I thank the Minister of State for clearing up my confusion on the double definition. However, why does "Statute" mean "the Statute on the European System of Central Banks" in section 2 and "the Statute of the European System of Central Banks" in section 4? Is it a typing error?
Central Bank Bill, 1997: Committee and Final Stages.
Section 1 agreed to.
SECTION 2.
Question proposed: "That section 2 stand part of the Bill."
I addressed this issue on Second Stage when I gave the details of the difference between the two. I do not have the briefing note to hand at the moment but it is already on the record.
Is there a reason for the use of "on" and "of"?
Yes. I put it on the record this afternoon when I was replying on Second Stage.
I am sorry I missed that.
Question put and agreed to.
Section 3 agreed to.
SECTION 4.
Question proposed: "That section 4 stand part of the Bill."
Why does the new section 5A(3) of the 1942 Act state "the Governor shall keep the Board informed" but only "may discuss" the matter with the board? Is there a reason to insist on the use of the word "may" rather than "shall"? There is a fundamental difference between the two in terms of accountability.
Section 4 inserts a new section 5A into the Central Bank Act, 1942, and provides that the Central Bank of Ireland shall perform any function or duty or exercise any power required by or under the provisions of the Treaty or the Statute. The section also provides that sole authority and responsibility for the implementation of the ESCB and ECB shall rest with the Governor of the Central Bank.
Why can it not state "shall discuss"? Why is it contrary to the Maastricht Treaty or the principle of independence for the Governor of the Central Bank to be obliged to discuss what he does in the European Central Bank with the board of the Central Bank? The use of the word "may" rather than "shall" makes an enormous difference in terms of accountability. As it stands, the Governor need not discuss anything with anybody until it is over. His obligations are to inform the Minister and the board later on. It would be much better to use the word "shall" instead of "may". I assume there is a reason for it.
The explanatory memorandum states "the Governor shall keep the Board informed of, and may discuss with it, the discharge by him of these powers, tasks and duties". The Governor of the Central Bank has enormous powers, tasks and duties which are, for reasons which are beyond me but which are not at issue now, exercised with absolute independence. Why will the Governor not be obliged to discuss these matters with the board of the Central Bank? I will persist until this question is answered because I want to know the reason.
Section 4 provides that the Governor shall keep the board informed of, and may discuss with it, the discharge by him of these ESCB and ECB powers, tasks and duties. Provision is also made that in instances where the Office of Governor becomes vacant or is he is unable, for whatever reason and for whatever length of time, to discharge those related powers, tasks and duties imposed on him by the section, the authority and responsibility for their discharge shall become vested, for the period of such vacancy or inability, in the Director General of the Central Bank of Ireland.
I wish to make clear that the Governor's new role, as set out in the section, will only apply to the bank's activities within the ESCB. The board of the bank will continue to operate with exactly the same voting rights as it has at present in relation to all its other non ESCB activities, such as the supervision of financial institutions.
The use of the word "shall" would impose an obligation. There cannot be an obligation on the Governor to discuss matters with the board as this would give it a role in the discharge of his powers. The use of the word "may" does not impose such an obligation.
If the Governor "may" discuss these matters with the board he is not operating with absolute independence. I agree with the Minister of State that the use of the word "shall" might affect some notion of independence. Incidentally, such a degree of independence is utterly alien to any understanding of democratic accountability. We should either abolish the board of the Central Bank and say it should never meet on matters to do with the Government's role in the ECB and ESCB, or else insert the word "shall" into the section.
This is a kind of tissue which resembles the sort of institutions which used to be created in South Africa to pretend there was democratic accountability. I am glad the Minister of State has explained the reason is that the Governor is not allowed discuss with the representatives of this State the policies he is going to pursue. If that is the case, is there any other instance in the democratic world of an individual who is not subject to a popular franchise having that level of power?
I cannot comment on the Senator's last question — I can only address the issue he raised of the difference between "shall" and "may", which I have tried to set out as clearly as I can. The use of the word "shall" would impose an obligation; there cannot be an obligation on the Governor to discuss such matters with the board because that would give it a role in the discharge of his powers.
An Leas-Chathaoirleach
Is section 4 agreed?
No, it is not, despite your best efforts. It is only 7.10 p.m. and there are only a few important sections. We might as well pursue this matter a little further.
We are in the extraordinary situation of having an individual, who is not subject to recall except for precisely stated reasons of misconduct, who has a very narrow brief but extraordinary power and is accountable to nobody. The question I asked on Second Stage is still open. There is no historical evidence that people with that level of power use it properly. Power tends to lead people to do daft things and to believe they know better than anybody else and do not need to listen. That is why we have elections, change Governments and make people accountable. Thousands of years of human history have taught us it was a bad idea to vest absolute power or to create absolute monarchies. We are now creating a de facto absolute monarchy in terms of the way monetary policy is dictated in Europe, yet we will not even talk about it. We are beyond the decision but we have never discussed the issue. We are giving a single figure powers that are way beyond those vested in any member of the EU Commission, which is a poorly accountable body; the only institution to which they are accountable is the EU Council of Ministers and, indirectly, the European Parliament. The Council of Ministers is a secretive body that does not often like to meet in public while, like Seanad Éireann, the Members of the European Parliament can talk away but not do much. It is a matter of great frustration that something as fundamental as this should arise where so much power is to be transferred to one individual who is accountable to nobody.
The other central banks and Governments operating within EMU will also be caught in the same bind. While the Senator may not like it, that is the way matters have been framed in Article 107 of the Treaty.
Perhaps that is the reason two of the more advanced and civilised countries of Europe, Sweden and Denmark, are not joining EMU. They take things like democratic accountability seriously. Openness, transparency and accountability are terms those countries, in many ways, invented long before we heard of them. We are walking into something here and handing over enormous powers without even discussing it. We did not discuss it in 1992 and we are not talking about it now.
Question put and declared lost.
SECTION 5.
I have permission from the Labour Party to move amendments Nos. 1 to 8, inclusive.
An Leas-Chathaoirleach
Amendments Nos. 1 and 2 are related and may be discussed together. Is that agreed? Agreed.
I move amendment No. 1:
In page 5, line 9, after "thereunder" to insert "contributing to the prudential supervision of credit institutions and to the stability of the financial institutions".
These are sensible amendments. Will the Minister of State explain why he will not accept them?
On a drafting point, I assume the Senators who put down these amendments intended that, rather than amend subsection (5) by amendment No. 2, they proposed to amend subsection (4). If this is not the case I would point out that subsection (5) provides for the right of the Minister for Finance to be informed about the bank's monetary policy, the policy role within the European system of central banks and the European Central Bank. However, subsection (4) provides for the Minister's right to be consulted in relation to all of the bank's other functions and duties, including licensing and supervision of financial institutions as provided for under law. I assume the Senators would prefer if the Minister could be consulted rather than merely informed on the execution and performance of these functions and duties which are, after all, conferred on the bank under the Acts of the Oireachtas.
With regard to the substance of the amendments, the proposed new subsection (2) relates to the objective of the bank other than the primary objective of price stability as set out in the proposed new subsection (1). These other objectives include contributing to the stability of the financial system, promoting the efficient and effective operation of the payments and settlement systems and discharging any other duties conferred on it by law.
The bank has statutory duties in relation to the licensing and supervision of certain financial institutions and payment systems and I believe the wording in the proposed subsection (2) is sufficient to cover the objective underlying these duties and therefore adequate to cover the intent behind amendment No. 1. Further, I am convinced that the wording in the proposed new subsection (4) is adequate to cover the intent behind amendment No. 2, whereby the Minister would have the right to be consulted on the performance of the bank of all its non-ECSB related statutory functions, including those related to licensing and supervision. These amendments were also tabled by Deputy McDowell in the Dáil.
Amendment, by leave, withdrawn.
Amendment No. 2 not moved.
I move amendment No. 3:
In page 5, line 42, after "Treaty" to insert "and without prejudice to the generality of the foregoing the Bank shall have regard to the desirability of attaining a high level of employment and in particular the Bank shall have regard to the provisions of Title VIa of the Treaty establishing the European Community as inserted by Article 2.19 of the Treaty done at Amsterdam on 2nd day of October, 1997".
May I put on the record for future generations that the reason the Members of the Labour Party are not here is that they are celebrating what, in my view, as a left wing Member of the Oireachtas, was a considerable and substantial victory which they are entitled to celebrate.
They needed something to celebrate after the general election.
An Leas-Chathaoirleach
We are on amendment No. 3.
On Second Stage the Minister of State said that the Maastricht Treaty requires the ESCB to support the general economic policies of the Community with a view to contributing to the objectives of the Community. One of the objectives of the Community to be inserted in the Treaty of Rome by the Amsterdam Treaty is the pursuit of high levels of employment. It would, therefore, seem appropriate that these objectives should be detailed in the functions of the European Central Bank.
I take a sceptical view that by looking after monetary policy everything else will look after itself. Bankers as much as everybody else need to be reminded that economies are essentially there to serve people, not the other way around. Either the economic order is organised to make the best life for the best number of people or there is a ruthless and primeval competitive economy in which the weak are dumped. I would worry about the central banks we will have if these values are not part of their objectives.
The subsection the Senators proposed to amend was amended by the Minister in the Dáil. The new wording is the result of a recent direct approach to the Minister by Commissioner de Silguy, who is the commissioner in charge of the directives responsible for producing the Commission's report on the compatibility of our national Central Bank legislation with the Treaty. The wording of the amendment has been the subject of consultation with the EU Commission and the European Monetary Institute.
Amendment, by leave, withdrawn.
I move amendment No. 4: In page 5, between lines 42 and 43, to insert the following:
"(7) Subject to the foregoing provisions of this section and without prejudice to its obligations under the Treaty, the Bank shall act in the interests of the welfare of the people as a whole.".
This is so innocuous it is difficult to imagine how it could not be acceptable. It is an aspiration. However, when it comes to central bankers, things that are obvious to the rest of us need to be put into legislation otherwise they will easily forget about them.
As I explained with regard to amendment No. 3, the wording of section 5(6) of the Bill is the result of a personal approach by Commissioner de Silguy. The attractive term "the welfare of the people as a whole" was included in the 1942 Act and was also included in section 5(1) in the first draft of the Bill and the EMI asked us to move it to section 5(6). This was the version published. The commissioner then asked that it be removed entirely and be replaced with the version before the House.
Amendment, by leave, withdrawn.
Question proposed: "That section 5 stand part of the Bill."
This is the substitute section for section 6 of the 1942 Act which provides that, in discharging its functions as part of the European system of central banks, the primary objective of the bank shall be to maintain price stability. May I have a definition of "price stability"?
Article 105 of the Treaty provides that the primary objective of the ESCB shall be price stability and section 6(1) of the 1942 Act is, therefore, being amended to unambiguously reflect this primary objective.
Why is price stability not synonymous with zero inflation? Everybody accepts that the major role of any central bank includes the supervision and minimisation to the largest degree possible of price instability. Nobody believes high inflation is good. However, it is arguable that there have been occasions on which inflation has been the better choice over enormous disruption and destruction of sections of the economy and that it should involve a gradual change from high to low inflation rather than a single minded pursuit of one objective. There are different views on this among economists.
Will there be guidelines regarding the European Central Bank? In Britain the Bank of England is given a guideline by the Government about the inflation target and it then does what it deems necessary to achieve it. Will there be a guideline for the European Central Bank on the target level of inflation in economic and monetary union or will central bankers decide it on their own? I have a horrible feeling that no level of inflation is ever acceptable to central bankers. If a level of 2 per cent is reached this year, their primary objective will be to reduce it to 1.5 per cent next year and 1 per cent the following year. They are probably not allowed to try to reach a position of negative inflation because that would involve price instability. The monetary union system will be in operation is less than nine months. Does the Government know what price stability will mean in practice?
Article 105 of the Treaty on European Union provides that the European system of Central Banks of which the Central Bank of Ireland will be part shall support the general economic policies in the Community with a view to contributing to the achievement of the objectives of the Community as laid down in Article 2.
Article 2 of the Treaty provides that the Community has the task of promoting a harmonious and balanced development of economic growth, sustainable and non-inflationary growth respecting the environment, a high degree of convergence of economic performance, a high level of employment and social protection, the raising of the standard of living and quality of life, economic and social cohesion and solidarity among the member states. The term is not defined in the Treaty. In layman's language, it means low inflation. The ECB will make judgments on the basis of the circumstances obtaining at the time.
I do not wish to make life difficult for the Minister or the House but that is meaningless. Ireland has a rate of inflation below 2 per cent. If our inflation rate reached the target rate of inflation in Britain, we would regard ourselves as having high inflation. The possibility has been raised that the inflation rate could be 3 per cent at the end of the year because of the value of the IR£ vis-a -vis sterling. In Britain a rate of 3 per cent would be regarded as approximately the target the Government is endeavouring to reach. One country regards 3 per cent as low inflation while another regards 1.5 per cent as low inflation. Which rate will it be? Will central bankers operate in glorious independence and be unaccountable to anybody?
Central bankers as a body believe that price stability is the way to achieve all the noble objectives of the Maastricht and Amsterdam Treaties. They believe that if inflation is kept as low as possible, everything else will happen in its wake. It is a form of hocus-pocus or, as George Bush said, voodoo economics, but that is what they believe. They will say that they will keep inflation down and everything else will happen by itself. It is, therefore, most important that the citizens of Europe, who cannot talk to the bankers about what they should do, know what the bankers are supposed to be doing.
The term is not defined in the Treaty. It was announced today that the rate of inflation has reduced from 1.8 per cent to 1.7 per cent. This is a welcome, although unexpected, trend. The ECB will make judgments on the basis of the circumstances obtaining at the time, but who can tell what circumstances will pertain at any specific time or what pressures will exist? Other matters will be brought to bear on the issue. The objective is to keep inflation as low as possible but the decisions made will be based on the circumstances obtaining at the time. The term is not defined in the Treaty so I cannot give the Senator a precise answer to his question.
It is not defined in the Treaty and I repeatedly made this point during the debate on the Maastricht Treaty. The system will be in operation soon. Decisions will be made in May and they will be implemented in January. An institution with the primary objective of price stability is being set up, but the Government does not know what the term means. This is the point made by Senator Ross and I earlier. Ireland is facing one of the most profound institutional changes since the foundation of the State. It will involve the profound transfer of sovereignty and accountability, but we do not know what is being handed to the new institution. The Government does not know what the words mean. The words were not defined in the Maastricht Treaty and that was one of the problems with it.
Low inflation is the desired objective of all the member states of the European Union. Ireland has done remarkably well in that regard in recent years. Although the term is not defined in the Treaty, the objective of every country is the lowest possible rate of inflation. The European Central Bank will, therefore, make judgments based on the circumstances obtaining. However, who can say what circumstances will arise and whether they will come from within the EU or outside it? The European Central Bank must have the ability to make judgments on the basis of the circumstances at any particular time.
An Leas-Chathaoirleach
Is the question agreed?
This will be my final intervention. The Leas-Chathaoirleach has a way of looking at people which makes them reluctant to pursue matters for too long. It is one of his many fine qualities.
It is a wondrous skill but it is not working.
It comes from his family's long involvement in dealing with power.
The real problem is that if external forces generate inflation — for example, if there is another oil crisis — will the European Central Bank do everything to squeeze inflation irrespective of the human cost that might be involved? There was inflation in the 1970s as a consequence of the oil shortage and inflation in the late 1980s because of the unification of Germany.
If there is inflation in Europe because of a major shock from outside the EU, the European Central Bank will not have a timescale or any other objective which it must meet. It can simply state that its primary objective is price stability and it must take action irrespective of the human cost. This is what bankers believe. It is also what the Central Bank believes and as the Governor of the Central Bank of Ireland is traditionally a former Secretary General of the Department of Finance, I assume it is also what the Department believes. However, I do not believe it. I believe in the objective of low inflation but other human values must also be taken into consideration. This is why I want to know who will tell the bankers what is the target? Will they make it up as they go along? It appears this unaccountable institution will make it up as it goes along.
I am not sure it will do that, but it must act in the best interests of the Community it serves. It must be conscious of the factors pertaining at any given time. It must make judgments at particular times and it may be confronted occasionally with difficult circumstances which, as Senator said, may emanate from outside the EU. As the European Cental Bank with powers conferred on it, it must act in the best interests of the Union at that time. It will have to have the freedom to make judgments based on circumstances that exist, whether those circumstances arise from within, or, as the Senator said, from outside the EU. The term is not defined in the Treaty. Inflation at the lowest possible rate is what all countries seek, and all countries will act together as the European Central Bank is established.
Question put and agreed to.
SECTION 6.
Question proposed: "That section 6 stand part of the Bill."
I thank the Minister for accepting section 6, which in substance is a Fine Gael amendment from the Dáil. While Senator Ryan was unsuccessful with his amendments, at least something has been accepted.
Question put and agreed to.
Sections 7 to 9, inclusive, agreed to.
SECTION 10.
Question proposed: "That section 10 stand part of the Bill."
With the indulgence of the House, my colleague, Deputy Moffat, informed the House that there is a misprint in section 10, line 33, page 7, of the Bill. Senators asked about the significance of this and I assured them it was neither significant nor sinister. Section 10 refers to the Bank's activities in respect of the pursuit of its objectives as set out in section 6, as amended by section 7 of the Central Bank Act, 1998, of the Central Bank Act, 1942. Senators will see that section 5 amends section 6 of the 1942 Act, therefore, the reference is incorrect. Consequently, "section 7" should read "section 5". It is a typographical error that can be corrected by the Clerk at the discretion of the Cathaoirleach under Standing Order 103.
An Leas-Chathaoirleach
I am directing the Clerk to make the appropriate correction.
Question put and agreed to.
Sections 11 to 20, inclusive, agreed to.
NEW SECTIONS.
Amendment No. 5 not moved.
I move amendment No. 6:
In page 11, after line 30, to insert the following new section:
"21.—(1) The Freedom of Information Act, 1997, shall apply to the Bank as if it stood prescribed pursuant to regulations made by the Minister for Finance for the purposes of paragraph 1(5) of the First Schedule to that Act.
(2) This section shall come into operation on the day that is one year from the date of passing of this Act.".
The obvious question arising from this amendment, is why not? This is a public body as defined by the Freedom of Information Act, which is one of the most innovative pieces of legislation to come out of the Houses of the Oireachtas in the last ten years. It is an extraordinarily revolutionary piece of legislation which will transform the ethos of the public service. Why should it not apply to the Central Bank? That organisation can have the appropriate exemptions accepted even by the Department of Justice with its obsession with cloak and dagger methods. Why should the Central Bank not be covered by the Freedom of Information Act?
From 21 April, the Freedom of Information Act, 1997, will apply to the public bodies listed in the First Schedule of that Act. These bodies comprise Government Departments and public bodies which are wholly or primarily staffed by civil servants whose functions are closely aligned with those of their parent Government Departments. Senators will be aware that paragraph (1)(5) of the First Schedule of that Act provides for anybody, established by or under an enactment, to be brought under the scope of the Act pursuant to regulations made by the Minister for Finance with the consent of the appropriate Minister. Bearing this in mind, it is not necessary that the extension of the Act to any entity be provided for in primary legislation as is proposed by the amendment. It was always intended to use the mechanism afforded by the Act to widen its application in an incremental fashion across the wider public service. There are no plans to apply this provision to the Bank at present.
I am writing a piece on the Freedom of Information Act and I thank the Minister for telling me when it is to come into force. That saves me some work. The reason these amendments seem appropriate is the problem of lack of accountability in this area. There is a statement of belief from the Oireachtas in the principle of accountability in saying that should apply to this body. There are many bodies in the Schedule referred to by the Minister of State and there are extraordinary omissions. FÁS, with a budget of £0.5 billion, is probably the most spectacular omission.
The Governor of the Central Bank is becoming a figure of enormous power in our society. That power appears unaccountable, non-transparent, invisible and apparently unguided. It would be a small step toward restoring democratic accountability to restore this to the Bill
The Minister has no objection in principle to the Central Bank coming under the remit of the Freedom of Information Act. He sees that happening in accordance with the incremental approach I have mentioned being adopted generally over a period of time. I will undertake to bring the Senator's views to the attention of the Minister.
Amendment, by leave, withdrawn.
Title agreed.
Bill reported without amendment and received for final consideration.
Question proposed: "That the Bill do now pass."
I have kept my promise to let Members leave before 7.45.
Family hours.
Yes. I find it funny that Members find my determination to raise the issue of family friendly politics amusing.
I never said it was amusing.
The Senator obviously thinks it is amusing. I think my family is important and other Members think the same about their families. It is easier for them and for the staff of the House to plan for their families if they know when the House will finish. I find it astonishing that others find it amusing when I state that open-ended debates without definite finishing times are peculiar, given that the Oireachtas is supposed to be moving towards equality.
There is only one issue worth mentioning here, which is the lack of awareness in our society. Not a word of this debate will be mentioned in the media, as has been the case all through the debate on Economic and Monetary Union. The Maastricht debate was devoted to abortion and neutrality; the economic argument was hardly heard. We are transferring extraordinary amounts of power with this Bill. Maybe it is the right thing to do, but a transfer of sovereignty and authority is occurring here that is the biggest thing to happen since independence. It is far bigger than membership of the European Community and nobody is talking about it. There is terminology in this Bill and the Treaty that nobody has ever defined. That is not the way a society should operate, and that is why two of the countries in Europe I respect most — Sweden and Denmark — are staying out of this arrangement. They have done as well as we have although they started from a higher base. Perhaps their traditions of accountability are so deep that they cannot accept this. I wish to register my opposition to this.
Question put and agreed to.
The Seanad adjourned at 7.40 until 10.30 a.m. on Friday, 13 March 1998.