good friend, Deputy McDonald, I have made this point many times recently. I believe the major political parties have a major job to do when it comes to advising the public in the interests of the latter, as opposed to in party political interests. I do not wish to revisit the last general election as a means of illustrating this point further.

Another important point is that much comment has been tossed around about this awful evil that has befallen us all, namely, austerity. Members have heard quotations from Keynes and others who were opposed to the concept. However, it should be noted that Keynes's views did not always work and while he tried repeatedly, several times it failed. Moreover, it took a long time before he introduced a little bit of reality to his view and only then did it work. Anyone who studies the Great Depression and its effects across the United States will recognise fully that everything was tried. Furthermore, while all the easy measures were tried first, the problem is they did not work. Ultimately, it was decided to put the house into order and to batten down the hatches and things then began to start working because confidence was then built.

I am so sorry when I hear some of the views expressed to the effect that the euro was our downfall. I note that Mr. Bill Cash made no reference to the time when the pound sterling was under serious threat and was being assailed from all sides. Although it was a freestanding currency in its own right at the time with a powerful economy behind it, that economy was on its knees. The reason for the problem with that currency at that time was there was no international confidence in it. Industry had caved in at the time and strange things were happening, including a lack of competitiveness. They were the same things that have happened to Ireland within the European economy at present. Everyone can be selective to suit themselves and while I often have criticised the European Union in respect of various issues, it was not for this. I have criticised the Union for losing its vision over the past ten years because it was obvious that it was losing its vision. This was a time when the European Union started to move in different directions to suit different economies, people and nations. While that was and always has been the danger, this treaty at last is a measure that will pull them in a single direction. It recognises the need to introduce some measures that at least will allow people to indicate their intention to pay their way, albeit perhaps not immediately. This pertains to the question as to the reason for not bringing down the level of borrowing over a longer period. The intention is to introduce some kind of stability in order that people will have confidence in what we are doing.

I will conclude by noting that members have heard much theory from economists - I again apologise to economists for making this point - but during my time in public life and outside it, I have seen numerous instances in which people involved in business or major enterprises have run into economic difficulty for one reason or another. Not one of them has yet been able to prove beyond any shadow of doubt that they could solve their problem by borrowing their way out of it. It has not happened and has not yet been demonstrated. Consequently, the theory that is being promulgated at present on the back of Keynesian revisionism is not accurate. It is not true because it did not work that way and it will not work because it never has worked. I emphasise that Ireland should give a lead in this particular instance and it is great thing for a small country to be seen to be giving a lead. Ireland should have the courage, commitment and conviction to make all our European colleagues aware of this. If they wish to follow, then let them do so and if not, then tough luck to them. I have criticised Europe over the past ten years - and the past four years in particular - for the lack of leadership but eventually people have got down to it. It is very important that belatedly, some leadership is being shown. The main point is that the purpose of this treaty is to protect ourselves. It is not necessarily to protect others but to protect ourselves and others, while making sure that no one does something really ridiculous economically, for which the entire European Union must pay subsequently.

Deputy Seán Kyne

Ms Marian Harkin spoke about the timing of the referendum and possible changes of governments. Does she accept that while one can always speculate on what might happen in the future, one must deal with what one has? In addition, she has been active in many campaigns within her constituency over the past year. Will she be active in encouraging a "Yes" vote among those with whom she has been involved in such campaigns?

Ms Nessa Childers mentioned job-boosting measures. Does she accept that stability will enhance confidence, which in turn will enhance job creation? She also expressed her belief in and support for euro bonds. Does she accept the passing of the stability treaty would increase the likelihood of the creation of euro bonds? In this context, I note that Germany, for example, is at present reluctant, for obvious reasons, to acknowledge that euro bonds would be helpful. Mr. Paul Murphy should indicate where, without the help of the European Union or the IMF, countries will get the funds to run themselves if they are spending billions more than they are taking in. Similarly, does he accept that stability leads to confidence, which will lead to governments saving for rainy days to put in place the programmes he and others would seek for disadvantaged areas and so on? Does he accept we are at a particular point at present but that stability is required? Does he accept that putting in place rules will ensure that governments cannot break those rules and consequently will not be able to re-enact the nightmares witnessed across Europe in recent years?

Chairman

A number of questions have been asked of each MEP. I will begin with Mr. Paul Murphy.

Mr. Paul Murphy, MEP

I have many questions to answer and will begin with the last question from Deputy Kyne on where we would get help if the European Union and the IMF do not come to help us. I draw his attention to the fact that the European Union and the IMF are not helping us from the good of their hearts. These people are not charities and what they have imposed on the people of this country has been devastating. My comment on Greece referred to a visit I made to that country five or six weeks ago as part of a parliamentary delegation from the European United Left-Nordic Green Left group in the European Parliament. The people there have experienced a second bailout from this charity and the conditions imposed have devastated society. While it might be offensive, it is an evident fact that homelessness has exploded in Athens. It is a fact that prostitution has exploded in Athens.

Senator John Gilroy

On a point of order, the Greek ambassador addressed this point this morning.

Chairman

I thank the Senator.

Senator John Gilroy

It is important that this point be made to the joint committee.

Chairman

The Senator has made his point.

Mr. Paul Murphy, MEP

This is no comment at all on the Greek people, with whom I stand completely in solidarity. That was not the intention of the comment.

Chairman

This concern was noted this morning and the ambassador responded to it. Can we close this particular issue?

Mr. Paul Murphy, MEP

I am happy to continue.

The point I make is the European Union and the IMF are not charities in any sense. Under the European stability mechanism, ESM, a condition for any assistance to be given is it will only be granted "if indispensable to safeguard the [financial] stability of the euro area as a whole" and of its member states. In other words, two conditions apply. The first condition is that the member state in question needs and seeks such assistance. The second condition is that such assistance is indispensable for the financial stability of the euro area as a whole and of its member states. I read this to mean indispensable to the interests of bankers and bondholders in the core euro countries, Germany and France.

I refer to what will happen if we do or do not sign the austerity treaty. Let us assume that Ireland signs the austerity treaty, having passed the referendum. Let us then assume the Government subsequently disgracefully passes the amendment to the Treaty on the Functioning of the European Union to allow the ESM to come into being and passes the ESM Bill, which then comes into being. Ireland will still only get access to a second bailout if it is indispensable to safeguard the financial stability of the euro area as a whole and of its member states. Alternatively, let us assume Ireland does not sign the austerity treaty and the Government disgracefully fails to veto the treaty and demand the withdrawal of that clause. If it is indispensable to safeguard the financial stability of the euro area as a whole and of its member states, do members not think a way will be found whereby they will make it happen? I am not in favour of a second bailout because it would be absolutely disastrous from the perspective of ordinary people. However, throughout this time, they have been protecting not our interests but those of the elites within Europe and in particular those of the bankers and the bondholders. I note they found a way in respect of Greece.

The other important point about a second bailout is the present Government's policies mean that Ireland is snowballing towards a second bailout. While the Government can try to deny this and can try to use it as a stick with which to beat people, this is the reality. We need a fundamental change of direction on economic policy. We need to go in the opposite direction that this treaty pushes us in. We need public investment to create a significant amount of jobs and redevelop the economy. We need public ownership of key sections of the economy and an economic plan for redevelopment. That is the only basis on which we will find our way out.

I do not think it is rhetoric to call it a blackmail clause. I do not know what else one can call a clause that is specifically inserted as a stick to beat the Irish people to vote for something we do not want to vote for. That is a blackmail clause, it is not rhetoric. I would like to hear a more substantive defence of the Irish Government not stopping this. It has not come out enough in the debate yet, but the Government had the power to stop it. The second ESM treaty was agreed unanimously at Council level and therefore the Government could have stopped it, and still has the power to stop it.

To be honest, I have still not heard any arguments in favour of this austerity treaty. One may say it is based on emotion, rhetoric or whatever but I think I gave the most facts and figures of any of the speakers.

Senator John Gilroy

He was fairly selective.

Mr. Paul Murphy, MEP

It does not make them right, absolutely. The Senator and I can talk afterwards and he can give me his figures that might contradict that.

Chairman

We have been lucky to have many figures put in front of the committee over the last number of weeks. Mr. Murphy's are as welcome as the others.

Mr. Paul Murphy, MEP

I refute the idea that the argument is based purely on rhetoric because I have grounded it in an economic analysis. I am not a Keynesian economist but the history of the 1930s Great Depression we have heard is a bit round and about. It is being implied that it started off with Keynesian economics and that did not work, so they went for austerity which is what got them out of it. In reality, however, it was the reverse. It was the Marshall Plan and, in particular, a significant amount of arms expenditure in the run up to World War II which took the economies forward.

Chairman

Perhaps we could move on from the history lesson.

Mr. Paul Murphy, MEP

I do not know if people have noticed, but austerity is being applied. Austerity is not working across Europe where we now have the highest levels of unemployment.

Deputy Bernard Durkan

It is very easy to sell the anti-austerity message.

Mr. Paul Murphy, MEP

I am glad to sell it because I think it is correct.

Deputy Bernard Durkan

If you could not sell that, you could not sell any message.

Chairman

Please let Mr. Murphy make his point.

Deputy Bernard Durkan

I am sorry, Chairman.

Mr. Paul Murphy, MEP

The figures came out yesterday and we have the highest levels of unemployment in the eurozone since the introduction of the euro - some 17 million people in the eurozone and 25 million in the EU as a whole. Austerity has failed but my vision is of a different type of Europe. There is not such a society I could point to.

Senator John Gilroy

There might be in Utopia.

Deputy Timmy Dooley

Mr. Murphy is entitled to come in here and give his view. Come on.

Senator John Gilroy

Correct. I apologise.

Mr. Paul Murphy, MEP

As regards my vision and whether I stand for withdrawing from the euro, I stand for a struggle across Europe to transform the nature of Europe. I stand for a struggle by ordinary people in Ireland, Greece, Portugal and Spain, many of whom I have met in the past year, for a fundamentally different type of Europe that is run in the interests of millions of people, rather than for billionaires. That involves a significant amount of public investment to create jobs immediately. It does involve refusing to pay the odious debt that is unaffordable from the viewpoint of the PIGS countries in particular. The burden should be placed where it belongs, which is with the bondholders and bankers who have created this crisis. I stand for a wealth tax and an increase in corporation profit tax. That money should be used to create jobs and redevelop the economy. I also stand for a genuinely democratic planned economy which would avoid the anarchic mess we are currently in.

That is not the question, however. People do not have to choose between a socialist Europe and an austerity Europe in this treaty. They are faced with a simple question: "Are you in favour of the austerity treaty, or not?" I think that Europe as a whole would be much better without the treaty. Rejecting the treaty will not create the Europe I stand for, nor will it result in an end to austerity. I am not claiming, and have never claimed, that that would be the case. However, Europe would be much better rejecting this austerity treaty and not institutionalising austerity at the level where it would be institutionalised.

The question about France was not specifically directed at me, but the Government there does not like it. There is a lot of talk now about France and, if people listened, there is also a lot of talk about the Netherlands. That is because there is a leadership race within the social democrats on whom the Dutch Government depends for votes on EU matters. Both candidates in the Dutch social democrats' leadership race have said they will not ratify this treaty. One of the big sticks being used is the isolation argument, which is contradicted by reality. I do not trust François Hollande because it is absolute electioneering, but it comes from pressure from below and it is the same in the Netherlands. It therefore creates a scenario whereby it is clear that if Ireland rejects this treaty it is not just the end of the game, it provokes a debate across Europe about what kind of Europe we want. If it is about this austerity treaty we will not be isolated in that sense.

I will leave it at that and thank the Chairman for this opportunity to speak.

Ms Marian Harkin, MEP

I thank members of the sub-committee for their questions. Deputy Kyne and others referred to the rush to a referendum. Mr. Murphy has answered it, as I did when I spoke initially. We do know what François Hollande is saying and I agree with Mr. Murphy that it is electioneering. However, he will make efforts to introduce changes to include some growth-promoting measures alongside the treaty. We have heard today the perspective from the United Kingdom. The reports suggest that there may be a number of issues in this treaty that are incompatible with EU legislation. The Netherlands is another case in point, so there is a lot of questioning currently going on across Europe about this treaty. I could be wrong and it is just a personal opinion, but I felt there was no need to rush to a referendum. We should have taken our time with it in order to see what was happening elsewhere and then we might react in a different way.

I am pleased that the sub-committee has noticed my activities among my constituents. I have already got it written for my next flier.

Deputy Dooley asked about the succession of treaties and what we need to do to resolve the crisis. My view is somewhat different to that of Mr. Paul Murphy who has laid out his vision. I believe the treaty is one in a series because Europe is stumbling and struggling through the mire at the moment towards some kind of fiscal union, whether or not it ends up being a transfer union like in the United States or what we have in the UK. Mr. Bill Cash did not address the issue here but he is part of such a union. If he were not, for example, Scotland would be in a worse position than Ireland after the Royal Bank of Scotland went belly-up, but of course it was bailed out by the City of London.

This was always a political vision and we are now trying to make the economics fit into that vision. We are stumbling and struggling towards that position. It will be extraordinarily difficult to bring the citizens of Europe along with the views of many of the senior politicians. Speaking specifically about Ireland, there must absolutely be debt forgiveness otherwise - and I am only stating my opinion - we cannot survive with the level of debt we have. Most people know that and when one speaks to them privately they will say it. While I am not being political or party political about this, the Government is playing the long game on this matter.

We have already heard Dr. Merkel say that in 2013 banks may be allowed to fail. She created a storm at the time but she is absolutely right. The European Commission has already brought in a Green Paper on this issue. Our problem is that we would need to have that applied retrospectively here, but that is just for Ireland.

As regards where Europe is going, Deputy McDonald spoke about the six-pack. We must remember, however, that alongside the six-pack the European Parliament voted for euro bonds and project bonds. We also voted for growth-promoting measures, which is where Europe is going. We need a debate in this country on whether we want to be a part of that. Ultimately, we will have to go to some kind of union similar to the US or the UK. As we have seen up to now, there are no half measures with that. We may or may not want to be part of that. Somebody to whom I spoke yesterday said that we might be a 100-year Republic, but we need to have those debates. That is my view of where Europe is going at the moment.

As far as the ESM is concerned, blackmail is a strong word as Deputy Durkan said. I spoke on the ESM a day or two after the announcement was made in the European Parliament and about how it was tied in with the fiscal compact. I myself used that word. I probably used it before anyone else. It was instinctive and I could not believe this was happening. I am afraid I have not changed my mind on that.

I dealt with loss of sovereignty earlier when discussing where Europe is going. I do not agree with pulling out of the EU. With regard to pulling out of the common currency, the euro as it is currently constructed does not benefit Ireland. Interest rates were always put in place to favour the larger economies. That was one of the major problems that hit the periphery member states. Countries like Germany and others are constantly in surplus. As we are a closed entity, by definition if they are in surplus we have to be in deficit. The current construct of the euro does not serve the Irish economy. That, however, will change.

One of my main concerns at European level is the way the Council, not the Parliament and the Commission-----

Chairman

Will Ms Harkin take an interruption?

Deputy Bernard J. Durkan

It has been stated in the past that we had no control over our economic destiny due to the centralised control of the euro and interest rates. We have no difficulty doing it now, however. Each country has introduced its own ways and means of controlling its own economic situation which is by credit controls. When Europe was told credit controls could be used, it claimed it could lead to flights of cash. In fact, once it was recognised that it had to be done, it was and done so effectively.

Ms Marian Harkin, MEP

That is fine. My point is that we still have a common interest rate. It was in place at the time because it suited the German economy after reunification. It needed low interest rates when we needed high interest rates. If we had a Minister for Finance who had the authority and power to set interest rates, then he would have set them higher, if he had the common good and the interests of the Irish people at heart. We do not have that power in the euro. Until the structure and architecture of the euro changes that will always be a problem for us.

Senator John Gilroy

Will the Chairman allow another interruption?

Chairman

Very quickly because we have only one speaker left.

Senator John Gilroy

Would Ms Harkin agree that the closer integration in the fiscal treaty is aiming to do what she says? Monetary policy without an equal fiscal policy will not work.

Ms Marian Harkin, MEP

The fiscal treaty is a political treaty to give cover to Germany.

Senator John Gilroy

That is a different argument.

Ms Marian Harkin, MEP

I hope this is one of a series of treaties. If it is not, we are going nowhere. My concern is the social policy coming from the European Council. For example, the European Globalisation Adjustment Fund no longer allows the economic crisis to be used as a reason for workers to access it. Imagine the difference access to that fund would make to the 2,000 financial sector workers who may lose their jobs soon. That fund, however, will no longer be available to them because of a decision by the European Council. Other examples such as the microfinance fund and food for the deprived are running up against brick walls in the European Council. I have real concerns about the direction Europe is taking.

If this was the only treaty, I would vote "No". If this was not linked to the European Stability Mechanism, ESM, I would vote "No". However, neither of those conditions is in place. I have to think of this small, open economy and how it will find its way in the future. This treaty does not solve our problems. I wish to God we did not have to make a decision on it but we do. Being straight up front about it, I will vote "Yes" even with what I heard here today. I am going to read this treaty carefully. It is very difficult for a politician to support a treaty that he or she may believe is counter to European law. There is a lot more debating still to be done.

Ms Nessa Childers, MEP

I do not believe François Hollande's intentions are sufficiently radical to delay this treaty. He is saying things he might not be able to do when he is elected. This is very clear when one speaks to the French socialists in the European Parliament.

It might surprise Deputy McDonald that I predicted everything she would say to me before I wrote this speech. I understand where she is coming from. There was an element of a personal comment about me which I did not like, however. Deputy McDonald accused me of being disingenuous. I suggest that accusation in itself is disingenuous on her part. She also said I was being confusing.

Deputy Mary Lou McDonald

If I could clarify that. I want to make it absolutely clear for the record of this committee that any comment I make here in respect of Ms Childers or anyone else is entirely political. The charge of being disingenuous is a political one. It is politically confusing and politically disingenuous to adopt one position on the treaty at the European Parliament and then to come to this sub-committee to set out an entirely different analysis. That is a political comment and a legitimate one. I would not abuse a committee of this House to make a personal remark against Ms Childers or anyone else.

Ms Nessa Childers, MEP

Perhaps we could look at the definition of disingenuous then.

I agree it might sound confusing to Deputy McDonald but it is not to me. What I tried to present were the facts. Ms Harkin has also said the same. I find it difficult on one level to support this treaty. As an MEP, however, I support it on the basis of a risk assessment and what it would mean to Ireland to deprive ourselves of the European stability mechanism. I must also ask what I would have on my conscience if I did not support the treaty.

Everyone knows that I do not take political orders on matters I believe to be wrong. Fortunately, the Labour Party, unlike some other parties, does not always agree on everything. Some parties seem to agree on everything which I find unsettling. The Chairman and I have a dialectic.

Chairman

We do not agree on matters.

Deputy Bernard J. Durkan

There is a meeting of minds.

Ms Nessa Childers, MEP

Labour Party members have a dialectic. I will not do something if I consider it wrong just because I am told to do it. Unfortunately, we have to support this treaty and I do not want it on my conscience to misuse some kind of power I have. I could be completely amoral, going off on some tangent recommending a "No" vote. I am not recommending it because it is too risky.

It is also part of a negotiating strategy which both parties in government must reach. It is part of a delicate game, the nature of which only very few people know. We must manoeuvre ourselves into a position where we can negotiate with serious intent. That is what I hope will happen but I have said it is an act of faith. There are elements of this treaty that I do not know or like.

It is true socialist MEPs voted against four of the six-pack measures. We managed to influence two of them in the favour of all Europeans. We also voted for euro bonds as well as other measures. There is a difference between this and the six pack, the difference is the threat. It all comes down to the matter of a threat. Mr. William Cash's submissions to the British Conservative committee are interesting. There is a possibility the treaty will fail all the way across Europe. It just will not work, it will wither on the vine. We in Ireland must not be responsible for that happening.

Deputy Mary Lou McDonald

May I ask the speaker if she will take a short question?

Ms Nessa Childers, MEP

I was going to answer. The Deputy asked a second question about the ESF.

Deputy Mary Lou McDonald

I appreciate the commentary and thank Ms Childers for her expansive reply. On a point of clarification, would it be fair to say that Ms Childers would, in conscience, recommend a "Yes" vote to people on the basis of a threat?

Ms Nessa Childers, MEP

I sense it is part of a wider negotiating strategy. That is exactly true. I appreciate that it might sound confusing but that is because I am an MEP and might have a separate view. The Deputy asked about the ESM and what would happen if the treaty failed, if there was a "No" vote, to be followed by this other vote to which reference has been made. I will have to ask a member of the Government to respond to that question. I do not know what would happen. That is a national government response. I do not know the answer to that question, if that were to happen.

Chairman

The leaders of each party, including the Government parties, will appear before the committee in two weeks' time. Any specific questions in regard to Government policy could probably be addressed then.

Deputy Timmy Dooley

I wish to make a brief point. I understand Ms Childers said her expectation was that it would probably wither on the vine across Europe.

Ms Nessa Childers, MEP

I think it might.

Deputy Timmy Dooley

That is why this interaction is particularly useful because Ms Childers is discussing the issue with members from other countries whose perspective we do not get. That is why that is helpful. Her attitude is that we should not be the bad boys because she does not see this coming to fruition. Would that summarise Ms Childers' views?

Ms Nessa Childers, MEP

That is a judgment call about the withering vine.

Deputy Timmy Dooley

It is based on her interaction.

Ms Nessa Childers, MEP

We are on shifting sands. One thing is happening, then another. Anything could happen at this point. At this point in time with the way things are at 4 p.m. this afternoon, I think there is a risk which is too great. I speak now on behalf of, say, a person who is not a member of any party who perhaps has two children. I am afraid of having to answer for such a person because nobody yet has given a credible alternative of what would happen.

Chairman

I thank Ms Nessa Childers, MEP, and each of the MEPs for their attendance. On behalf of the committee, we are appreciative of the time they have taken to engage with us. Unless there are any other matters for our attention I shall adjourn the meeting.

The sub-committee adjourned at 4.05 p.m. until 11 a.m. on Wednesday, 4 April 2012.