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 -
Wednesday, 4 Apr 2012

Views on Treaty from Across the EU [Resumed]

Chairman

I welcome everybody to the second meeting of the Sub-Committee on the Referendum on the Intergovernmental Treaty on Stability, Coordination and Governance in the Economic and Monetary Union. As members are aware, the Government has made a decision to hold a referendum on the treaty in late May and this sub-committee was set up by the Joint Committee on European Union Affairs to host an extensive and balanced debate on the treaty and the implications of the referendum for both Ireland and the rest of the European Union.

This week we are holding an intensive series of meetings across yesterday, today and tomorrow in which we will hear from a cross-section of opinion under three main headings: the views on the treaty from across the European Union; the realities of what the treaty means for Ireland - understanding the facts; and the reactions of Irish society to the treaty.

This morning's session will focus on the views of the treaty from across the European Union and addressing the committee this morning will be the following: Ms Sharon Bowles, MEP for South-East England and Chair of the European Parliament's Economic and Monetary Affairs Committee; and Lord Lyndon Harrison, who is Chair of the House of Lords Sub-Committee on Economic and Financial Affairs and International Trade. I welcome both our guests. Members are looking forward to hearing their views. We ask both guests to present to the committee following which members will pose questions to them. We have allowed about an hour and a half to hear everybody's views and I am hopeful that everybody will get an opportunity to speak in that time. Would Ms Bowles like to present to the committee?

Ms Sharon Bowles, MEP

It is a great pleasure to be here again; I have been here previously. I hope that in responding to members' questions I will be able to provide some enlightenment. With about 50 work streams going on sometimes it takes questions for me to be able to dig the information out of the part of my brain where I have managed to bury it.

When this intergovernmental treaty was being negotiated three representatives from the Parliament were present in the negotiations, although we had no absolute right to enforce any of our views on the member states. A few of the issues we wanted were incorporated in a relatively minor way but, nevertheless, we made one or two useful changes.

The most important question might be to ask what was the purpose of this treaty. If we are honest about it, the main purpose of the treaty was to provide decency for the European Central Bank to engage in its long-term refinancing operations. Members will recall that at the end of last year we were getting into a fairly desperate position. It was hoped there would be a treaty change but that was not possible and therefore this was done as the alternative. However, as soon as the Council had agreed that there would be this so-called fiscal compact, the ECB, on the basis of that promise, started its long-term refinancing operations, which saved the position we were in. It was necessary, therefore, to follow that through with more than just the promise that had come out of the European Council. On analysing the content of the treaty, as the European Parliament did, one notes there is not really a lot in it that is not already in the so-called six-pack, such as the requirement for balanced budgets. Some people believed it was a little odd to include the content in another document in the belief that it was almost like saying we were going to disobey the texts reached in co-legislation in the six-pack. The objective was to try to create a package that looked substantial. The view of the European Parliament was that there was actually very little substance to it over and above the voting procedure, which involves more automaticity such that a qualified majority is required to overturn a decision. The Parliament had tried to achieve this in the six-pack negotiations but could not do so in this instance because the treaty actually outlined the voting procedure. We could not make a change, therefore. There is the possibility of using the European Court of Justice to impose a fine. This was very much a measure that Germany wanted.

Those are the two substantially new measures that are not and cannot be covered anywhere else under the existing European treaties. As for the rest, the content already has some precedent in the six-pack and could probably and will be subsumed into the latest round of co-decision legislation on the so-called two-pack, the two latest legislative instruments. One is then left with most of the measures coming into operation de facto.

The only other point to flag, of which I know members are well aware, is the potential interaction with the ESM. There is a notion that if one does not sign up to the fiscal compact, one cannot gain access to the ESM. That will probably be the de facto position. If one were not playing the game, the majority of member states would not afford one the consensus necessary to obtain funding under any of the mechanisms if they believed this to be necessary for fiscal discipline. Although I can understand a certain amount of irritation over provisions that look a little like blackmail and excessive pressure, my preference would have been for such points to have been implicit rather than explicit. I am not sure it actually changes a great deal; perhaps that is a matter that the committee wants to discuss.

That is how the European Parliament and I see the matter. I will be happy to respond in more detail to any questions.

Chairman

I thank Ms Bowles.

Lord Lyndon Harrison

It is a delight and pleasure to address the Chairman's colleagues on this important issue. I feel I have been through the wringer already. The chauffeur the committee kindly sent to collect me at Dublin Airport turned out to be an expert on the fiscal compact treaty and also on the architecture of Dublin.

I spent time in the European Parliament from 1989 to 1999. It is good to see faces from that time around the table. I now chair the Sub-Committee on Economic and Financial Affairs, and International Trade of the Select Committee on the European Union. The report I am to talk about was produced in a combined way.

Let me illustrate some of the work we do on the committee. Last Friday we published a report entitled Towards a Financial Transaction Tax?. We have published reports on the new supervisory financial framework that operates throughout the European Union and these touch on some of the elements we are discussing today. Also touching on some of these elements is the report we published on sovereign credit ratings, in which we wondered why we give such ready belief to sovereign credit ratings. However, they do have an important impact on what we are trying to do.

The report I am going to talk to today is a follow-up report to the one we published in March 2011 on EU governance. It was published in February and is on the euro area crisis. I believed it would be helpful to members if I gave it to the clerk. I understand from the line of questioning the committee was interested in yesterday that it may touch on some of the legal aspects of the treaty that the members want to pursue. I will be more than happy to talk to Chapter 5 when the time is appropriate.

We decided in the House of Lords to produce the report although we are not part of the eurozone. However, we believe intensely that what happens in the eurozone will have an effect on the United Kingdom, its financial services and well-being. Therefore, we have an interest. This week, along with the Czech Republic, we have absented ourselves from the compact treaty. I will be happy to dilate on that at a later moment.

My committee embarked on considering the economic side of this issue. That, in turn, was taken up by the select committee, chaired by Lord John Roper. Among the people we interviewed, including Ms Sharon Bowles, were Edward Carr of The Economist, Charles Grant of the Centre for European Reform, Giuliano Amato, former Prime Minister of Italy, and Professor Paul Craig, whose name is invoked in the report published by the House of Commons yesterday on this issue. This committee heard from the Chairman of the House of Commons committee, Mr. Bill Cash, yesterday. The conclusion of this report was, as Ms Bowles said, that the treaty seems to add little to the existing obligations on member states under EU legislation that is already agreed. However, taken together, the treaty and the legislation amount to a major innovation in the fiscal policy of the euro area states. The treaty states in Article 16 there will be a review within five years. It will be very important to consider this review.

We also concluded that while steps must be taken to strengthen the euro, matters relating to the Internal Market must remain the preserve of all 27 member states. We feel very strongly about the preservation and encouragement of the Single Market. Bringing the fiscal compact within the EU treaty architecture would offer benefits for all member states, including the United Kingdom. The UK Government, in giving evidence to us, said the optimum outcome would have been to have all 27 member states sign up. In the event, they did not but we believe it would be of benefit and get over some of the possible shells and troubles associated with just 25 member states making an intergovernmental treaty.

I will not dwell on some of the legal aspects that I know the committee will want to pursue, including Article 8 and the role of the European Court of Justice.

One of the two final conclusions was that in order to face the enormous challenges the crisis posed to the Union, effective and active leadership was required. That featured in our first report, published in March 2011. There are two views that could be taken on leadership but we felt strongly we needed to get a grip of the problem. The final point, about which we feel very strongly, is that greater focus on promoting sustainable growth was essential in the longer term. For us to get out of the crisis that affects all member states, including the United Kingdom, and not simply the eurozone 17, we must apply ourselves to those mechanisms which stimulate growth and the creation of jobs. Moreover, for those who are indebted, the path must be to find such growth, which will deal with the indebtedness inherited from the crisis. Like Ms Sharon Bowles, I am more than happy to try to answer some of the testing questions, which I am sure will not be as sharp as those posed to me by the chauffeur this morning.

Chairman

I thank Lord Harrison. The first questioner is Deputy Dooley.

Deputy Timmy Dooley

Unfortunately, I will not be able to compete with the taxi driver. I thank the witnesses for their presentations and appreciate their attendance to assist members in their deliberations. As Ms Bowles set out at the outset, everyone is of the view that there is nothing particularly new or groundbreaking in this treaty. As some of the witnesses indicated at the meeting yesterday, it appears to be a stepping stone or bridge towards greater fiscal discipline and of itself, there is nothing particularly new, with the exception of some minor elements. A number of witnesses at yesterday's meeting spoke of the necessity for further treaty change if it is intended to move towards eurobonds or towards much closer fiscal discipline. One question raised by Mr. Bill Cash yesterday was whether this was a ruse towards forcing greater political co-ordination or closer political integration on the part of those who always have envisaged this to be the future evolution of Europe. While the idea of closer political integration has been parked over time, do the witnesses think some of the bigger member states with a renewed desire for closer political integration are using the crisis to bring that about?

Second, the witnesses will be familiar with the comments of François Hollande, who has indicated a desire to change significantly the provisions of this treaty in the event of his election as President of France. As Ireland is in the difficult position of holding a referendum in advance of that, my somewhat subjective question is whether this constitutes political posturing or do the witnesses believe this will pose a significant issue or cause a crisis in the event of his attaining high office?

Third, I refer to a point to which Lord Harrison alluded. It came about through members' discussions with Mr. Cash yesterday, when he raised concerns about the legality - he may have suggested the illegality - of Article 8. He told the sub-committee that in his view, the United Kingdom had exercised a veto and therefore this is not a European union treaty but rather is an international agreement. He finds it difficult to comprehend how an international agreement that is not a European Union treaty could be subject to the jurisdiction of the European Court of Justice. The witnesses might share their thoughts on these three points.

Ms Phil Prendergast, MEP

I listened to and participated in yesterday's meeting and my overall view is while this could be referred to as being a low-growth treaty, access to the European Stability Mechanism, ESM, is contingent on adoption of the stability treaty. Can those who are opposed to ratification outline their vision of an Ireland that does not adopt this treaty? What effect would this have on the markets and the rating agencies in respect of bond yields? Will the political and investor goodwill that has been built up since the current Administration came into office be damaged? I believe that access to the ESM will act like an insurance policy. The European Council made a formal commitment to adopting growth policies last January and in March, it reiterated its desire to see met the targets of the Europe 2020 strategy. This strategy refers to employment, innovation, research and development, climate change and energy, improving education levels and promoting social inclusion. I seek a debate centred on these points with those who claim this treaty is not good for Ireland, would not give us access to the ESM and does not provide us with that ballast.

Deputy Pádraig Mac Lochlainn

In respect of the previous speaker, Ms Phil Prendergast, I am mindful the three Labour Party MEPs only supported one of the measures in the six-pack when the latter was put before the European Parliament and they supported that because of a social clause included by Mario Monti. However, as no social clause has been included in this treaty, it appears as though the only argument in favour is the possibility that we may not be able to access the European Stability Mechanism. I suggest this is a weak argument and will return to that point when framing my questions.

I thank the witnesses for coming over to give the sub-committee their views on this issue. In particular, I thank Ms Bowles, who last year brought a delegation from her committee here to meet members. I was impressed by her sympathetic approach in respect of the banking debt and got the sense that she shared the view that there could not be growth or progress in this country unless we received somewhat more justice in that regard. I acknowledge that as a chairperson of a committee of the European Parliament, she must be somewhat diplomatic in her expression of her views but she certainly gave that impression to members, which was welcome.

In his report, Lord Harrison placed a considerable focus on the legalities in this regard. He noted this, of course, is not a European treaty but is an intergovernmental treaty, that it is outside the framework of European law and that it is highly questionable that the European institutions could be deployed in any enforcement given it is not a European treaty. I ask both witnesses to comment on the issue of what is called the blackmail clause, which interestingly is contained in the treaty's preamble rather than in an actual article. Under European case law, a preamble has no legal effect. Consequently, I invite the witnesses to comment on whether the so-called blackmail clause is legally applicable, given that it is contained in the treaty's preamble.

Second, the Government has a veto over the amendment to Article 136 of the Treaty of the Functioning of the European Union that must be made to enable the European stability mechanism treaty to come into effect. The Government has yet to introduce this legislation to the Oireachtas and has indicated it will not so do prior to the people voting in the referendum. Those of us who oppose this treaty are calling on the Government, in the event that the people reject it, to not implement the ESM. Under such circumstances, the Government should engage with Europe on any suggestion there would be conditionality, that is, that we would be obliged to accept this treaty to access the European stability mechanism. I seek the witnesses' views on the entire legal framework in this regard because it appears to many people in Ireland that the only solid argument those who seek the people's support for this treaty can make is we would not be able to access the European stability mechanism in the event of a second bailout.

I also seek the comments of Ms Bowles in respect of what I acknowledge to be a difficult question. I do not expect a definitive response considering her position and the diplomacy involved therein to which I alluded earlier. Realistically, Ireland has met all the terms and conditions of the troika agreement. Some in Ireland have suggested we are the poster boys of austerity. We have been very compliant and undoubtedly will meet every target right up to 2015, with significant consequences for the people. Even if one leaves aside the two points I made earlier, does any one seriously suggest that were Ireland to require funding again, it would not get it because it did not support this treaty? One should consider that Ireland will have met every single target of the troika, which does not simply comprise the European Central Bank and European Commission but also includes the IMF. Sinn Féin believes this is an empty threat. However, it is the only thing that the Government, in particular, and those on the "Yes" side can point to to justify their defence and advancement of this treaty.

If the treaty is passed by the people of Ireland we will be tied into the 0.5% target by 2015 and getting our debt to GDP ratio down to 60% beyond 2015 at a rate of 1/20th per year. If we do not have a write-down of our debt, how do the witnesses think we will develop growth? How will we turn our economy around given the inability to take other measures beyond cuts, stealth taxes and all the other things we have seen?

Chairman

Can I add a question on the ESM, further to the point that Deputy Mac Lochlainn made? We had a presentation yesterday from the chairman of the House of Commons' European scrutiny committee, Mr. Bill Cash, MP. He presented his committee's report, including its findings on the ESM. According to evidence to that committee by the UK's Financial Secretary to the Treasury, Mr. Mark Hoban, Article 136 does not have to be amended before the ESM comes into effect. He maintains that the ESM can come into effect regardless of whether Article 136 is amended. He says it is desirable that it be amended, but not necessary. I wonder if the witnesses have any comment to make on that point. From this side of the water, it is important to understand whether or not that is the case. Is it essential that Article 136 is amended or will the ESM proceed anyway, regardless of whether or not it is amended? I would be interested to hear the witnesses' responses to that and the other questions.

Ms Sharon Bowles, MEP

Let us start at the beginning with the issue of forcing closer political integration. There are certainly those who have always wanted greater integration of all kinds, including political, economic and fiscal. The so-called federalists see this as something that will progress their cause. In some ways it has, through making the monetary union work and filling in some of the things that were missing, particularly regarding fiscal discipline and, looking forward, maybe ultimately going to something along the lines of euro bonds. The latter keeps rearing its head as one of the only possible ways in which we might get a long-term solution for everyone that feeds in. However, I do not think some of the larger member states are secretly trying to do that. I think they are quite transparent about what they want. They want to get out of this mess and will do whatever is necessary to do that. There is almost more suspicion around now as a consequence. This comes through in things like the blackmail clause, if I could call it that. There is this need to get things written down and have the ECJ involved. This is not trusting fellow member states, it is more like saying "We're all in this together. Well help you, but there's a price".

I do not think I was at all diplomatic about the interest rates that Ireland is paying. I said very loudly and often that it was outrageous, until eventually they had to hear. That characterised the issue - there had to be a penalty for having erred, even though sustainability and recovery were in everybody's long-term interests. We are not necessarily on a smooth ride to political integration; it is a very bumpy one, not least because member states and ministers have not been able to take their public with them in accepting the reasons why certain steps have to be made. It is something that you are very aware of here in Ireland because you have to have referendums. Therefore, more care has been taken to explain it to the Irish public than has been done in some other countries. The public in Germany are not really on board for an awful lot of what is going on. That is why it is so difficult to make the firewalls as big as they should be, so that one gets the shock and awe one wants and so that one does not have to use it. As one cannot get the Germans and others to come along, they come in in incremental stages. They are therefore tested by the markets and are not good enough, thus one has to put more in, so the whole thing is massively more expensive than if one could have done the shock and awe. Democracy is an awkward thing at times and we just have to face that.

The question was posed as to what François Hollande is going to do. I do not know what he will do but it is easiest to go back to addressing the fundamentals. Most of the fundamentals in this treaty are already in the six-pack, including balanced budgets and in-built austerity, which political parties on the left are certainly unhappy with because they would like more flexibility for Keynesian-style investment. There is an ongoing argument worldwide as to how one deals with it. To some extent, the austerity levels are already keyed in through the six-pack for those countries that are in programme requirements. It will continue to be imposed on the EU from the IMF, if we continue to need IMF money to help with our firewalls. We are not as sovereign in this as we would like to think, if we are still reliant on the IMF. The IMF wants us to follow the path of austerity, although it also makes noises about growth.

If countries have already started to ratify the treaty, they will find it harder to back off and renegotiate. We have the matter of the two-pack that is going through the parliament at the moment. I will not disguise from the sub-committee that, as with the six-pack, there is a rocky ride on the left. At one time, on the six-pack, we really did not have a majority for quite a lot of the reports. We eventually managed to do that, however, because we put in a lot of effort to try to bring in more of the social aspects, although still not enough for many on the left of the house.

I asked Mr. Gualtieri about the legality of section 8 when he was one of the European Parliament negotiators on this matter and was in the committee. This was a private conversation but I can reveal it because he has spoken about it anyway. Basically the attitude is that the ECJ will ultimately make up its mind on whether or not something referred to it is legal. Given that much of what is in this document is already within the six-pack, the upcoming two-pack or other things that may come along, by the time there is any reference to the ECJ they may well be able to decide that they can take the reference on the basis of something other than this treaty. The way in which it can be done is through one of the provisions of the treaty that enables a member state to take another to the ECJ. It has never been tested before so it is an experiment. There is no way of getting out of that and views differ. It is all very difficult to create economic growth when one has to get out of a hole of high sovereign debt. That in itself is almost a different debate.

On the question of being shut out of the rescue mechanisms, Ireland is not going to be the worst performer. It is the best in class because it has an open economy which lends itself to recovery more than those of other countries in programmes. If Ireland is in a mess, they will be in a deeper mess and there will have to be another deep rethink. That is not exactly an answer but others will need help before Ireland. That is a point worth bearing in mind.

I dealt with debt, the six-pack measures, no social clause and the interest rate point in a more general way. I do not know about the legality of the blackmail clause in the preamble. It comes down to practicality as well. Originally, when these rescue mechanisms were set up, it required unanimity to be able to access them. That has now been finessed away with a term that is kind of a consensus allowing member states to stay quiet. If a country has sinned a lot, however, other member states will start to be against it.

I am not sure about Article 130. I have found many ways of getting around the treaty. For example, I can do eurobonds around the treaty. Where there is a will there is a way. It is usually better, however, if one can amend the basic document so it is not twisting and turning and one can go for what one wants in a straightforward way.

I would not recommend a veto. I do not know whether that would end up putting Ireland in a similar position to the UK. It is not particularly pleasant in the European Parliament coming from a country that has exercised its veto. Sympathy is in short supply when negotiating matters in co-decision on, for example, financial markets legislation. The UK voice that such legislation would hurt its economy is discounted because other member states ask where the UK was in their hour of need but exercising its veto. Obviously, it is not the same scenario but I would not recommend that Ireland get itself into that kind of position if it can avoid it.

On the question of whether Ireland would get funding again if it rejected the compact, the treaty stresses existing agreements cannot be messed around with, so revenge cannot be taken. The difficulty is only if Ireland needed to access the new funding mechanism. There are still moneys in the old mechanism so Europe could give Ireland a top-up from that rather than the new one. It would be good if Ireland has goodwill on its side but the dynamics in Council are not something to which I am party.

How does a member state hit its budget targets? That is a problem for everybody. The markets need to know that Ireland is serious about repaying the debt. After the UK general election a coalition government was set up. Many in Europe asked me how we could negotiate that in a matter of a few days when we do not normally have such governments. I explained it was due to the markets. The UK understood it had to put a government together with a programme quickly to ensure stability in the markets. If one veers too much away from the plans that have been put out there and publicised in the markets, then one will suffer. There is huge nervousness in Asia and the United States as to where Europe is going. They are asking if they can invest in Europe. To do anything that amplifies that nervousness would be a great mistake. I hear this often when I meet with asset managers from Asia and the United States.

I am not sure whether Article 136 needs to be amended. I would not be surprised to discover if it could be slid around as it is open to interpretation. As I said, it is better to do this in a straightforward way.

Lord Lyndon Harrison

I would like to don the same hairshirt as Ms Bowles. I know that our Czech colleagues are thinking about signing up to the fiscal compact and want more time on it. If the United Kingdom had signed up, we would still be using the existing treaties. The House of Lords has come out very strongly to say it cannot see or understand any objection to our so doing. There may be a period before that. Our committee, like this, reflected all parties and benches in parliament.

On the François Hollande point, when I consulted my fellow French socialists four weeks ago, I was informed that much in the same way as the threatened financial transaction tax from Mr. Sarkozy, François Hollande has presented his ambition to review the treaty. When done in front of an electorate, one can be sure once in place any such review will not be of the fundamentals of the treaty. Hollande has made several interesting other statements but it is in his interest not to start rocking boats when there is a certain vulnerability with the French situation.

As regards Deputy Dooley's question, we do not believe there is much to this treaty. Mr. Giuliano Amato, the former Italian Prime Minister, told our committee that if this treaty has achieved one thing, which is to bring the markets' trust back to the euro, in turn aided and abetted by the role of the European Central Bank, ECB, then it has been worthwhile. The role of the ECB has not been highlighted much and whether it has trespassed into territory beyond its remit in terms of inflation control may need to be examined.

Our report, available to everyone, had an extensive chapter on the question of the legality of the treaty. We examined the legal and related issues including if the treaty can confer new functions on EU institutions; does it try to do so; the question of transparency; does the Intergovernmental Conference, IGC, confuse matters; democratic accountability; and the role of the European Parliament. The Parliament has more developed powers under the existing treaties than it may do in being consulted under this treaty. Indeed, we are involved on several aspects of the question as to whether the treaty impose any new obligations on member states.

On the question of Article 8, the European Court of Justice and the European Commission, the first part of this Article requires transposition of the fiscal compact into national law "through provisions of binding force and permanent character, preferably constitutional". Then it is stated that the court can rule on that and on the question of the 0.1% of the gross domestic product criterion. That may be questionable.

There is also the question that Professor Craig agreed that Article 273 was sufficient to give the court jurisdiction, but that Article 8 of the proposed treaty causes difficulties because even though the Commission would not bring a case in name, the provisions mean that it might do so in effect, and there is no provision under the EU treaties for the Commission to bring such a case. That would be a new development.

What view one takes of these legal niceties is why we all, as politicians, must mesh with political realities. The Chairman of the House of Commons committee likes to adhere strictly to the letter of the law but we live in the real world where matters for the purposes of moving the charabanc forward require that we sometimes take a politically enlightened view of the legislation with which we have presented ourselves. It is a delicate process.

This leads me on to the other question of the conditionality, or whether Ireland would be forbidden access to the ESM when it is created in July of this year if it failed to sign the treaty. There is a difficult argument that as a result of the failure of the Stability and Growth Pact, with member states transgressing it, most notably France and Germany in 2002 and 2003, a set of conditions has been introduced into the fiscal compact treaty to ensure - maybe the word "coerce" is the right word - that member states do what they have undertaken to do. That comes down to a political consideration to the extent to which one enforces and ensures that will happen.

It also brings me to the question Deputy Dooley asked about whether this is a surreptitious way of moving towards a more federalist Europe by bringing in this treaty and having those elements to it which require greater fiscal discipline. We identified in our first report, and reinforced in the second report on the euro financial crisis, that there was a major problem at the birth of the euro, namely the fact that fiscal and monetary union were not achieved at the same time, and I think it is that attempt to try to marry the two together which is now taking place. Surprisingly, even the Chancellor of the Exchequer in the United Kingdom talked about such a logic for the EU 17 and any other countries that joined the euro afterwards. It was a relentless logic that they should so move to a fiscal as well as to a monetary union, and many who stand at the crossroads would say that there is that imperative to go further and deeper. Whether one regards it as surreptitious, underhand or whatever, it is a logical consequence of the fault that lay at the heart of the creation of the euro.

There are a number of other points. On Article 136, and what is happening in the United Kingdom, the House of Lords also did a report on Article 136 which went through the House and which we will forward to the Clerk to the Committee. I am advised - I am not an expert in this - that Article 136 agreeing the ESM would now require a Bill to go through. It was agreed under the European Union Act, which Mr. Bill Cash, MP, undoubtedly would have talked about, which prevented the Government giving away further powers to the European Union. I have my own strong views on that if anyone were to ask me, but if that is the case - the Act is now in place - there would be a requirement for the United Kingdom Government to bring forward a further Act to allow that to be agreed and happen. I am told by those who listen to hints for the Queen's speech, which will be presented on 9 May, that it is not there at present but it is something that could be quickly conjured up.

I am conscious that Ms Sharon Bowles, MEP, shouldered many of the other questions.

Chairman

There will be more to come. The next one is from Senator Gilroy.

Senator John Gilroy

I have two brief and rather simple questions for the witnesses. If I understood Ms Bowles, MEP, correctly, she expressed the view that the treaty is an exercise in giving cover to the ECB for expanded activities, there is not a great deal new in the treaty and there are several other options open to us instead of the treaty. Why is it necessary for the treaty to be put forward in this way and at this time?

Lord Harrison was lucky to meet a taxi driver who is an expert only on the fiscal treaty; normally, they are experts on everything. While I understand the complexity of the argument, would Lord Harrison be able to give the briefest and simplest summation of why the UK Government has decided at this time that the treaty is not in the best interests of the UK? In effect, I am asking why the treaty is necessary and why it is not.

Chairman

It is nice to hear Senators can still afford to take taxis. The next questioner is Ms Marian Harkin, MEP.

Ms Marian Harkin, MEP

I wish good morning to Ms Sharon Bowles, MEP, and Lord Harrison and I thank them for their frank and open discussion so far. I have a number of questions. Ms Bowles, MEP, stated that the purpose of the treaty was to allow Mr. Draghi do his version of quantitative easing. Certainly he has avoided a credit crunch but, aside from that, the banks are not lending and the economic situation, with, I suppose, the exception of a number of the core countries, is not improving. If the treaty is to allow that happen, has that been a success or has it a chance of succeeding?

The second reason mentioned by Ms Bowles, MEP, with which most here would agree, is that to some extent it is cover for politicians in a number of member states who cannot manage to bring their citizens along with them. I understand from speaking to my Dutch, Finnish, Danish and German colleagues that their citizens have a very different perspective on this than we do. Does either witness see that one of the dangers we now face at European level is that the split will be not so much between member states as between countries and citizens of countries whose perspective is changing significantly. Once one loses that momentum that, in itself, is a real issue for Europe. We have been stumbling, given the pace at which change has taken place. We are not even half way there. The pace of change is a problem for European politicians.

Yesterday, I stated that I would vote "Yes" for two reasons. This will not be the last treaty. One of our guests stated that the relentless logic is that this might be a surreptitious way towards establishing a fiscal union. The currency's architecture is not robust enough to survive. The UK has a transfer union similar to that of the US. Is that the relentless logic of where this process will end? I believe it is. This is the point on which countries like Ireland must make a real choice. What we are faced with now is a choice, but it is not a real choice. What are our guests' opinions in this regard?

Article 273 seems to be a weak legal basis on which to get the European Court of Justice, ECJ, involved. What are our guests' opinions in this regard? Someone stated that, under this article, countries would be sanctioned for not transposing this provision into their legislation rather than for not implementing it.

I was interested in the comment on treaties and the fact that there is sometimes a politically enlightened view. What happens to the objective view? A politically enlightened view is still just a current political view to the effect that a process should be pushed forward. This idea concerns many citizens, including myself. These are major issues that will affect the future of the Union and its citizens. Will our guests comment in this regard?

I will not go into the detail of Article 136, as our guests have explained it. Will the UK ratify it by January 2013, which is the deadline? It was stated that if any of us asked, the reasons for the UK's veto would be elaborated upon. At the time, we were told that it was to protect the City of London.

Ms Bowles proposed the idea of the "Bowles bonds", through which any interest paid on the moneys borrowed would be returned to Ireland after we had repaid them. The amount would be significant. I agree with Deputy Mac Lochlainn concerning a debt write-down in the short and medium terms. According to the National Treasury Management Agency, NTMA, our debt stands at €200 billion. For how long must the economy bleed before we can have a chance for growth and extract ourselves from this situation? This is one of the serious questions that Irish citizens must face.

Recently, the European Parliament voted for measures such as a redemption fund, euro bonds, project bonds, etc. These form the second half of the equation. Is that second half likely to come about and, if so, will it happen in the near future?

Chairman

The next speaker is Deputy Durkan.

Deputy Bernard J. Durkan

I apologise, as I was musing. It was a dangerous thing to do.

I welcome our guests and thank them for their informative address and responses. Our political situation is similar to that which prevails in their country. We have been meeting the UK's representatives for years. As is the case there, there are people in Ireland who are opposed to anything that even sniffs of Europe, including treaties and legislation. Traditionally, they have voted "No" and will continue to do so. The UK also has eurosceptics.

This approach makes life difficult. Some people are committed to Europe and its ideals and objectives and others are opposed. There is another group in the centre, people who want to make the right decision. Sometimes, we achieved different results, creating problems for Ireland and the EU.

Our guests' comments have been important. For example, Ms Bowles is correct to state that the matters under discussion, namely, the six-pack, etc., are not relatively new. However, she raised the question of whether signing up to something was necessary. I strongly support the suggestion that there is such a need. As a country and a community, we must indicate to ourselves that we are committed to an ideal and an objective. In this situation, that unfortunately means living within our means. Some people call this austerity. Indeed, the words "austerity" and "blackmail" are regularly tossed around, the intent being to incite a negative public reaction.

What do we tell the people? Do we tell them what is in their and the country's long-term interests or do we pretend that there is an easier way, that one can be as negative as one wishes and the situation will be all right? Recent events proved the former to be the correct route. If we bury our heads in the sand and pretend that nothing of a punitive nature will happen, we will be in trouble. That is what Ireland discovered.

The discussion on a write-down is interesting, as there is no such thing as a write-down. One does not negotiate it. Rather, one negotiates interest payments and terms during the initial part of any debt. This is all that one can do, given one's position of weakness. This is Ireland's situation. We did a bad job in the beginning. The Government of the day was between a rock and a hard place. It would have been easy to refuse to negotiate, which would have led to the situations experienced by other countries. However, the Government negotiated from a position of weakness. The deal was not a great one, but there has been some improvement since then. As has been rightly stated, the latitude that is required to allow us to exploit that which is possible as we progress has been provided. Latitude must always be afforded in agreements of this nature.

We hate austerity. To us it is a penalty, but it should not be. We should always live within our means. Who gave us the right to depart from this concept? I will ask our guests the question that we must ask ourselves, namely, are we up to it? Are we capable of shouldering this burden? Their opinion is as important as ours in this respect. International markets will observe the opinions of the UK's representatives, as they are from outside our immediate area of responsibility.

Yesterday, we asked Mr. Bill Cash, MP, about the degree to which the House of Commons's committee would be committed to the European concept. Over the years, I have had occasion to engage on this subject with that committee. Our question arose in the context of austerity. When there was a concerted, months-long attack on the pound sterling, it posed the UK a serious problem. Yesterday, I cited Harold Wilson, who stated that he hoped the marketeers would get their fingers burned. Mr. Cash did not respond to that part of my question. Among the international markets, there was doubt about the stability of the UK's economy at the time. The changes occurring in its manufacturing industry, etc., were resisted and the markets responded.

As members of different institutions outside of Ireland, do our guests believe that we are capable of delivering? There will always be people who will say "No" because it is easier to say that. It is crucial - for us and Europe - that we make up our minds in regard to whether we put out to the electorate a message which ultimately misleads them or whether we tell them in the truth, which may not be in the interests of our political futures but will at least give the people outside this economy some indication of what we are about.

Deputy Robert Dowds

Ar dtús, cuirim fáilte romhaibh. I welcome the witnesses to the sub-committee. I have two questions for them, one of which relates to a comment by Lord Harrison in regard to the need for a monetary and fiscal Union, which I accept is the case. Our experience of low interest rates in the wider EU area at a time when what we needed was higher rates because our economy was over-heating is a clear example of why this is necessary. Tied in with that there is an inevitable drive towards greater integration in Europe. There needs to be greater democracy at the centre of Europe than is currently the case. While we elect MEPs, as does every other member state in the EU, power does not sufficiently reside with those who are elected in that the Commission is an indirectly selected body. I am interested in hearing the witnesses views on how Europe might develop more democratically. It is important that we think in those terms. No individual country, even larger ones than Ireland such as Britain, is in a position to stand on its own in the world into which we are moving. We need to hang together and to do so as equally as possible.

My second question relates to Britain, which if in difficulty also causes difficulty for us because of our dependence on each other. To what extent do the witnesses believe that Britain is at a long-term disadvantage by not being in the eurozone? In the short term it is in a position to laugh at the shortcomings of the euro. However, does this pose a difficulty for Britain in the long term?

Mr. Séan Kelly, MEP

I welcome Ms Bowles who, I have learned, is a respected member of the European Parliament and Lord Harrison, who has been an authority in this area for many years.

I will be brief. Senator Gilroy, Ms Harkin, MEP and Deputy Dowds referred to our interests in the United Kingdom and the close connections between it and Ireland. As such, we must take heed of anything which the UK does. On the fiscal compact treaty, while the United Kingdom has decided to remain outside of the treaty, do the witnesses foresee a time when it may opt to sign up to it? If it does not opt to sign up to the treaty might it consider enacting legislation outside of the fiscal compact so as to ensure it is not subject to the rules of application as mentioned by Lord Harrison in regard to the ECJ and so on?

Chairman

Before calling on the witnesses to respond, I would like to ask a question. While the UK has not signed up to the fiscal compact, it has signed up to the six-pack which means that it is in effect, like us, subject to deficit targets. It is also, like us, subject to the debt to GDP target of 60%. I would like to hear the views of the witnesses on how this will impact not alone on the people of Great Britain but of Northern Ireland.

Ms Sharon Bowles, MEP

As regards cover for the ECB, I was quite blunt in my remarks in that regard. I believe that is a substantial point, namely, that the ECB should have cover for its operations. Members will recall that during the ongoing multi-summits of the EU Finance Ministers and European Council, which were meeting, agreeing something and meeting again a few weeks later, the ECB was the only institution which had substantial credibility in terms of trying to solve this problem. Retaining the credibility of the ECB is of paramount concern and, therefore, of itself provides a good reason to have this agreement even if it is, as has been stated, a little bit thin. If we do not reward the ECB so that it can maintain its credibility then we will be in big trouble. That response partly addresses the point raised by Ms Harkin, MEP in regard to Mr. Draghi.

Despite the fact that a great deal of money has been put into the banks, they are not lending. This will take time because the banks are in an uncertain time. Some 99% of my time is spent not on this issue, in respect of which I do not have co-decision, but on financial services. There are currently 30 pieces of major legislation dealing with the banks, markets, plans, costs and so on. The banks do not know what to do in terms of future planning because they do not know whether there will be maximum or minimum harmonisation, how many more buffers will be put in place or what will be the costs on the derivatives trading in which they are engaged. Many of our banks relied on money market funds in continental Europe. That funding is no longer so readily available. The banks have had to deleverage and so something had to give. To expect any kind of rapid adjustment in terms of what banks can pump into the real economy at a time when so much is going on is to not to acknowledge the realities of what we are facing.

Having to come to grips with the changes to the capital requirements directive has woken up many in regard to the growth agenda and the impact it will have. The Parliament is pursuing various actions to improve the situation. We have pushed back against all-comers on this, including the UK Treasury, the SFA and the Basel Committee. I have taken them all on issues such as trade finance. They are now beginning to accept that we have to do what we can to assist growth. The sheer volume of our financial legislation and its interactions, in terms of the difficulties that insurance and pension companies will face in making investments in long term infrastructure for which we are desperate in order to generate growth, are issues that will have to be addressed. One of the priorities I have flagged to my committee in response to the Commission work programme is the need to deal with unintended consequences which are hitting us full in the face. Commission Barnier acknowledged in his speech that we need to do something about this. I guess it will take time but at least it is on the table. We are at a unique point in time when we have this conjunction between what is going on in economic governance, sovereign debt, financial markets and our regulation. We must be careful to do this in a smart way.

There is a real issue with the split between citizens and their countries and Ministers. With complex issues and legislation like financial services, it is very difficult to get to the man in the street and explain what we are doing. Every time we discuss the capital requirements directive, the only matter I see in newspapers is a reference to bankers' bonuses. That is only a small part of the issue of growth. It is very difficult to get the level of communication in some countries with citizens and it does not help that when the Council has a meeting, there is a rush to do national press conferences. Some people must think we do not watch the press conferences sometimes because what is said in the room and what is said outside are quite clearly not the same. Those people should get their act together and stop playing to the national gallery when they are meant to be part of a negotiation. They should tell the truth, which would be helpful.

A transfer union is inevitable. There are the wrong kinds of transfers because of macro-economic imbalances, where there are transfers to Germany and the surplus countries. If we do not have transfers within this generation we will have a massive intergenerational transfer because there will be so many young people without jobs, unable to buy homes and not able to get on the asset ladder anywhere. Those who are lucky enough will find their pension funds stuffed with somebody's worthless sovereign bonds, so they will not get a pension when it comes around. It is a case of transfer now or transfer later but it must happen. It is not a question of whether but when. That is the reason the Parliament has seen this in the majority and is pushing on the euro bonds, stability bonds, redemption bonds and that kind of agenda.

There are arguments against this but the redemption bond idea has had a trial run, as that is how it was done in Australia before national bonds in the different states. We are in a "needs must" position and there are actions we must take and sign up to, and we may have to hold our noses as the alternative is worse. Sometimes the matter may seem almost trivial or like window dressing but because they are relatively small, it would cost nothing to sign up to it and much is risked in not doing so. There is only one place where Ireland should be and that is inside the tent with the other member states in the eurozone and anybody else. The country must be on the inside rather than the outside.

Perhaps the country should in future do something with the bank debt, as Ireland got a bad deal. I will continue to vocalise that opinion and see what adjustments can be made. There is always concern that as soon as we talk about doing something for a country, a precedent is established and debt would be wiped everywhere, which would be a disaster. I would emphasise that Ireland got a bad deal and it was doing much bailing out of what seemed to be bad investments in Germany and elsewhere; a better deal should be negotiated and I would support the country in doing so. The cost of a lack of sustainability will hit everybody in the eurozone if we do not reach a solution. The cheapest solution would have been to bail out Greece in the first instance, considering the costs that the markets and their responses have put upon us. They have been huge.

With regard to the need for monetary and fiscal union and Ireland requiring lower interest rates, this comes back to what we are playing around with in the capital requirements directive and trying to have macro-prudential controls. I know people are thinking about how to operate this in Ireland as well. There are more ways of taking money out of the pockets of citizens to stop them spending and internal inflation, etc. For example, that can be done with loan to value ratios or risk weights on particular types of assets. Those are some of the tools we are looking to develop, which should always have been there alongside monetary union.

Entire committees in the Parliament think about greater democracy and the power of the Commission, although I am not on them. I agree with much of the thinking but it is a difficult topic. It is also quite difficult to call the Commission to account for some of its actions, as we do not know what goes on inside the college of the commissioners. We know that despite them taking an oath of allegiance to Europe, they do not leave behind their own member states. That can be seen in some of the decisions and one would be foolish to ignore that. We have one commissioner each, which is a kind of balance, and they are appointed by governments, which would be wise to put good people in the position rather than giving it to down-and-outs. If there is a strong commissioner for a particular member state, he or she will do a better job than a weak commissioner. I am not saying anything about the Irish commissioners, who have generally been pretty good, but some countries have not necessarily put forward the best candidates.

There was a question about the interaction between the UK and Ireland and whether the UK is in trouble being outside the eurozone. If we get out of the hole we are in and build a euro bond, with a deep and liquid euro bond market, there may come a time when the United Kingdom may want to join such a euro bond market. We should not still be making excuses for the euro and we have ambitions for it to be a reserve currency or alternative to the dollar. We have an ambition for a deep and liquid bond market, with all the advantages that it should give. We should not lose sight of that and almost be wishing that the euro did not exist, or that we had not tried the experiment. There is still much good in the experiment on the other side, and when we make it work, the UK may have to think again. That is a long way down the track as there are other troubles before us at the moment.

Lord Lyndon Harrison

I was getting carried away with Ms Bowles's deep and liquid ponds and bonds and thinking of having a bath, and some of us would feel fresher having come from it. I will try to address some of the points raised. Senator Gilroy and a number of others asked why the United Kingdom did not sign up. It is a little difficult for me to say, as a member of the Labour Party opposition, but our committee pressed the Government closely on this. We did not get an answer. We do not know what paper was submitted on the evening of 8 and 9 December to other members of the European Council. We do not know what protections were required or whether it was the fiscal transaction tax, protection of the financial services in the United Kingdom or an assurance that the European Banking Authority, EBA, would not be taken away as part of the European supervisory framework. The Government simply has not been transparent and, as we said in our report, it is therefore difficult to know why it did not sign up.

Senator John Gilroy

May I interrupt for a moment?

Chairman

Very briefly.

Senator John Gilroy

The Prime Minister, Mr. Cameron, seems to have made a great number of friends among his backbenchers by making this move. He has come in for a great deal of acclaim. What weight would Lord Harrison give to the argument that this was a political move, with an eye to the internal UK electorate as opposed to the outside and Europe in general?

Lord Lyndon Harrison

It is difficult for me to say this but the Prime Minister, Mr. Cameron, and the Chancellor of the Exchequer, Mr. Osborne, have actually been good since they came into office in saying that the euro crisis is a problem for the United Kingdom and therefore must be tackled. In that context he opposes his right wing, which is fiercely opposed. The Senator might have heard of a recent example. I do not know whether it is true.

Senator John Gilroy

We just heard a whisper.

Lord Lyndon Harrison

I praise him for that. However, there is a paradox at the heart of the Government. On the one hand it says this is crucial and, indeed, it blames the failure of the eurozone for the current economic problems in the United Kingdom, but on the other we are told we cannot participate in some of the rescue funds because this would be against UK requirements. It was interesting to note when we helped our good friends in Ireland with a loan, it was put in terms of Ireland having been our good friends for many years. Ireland was absolved of the fact that it was a eurozone country because of the friendship over many years. The truth of the matter is, however, that the United Kingdom, in that way and through the IMF, has been surreptitiously helping, and it is quite right to do so.

I am conscious of the time constraints but there were a number of questions. Ms Harkin, MEP, spoke about the reality, and the danger of the difference between politicians and the citizens. When I travelled through the airport this morning, before I met my wonderful chauffeur, I strode past a number of advertisements for young people about roaming charges and telephoning within the European Union. We must make it clear and transparent, particularly to our young people who are now suffering due to increasing unemployment in the European Union, that doing something with the Single Market has benefits that fall to the citizens of Europe, as in the case of not getting charged exorbitant amounts for calls simply because one is in another member state. That is why I am a passionate supporter of the Single Market. One of the things we say in the report I mentioned is that we must stimulate employment by agreement by the end of June 2012 on standardisation, energy sufficiency, simplification of accounting requirements, the Commission action plan on e-commerce, modernisation of Europe's copyright regime and agreement on the patent package. If we get those in place, the Single Market will do its good work of making it easier for business to work for 500 million people and of building growth and strength and providing jobs for people. That is why we should be fanatical about it.

I mentioned earlier that I take a different view from that which was expressed in the Europe Bill passed by the House of Commons and the House of Lords. I believe the United Kingdom should be prepared, as part of a bargaining factor, to give up certain things it holds and cherishes in order to get the Single Market working and to become the deep and liquid market that will benefit all of us. All too often the United Kingdom Government's first response is that it must not give anything away to Brussels. If it has the advantage of securing many other opportunities because other member states give up certain items or concede on certain dossiers, it is to our mutual advantage. It is the same as going to the cinema with one's friends. One does not say one will only go to a certain film, but one consults every week and somebody will choose the film one goes to see. As politicians, we must make that a reality for people and explain to them that what we are doing is for the benefit of the person in the street.

Deputy Durkan asked about the international markets. They have got it wildly wrong from time to time, not least when they classified German and Greek debt at the same level. With regard to the sovereign credit rating agencies we investigated, there is often a reason to be very sceptical and ensure one gets one's own information about the sovereign debts one wishes to rate, because they are often wildly wrong and can have an enormously disturbing effect on the European Union and its progress. Like Ms Bowles, I believe there will have to be greater transfer. We are currently negotiating the multi-annual financial framework for 2014 to 2020 and I fear we will be restricted in the budget we produce. However, we will have to be far more careful about ensuring that we spend money wisely in trying to get Europe back together again and to work.

I will conclude with one point. There will come a day when the United Kingdom knocks on the door, whether it is because of the deep and wonderful financial market or the pooled liquidity and so forth, and says it will join the euro.

Chairman

Thank you for those comments.

Deputy Bernard J. Durkan

They were most interesting.

Chairman

We very much enjoyed your presentations and appreciate the time you have taken to travel here and appraise us of your views. It has been very interesting and we have learned a great deal. Thank you for coming.

The meeting will resume at 2 p.m. when the economists Mr. Dan O'Brien, Mr. Philip Lane and Mr. Jim Powers will attend.

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