Last week’s meeting of the European Council was a significant one. Important steps were taken both in relation to budgetary discipline and firewalls – issues of great importance to this country – and progress was made towards taking Europe beyond the current crisis.
Of course, more remains to be done in the period ahead, both to put shape on the new arrangements and to ensure that the necessary firewalls are in place. As I said when I addressed the House last week, it is very important that the decisions taken are implemented.
However, while it will not be the last word in the matter, last week’s outcome was a good one for Ireland and for the future stability of the euro, and it should be welcomed by the House.
In advance of the meeting, I spoke with, and wrote to President Van Rompuy setting out Ireland's key priorities:
Firstly, decisions to stabilize the Eurozone through stronger firewalls and new rules.
Secondly, the need for the removal of the PSI provision from the ESM Treaty, and
Thirdly, to signal the Governments intention to pursue the application to Ireland of the new financial instruments that did not exist at the time of the initial recapitalisation of the Irish banks.
I am satisfied that progress was made on each of these issues.
Our meeting began on Thursday evening over dinner, when President Van Rompuy set out the results of the work he has undertaken on foot of the mandate we gave him in October to identify steps to strengthen economic union. In taking this task forward he worked closely with the President of the Eurogroup and the President of the Commission. He also consulted all Member States on the best way forward.
His report and the measures it proposed were well balanced and widely welcomed. They formed the basis of the substance that was agreed.New Fiscal Compact
On strengthened economic policy coordination we agreed what has been called "a new fiscal compact". Essentially this is a set of reinforced budgetary rules for countries within the euro area.
Specifically, we agreed that Government budgets should be balanced or in surplus. Looking at where Europe is now, this is an entirely sensible proposition.
We agreed that this rule shall be deemed to have been respected if, as a rule, the annual structural deficit does not exceed 0.5% of GDP.
There is no doubt that this is a challenging ambition, but we agreed that it is necessary if we are to send a strong signal about ourselves and to others that we are serious about what we are doing. We will work carefully through the country specific implications for Ireland once negotiations are underway.
It is, of now, a political agreement. Obviously, given the nature of what is involved, there are some very detailed technical and
legal considerations that will need to be carefully teased out or analysed by experts before any legal text is adopted. This is an important process in which Ireland will be fully and actively involved.
To underscore our seriousness of purpose, Member States will carry over this commitment into national law "at Constitutional or equivalent level" and the ECJ will have a role in ensuring that this is done properly. We are examining this requirement carefully, particularly how it dovetails with the Fiscal Responsibility Bill now in preparation.
We agreed that euro area Member States that are in breach of the existing rules on Excessive Deficit will be obliged to work with the Commission and the Council in an "economic partnership programme" detailing the structural reforms to get back on track in a sustainable way. The implementation of this programme, and annual budgetary plans, will be monitored by the Commission and the Council. This does not mean having the Commission or any other entity draft the Budget for any country which of course is their democratic responsibility.
We also agreed that the rules for the Excessive Deficit Programme should be tighter for Member States within the euro area. Specifically, there will be automatic consequences for a Member State that exceeds the 3% ceiling, unless a majority in the Council decides not to adopt a Commission recommendation in this regard.
As the House will be aware, on 23 November the Commission brought forward two important new proposals on the monitoring and assessment of draft budgetary plans; and on strengthening economic and budgetary surveillance of Member States experiencing or threatened with serious difficulties.
Last week, we agreed that these important measures should be examined swiftly so that they can be in force for the next budgetary cycle. Under this new legal framework, the Commission will in particular examine the key parameters of draft budgetary plans and, if necessary, adopt an opinion on them. Where a plan is seriously non-compliant with SGP requirements, the Commission will be able to request a revised one.
If we have learned anything in the current crisis, it is that while we share a currency and are deeply affected by the fiscal approaches of other Member States, we don’t yet have the rules necessary to match that degree of interdependence.
The meeting last week therefore agreed that we should continue to work on how to further deepen co-ordination so as to better reflect how we are now much more connected in what we do. The President of the European Council has been asked to report further on this in March 2012.
The new arrangements will mean more co-ordination of the fiscal plans of member states.
This is not something that should be a concern to Ireland. We are already in the process of preparing a Fiscal Responsibility Law that will ensure that the mistakes of the past reckless Government and reckless lending – that have led us to where we are – cannot be a will not be repeated in the future.
Ensuring that other Member States toe a similarly disciplined line is something we should welcome.
It is, of course, necessary to ensure that when we advance we do so on the basis of sound reasoning and careful analysis, and with proper regard to the requirement for democratic legitimacy and political accountability.
These are not desirable add-ons. They are central requirements.Firewalls
In addition to the elements I have mentioned that form part of the ‘fiscal compact’, last week’s meeting also moved to strengthen the ‘stabilisation tools’ or firewalls. This is part of a programme of immediate action to answer current pressures in the markets.
Again, this is very welcome from an Irish point of view and was an issue I pressed very strongly in the lead up to the meeting.
We agreed to accelerate the entry into force of the European Stability Mechanism, the permanent replacement for the EFSF, with the objective that it be in place a year early, in July 2012.
This is important because, as a result of how it is set up, the ESM has several advantages over the EFSF, including more streamlined operation because the ESM does not rely on guarantees in the same way.
We agreed that the EFSF should remain active until mid-2013, as previously planned, and that it will continue to ensure the financing of on-going programmes as needed.
Importantly, we agreed that the requirement for PSI should be removed from the ESM Treaty, and that we would strictly adhere to well established IMF principles and practices in this regard.
I have long argued that this should be done - including in my meetings with Chancellor Merkel and my discussions with President Van Rompuy, President Barroso and Prime Minister Cameron. PSI was acting as a serious impediment to those Member States, including Ireland, seeking to regain market access in the future. I am glad that partners listened carefully and responded positively.
We also said that we would reassess the adequacy of the overall ceiling of the EFSF and ESM of €500 billion in March 2012 and that, we stand ready to accelerate payments of capital into the ESM if this is needed to maintain the required ratio between paid-in capital and loans and to ensure a combined effective lending capacity of €500 billion.
To further underpin our firewalls, Member States will consider providing up to €200 billion in the form of bilateral loans to the IMF to ensure that it has adequate resources to deal with the crisis.
This does not have consequences for Ireland, as we are in a Programme we would not be expected to contribute. But we will watch with keen interest to see how this process proceeds, including in whether parallel contributions are forthcoming from the international community.
Having reached agreement on the substance of what is involved, our meeting then turned to the steps needed to put it in place.
We agreed that there was considerable scope for making progress through secondary legislation where this was possible within the framework of the existing Treaties. But it was also clear that some of the steps we agreed to take required primary law.
President Van Rompuy sought to move forward with the support of all 27 Member States, but when this did not prove possible, for reasons that have been aired extensively in the period since, we agreed to move forward by way of an international agreement involving all of the euro area Member States and as many other Member States as wish to come with us.
A number of colleagues are now involved in a process of consulting government partners and parliaments and it looks not unlikely that 26 Member States will agree to participate.
The obvious exception is the United Kingdom which felt that it was not in a position to agree.
This is a disappointing development, though it is clearly for Prime Minister Cameron to decide how best to advance and defend the UK’s interests. In approaching the meeting, I had very much hoped that we could find a way forward at 27, not least as a strong signal of complete unity and common purpose at European level. And I am also conscious that the UK is our closest neighbour and very often our staunchest ally at the European table. It also brings a unique and important perspective to bear that will now be missing from these important debates.
We will, of course, continue to work as closely with the UK as we have ever done – our relationship is deep and wide, based on important common interests across a range of EU policy matters.
We share an especially strong commitment to the Single Market. I will continue to work with Prime Minister Cameron, to whom I spoke again yesterday evening, to ensure that nothing is done that damages that most important achievement of the Union. I expect to speak to the Prime Minister again in the coming weeks.
As I have said, what has happened is disappointing, but I would also not wish to exaggerate its import. The UK has decided not to participate in the specific arrangements we agreed at last week’s meeting. It has not, in any way, turned its back on the European Union, as Prime Minister Cameron made clear in his speech to the House of Commons this week.
Part of President Van Rompuy’s report in March will be on relations between the EU and the euro area and it may help us to take this important discussion forward.
As I have said, in the absence of agreement at 27, we agreed to proceed by way of an international agreement. What we reached last week was a political agreement. This now needs to be given technical and legal effect.
Work, involving the legal services of the Commission and the Council is now underway and once an initial text has been prepared it will be shared with Member State experts.
I appreciate that there is a great interest in this House in what adoption of the agreement will mean for Ireland, including in whether a referendum may be required to ensure that we are in a position to ratify what has been agreed.
The simple fact is that until we have a legal text to consider, it is not possible to say.
There are important issues to be considered in detail and the Attorney General will wish to give the texts full study before offering advice. This is not something to be rushed. However, I can reiterate to the House my commitment to doing whatever is necessary once this scrutiny has been completed.Lessening the Burden on Ireland
Finally, as the House will be aware, I wrote to President Van Rompuy ahead of the meeting last week to alert him to the points I would be making at the meeting.
In my letter I said plainly to him that the Irish people would expect our actions both to restore the stability of the eurozone and to reinforce Ireland’s prospects of regaining our economic sovereignty.
Both in my letter and in my presentation to colleagues at the meeting I explained the cost to Ireland of capitalising banks in a manner that protected European as well as Irish citizens. I said that this cost has been uniquely onerous - €63 billion, or 50% of GNP.
I said that I would be seeking access for Ireland to new European financial instruments that were not available to us at the time and that I would be doing so in the interests both of equity and of making our burden of debt more sustainable.
For example, in October the European Council agreed measures to ensure adequate capitalisation of Europe’s banks, including a role for the EFSF. I told to colleagues that such facilities should be applied in Ireland’s case as if they had been available at the time the Irish Government put money into the Irish banks.
In making the case, I underscored the fact that we will continue to meet, on time and in full, all of the obligations of our Programme. We are simply seeking to re-engineer our debt burden through the possibilities now available to others.
Last week’s meeting was very focussed on the big picture – how to stabilise the euro and how to deal with the Eurozone crisis. It was not an occasion at which national issues were on the table for decision.
However, I set out our case strongly gave colleagues a clear understanding of the scale of our predicament and challenge. I told them that, together with the Minister for Finance, I will be pursuing the matter further in the period ahead.
I am confident that, in due course, we will be able to make positive progress in a way that makes a real difference for Ireland. I intend to leave no stone unturned in that regard.