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Taoiseach's Dáil Statement on the outcome of the European Council, Brussels of 24/25 March 2011

13 April 2011

The meeting of the European Council on 24/25 March was a full and productive one.  It took important decisions on economic matters, and addressed two important international concerns, Libya and Japan.  The atmosphere was good and positive, and I engaged individually with all of my colleagues in the room.

The Tánaiste and Minister for Foreign Affairs spoke at the weekend of the need for a strong diplomatic campaign to rebuild Ireland’s international reputation. This is an important element of Government policy in providing a clear understanding of how serious our intent is to deal with our country's problems.

Nobody in this House can doubt the damage that Ireland’s good name and standing has suffered in recent times, especially within the European Union.  That did not happen overnight, and it will not be put right overnight.

However, together with my colleagues in Government I am determined to do what is necessary to return Ireland to what it once was – a constructive and well-regarded Member State of the Union, with good relations with partners, large and small. A Member State that saw its citizens climb to the highest levels within the EU institutions, that held its head high, and that made its mark.

We live in difficult times. But Irish people have a right to be proud of their country, and proud of the leaders who represent them on the world stage.  I will do my utmost to ensure that they are.  For some time the European Union has been seeking to respond effectively to the economic crisis that has engulfed it in recent times. Many had criticised it for taking a piecemeal approach.

This was never a fair or accurate picture – a great deal of work was, and is, underway.  What was missing, in some respects, was a framework in which to draw it all together.  The meeting of the European Council on 24/25 March provided that framework.  It took decisions in six main areas that, taken together, represent a broad response to the economic challenges Europe continues to face.

Building on the Annual Growth Survey published by the Commission in January, we advanced the process of implementing the European Semester, a new cycle of economic policy coordination.  ‘European Semester’ is one of those phrases that has entered into European jargon very quickly, without, I suspect, many people appreciating what exactly is involved.  It is pretty straightforward.

From now on, at its regular meeting in March, the European Council will identify the main economic challenges facing the Union, giving strategic advice on the measures needed to address them.  Taking this guidance into account, each April the Member States will present their medium-term budgetary strategies in their Stability and Convergence Programmes, together with their National Reform Programmes, which will set out measures to strengthen their national economic positions.

Following careful assessment of these Programmes, the Commission will make proposals to the Council, on the basis of which the Council will adopt country specific opinions and policy recommendations.  Each Member State is expected to turn these recommendations into concrete measures in adopting their national budget for the following year.  The European Council has now endorsed this year’s priorities for fiscal consolidation and structural reform.  These include restoring sound budgets and fiscal sustainability, and reducing unemployment through labour market reforms and growth enhancing measures.  Member States will now factor in these reforms when preparing their national Programmes.

In particular, Member States will present a multi-annual consolidation plan, including specific deficit, revenue and expenditure targets. They will set out the strategy through which they envisage reaching the targets, and a timeline for its implementation.  Consolidation is to be front-loaded in those Member States facing very large structural deficits or very high or rapidly increasing levels of public debt.

Like others, Ireland is now in the process of preparing its national submission. Our situation, however, is quite different from that of most others, in that we are already engaged in an EU/IMF programme in which we are committed to a very demanding and extensive consolidation effort. Naturally, this will be reflected in our submission.  Of course, not everything can or should be done at national level. There is also a European dimension.

The Single Market, in particular, is key to Europe’s future growth and competitiveness. The European Council therefore welcomed the Commission’s intention to present the Single Market Act and invited the Parliament and the Council to adopt by the end of 2012 a first set of priority measures to bring new impetus to the Single Market.

I was particularly pleased that agreement was reached, with our full support that the overall regulatory burden for SMEs should be a particular focus. We need to enable them to make their full contribution to growth and recovery.  The European Council also assessed progress on the six legislative proposals aimed at improving economic governance in the Union.

Once adopted, they will lead to a stronger Stability and Growth Pact; improved budgetary surveillance, including macro-economic imbalances; and stronger and more automatic sanctions for those Member States that do not play by the rules.

We welcomed the general approach reached by the Council on these six measures, opening the way for negotiations with the European Parliament. We would like to see this work advance rapidly, so as to allow for their final adoption in June.As I have previously told the House, the meeting of the Heads of State or Government of the euro area adopted a ‘Pact for the Euro’ at its meeting on 11 March aimed at improving our economic policy coordination.

At the meeting of the European Council, six non-euro Member States – Bulgaria, Denmark, Latvia, Lithuania, Poland and Romania – announced their intention to join what is now knows as the ‘Euro Plus Pact’, not a name I would personally have chosen, as I don’t believe that it is very meaningful to the public.

The Member States that have signed up to the Pact are now expected to announce a set of concrete actions to be achieved in the next twelve months. Some Member States, including France and Spain, have already done so. Most are expected to identify their proposed actions as they complete their National Reform Programmes.

The European Council also addressed the strength of the European banking system.  The European Banking Authority is currently carrying out stress tests on a wide range of European banks, representing 65% of EU banking system assets and not less than 50% of the national banking system in each Member State.  This is a completely separate exercise to that carried out on the Irish banks, the results of which were recently announced.

The purpose of these tests is to assess the resilience of the banking system across the European Union, and of individual institutions, to hypothetical external shocks. They are intended to help identify vulnerabilities and, where relevant, remedial actions, including strengthening capital levels where required.  They are designed to be more robust than the tests carried out last year, which were not sufficiently convincing to the markets. A high level of disclosure by banks, including on their holdings of sovereign debt, is being required.  Results are expected to be known in June.

The European Council has agreed that, ahead of publication of the results, Member States will have prepared specific and ambitious strategies for the restructuring of vulnerable institutions, including the provision of government support where this is needed.  These stress tests will provide an important  analysis of strengths and vulnerabilities in the European Banking system.

The European Council also adopted the wording of the proposed amendment to the European Treaties to ensure that the new European Stabilisation Mechanism will be put on a sound legal footing. The wording has not changed since it was adopted as a draft last December.  It is a simple and straightforward text which it is proposed to insert in Article 136 in the section on ‘provisions specific to Member States whose currency is the euro’.

As I have said to the House previously, the previous Attorney General advised that the proposed amendment does not have consequences for our Constitution – Bunreacht na hÉireann – and there is, therefore, no need to amend it by way of referendum. I expect this position to be confirmed now that the final text is available, and the Attorney General will advise on the most appropriate means of ratification.  Member States are now expected to move forward with this process so as to allow the amendment to enter into force on 1 January 2013.

Finally, the European Council endorsed the features of the new European Stability Mechanism as agreed by the Heads of State or Government of the euro area when they met on 11 March.

It was confirmed that the new Mechanism, which will come into being in July 2013, will have €500 billion available to lend. To achieve this, and to maintain a ‘triple A’ rating, it will need an overall capital level of €700 billion. Of this, €80 billion will be paid-in capital – to be provided pro rata by the eurozone Member States in five equal annual instalments - the remainder to be callable contributions.

We also agreed that the current European Financial Stability Facility, under which Ireland is drawing down funds, should have a full effective lending capacity of €440 billion.  Whilst notionally it is funded to this extent, its effective lending capacity up till now has been considerably lower.

As I have already informed the House, the question of Ireland’s Programme, including the interest applying to our loans under the EFSF, did not arise.  Ahead of the summit, I had suggested to President Van Rompuy that it was better to await the outcome of the banking stress tests before coming back to the matter.  In the event, partners agreed that this made sense, and that once the full picture was clear, Finance Ministers should take the work forward.

As the House will be aware, the Minister for Finance met with his colleagues at the informal ECOFIN in Hungary last week.  Of course, the principle of applying a lower rate to the EFSF was agreed by euro area Heads on 11 March, and Greece, which borrows outside the Facility, has seen its interest rate reduced by 1%.  I remain confident that it will be possible to find an agreed way forward for Ireland in this matter and I will keep the House informed as matters advance.

The Council also heard briefly from the Prime Minister of Portugal whose government had fallen the day before we met. As the House will be aware, in light of its seriously deteriorating economic situation, Portugal has since made a formal application for financial assistance and is now engaged in negotiations towards that end.

As I said earlier, the European Council also discussed two major international situations, the consequences of the earthquake in Japan and the on-going events in Libya.  The situation has developed further in the period since the meeting, and the Tánaiste will brief the House at the end of this debate.

However, in summary, on Libya the European Council endorsed UN Security Council Resolution 1973, which authorises actions to protect civilians and we reiterated our call on Colonel Ghadaffi to stand down immediately. It stated its readiness to adopt further sanctions to ensure that the Ghadaffi regime does not benefit from oil and gas revenues. And it noted with concern the humanitarian situation, both within Libya and on its borders. There was particular emphasis on the protection of civilian life in the area around Benghazi.

On Japan, the European Council again offered the Union’s support as the country faces enormous challenges in the wake of the earthquake and tsunami. We stand ready to provide further assistance at Japan’s request. There are, of course, lessons to be learned from what has happened, not least in the area of nuclear safety. I called on the Japanese Ambassador and signed the Book of Condolences in respect of those Japanese people who lost their lives.

I particularly welcome the agreement reached at our meeting that all nuclear plants within the Union – and this includes Sellafield – will now be subjected to comprehensive and transparent risk assessment. The assessments are to be carried out by independent national authorities and through peer review, and the outcome, together with any necessary measures to be taken, will be made public.

The European Commission will be centrally involved in the testing process and the European Council will assess initial findings by the end of the year.  This was the third meeting of the European Council in just seven weeks. The Council is not now expected to meet again before June.  That is to be welcomed.  While it is good and appropriate that we meet whenever the need arises, there is also a place for calm and considered reflection.

In the meantime, the Government will continue to press forward with its efforts towards consolidation and recovery in the economy, and with its plans for extensive engagement with other Member States and the European Institutions.