I am happy to have this early opportunity to brief the House on the outcome of the most recent meeting of the European Council and of the Euro Summit that took place in Brussels on Wednesday evening last.
The meetings were convened by European Council President Van Rompuy to take political decisions following the useful discussions we had at the Summit meetings on the previous Sunday. A great deal of progress had been made, and we met to finalise a comprehensive package to restore stability to the euro area.
When I addressed the House last Wednesday before I left for Brussels, I said that the stakes were very high, but that I believed that, with the right political will, we could find the necessary agreement.
I am happy to be able to come back today to inform the House that though our discussions were long, they were fruitful and we now have the comprehensive deal we were working towards.
It covers all the key issues – bank recapitalisation; debt sustainability for Greece; firewalls to prevent contagion; and improved governance within the Euro Area. In each area, Irish interests have been fully protected.
There were two components to our meetings in Brussels. The first involved all 27 Heads of State or Government of the European Union, gathering as an informal meeting of the European Council. This was followed by a meeting of the 17 Euro Area leaders.
The purpose of the informal European Council was threefold: First, to brief the non-Euro Member States on the state of preparations for the Euro Summit to follow. Second, to provide all Member States, but particularly the non-Euro States, with an opportunity to express themselves on the draft proposals and to underline the common resolve shared among all 27 Member States to overcome the crisis together. Third and most concretely, the meeting at 27, adopted a range of measures designed to restore confidence to the banking sector, as had been worked on by Finance Ministers at their Ecofin Council meeting on 22 October.
Our later meeting at 17 was to finalise work on the other elements, most particularly debt sustainability for Greece, firewalls and governance.
Banking
On banking, we agreed that access to term-funding - that is short-term funding available at the ECB and relevant national central banks - will be facilitated through a coordinated approach at EU level. Banks will be required to increase their capital position to 9% of Core Tier 1 by the end of June 2012.
Where extra capital is required, this should, in the first instance, come from the private sector. Where this is unavailable to the institution in question, national governments should step in. Only in the last resort would the EFSF intervene in the case of banks in the euro area. The Ecofin Council will now adopt the necessary follow-up measures.
I am happy to report to the House that these bank recapitalisation requirements have no implications for the funding of Irish banks.
As the House will recall, the banks in this country were the subject of an extremely rigorous and independent stress testing process this spring, and the resultant recapitalisation process, painful as it was, has ensured that further strengthening of their capital positions is not now required.
Each of the steps agreed last week, concerning European banks, are aimed at stabilising a system which is absolutely essential for a functioning market economy. The real economy needs access to funds and to credit. Without functioning, solid and secure banks, confidence in the economy evaporates and without that our system grinds to a halt, with disastrous implications for jobs and for the welfare of our people.
This is a good outcome for Ireland and for the Euro.
A key and in many respects the most difficult element of the comprehensive package was agreement on measures to place Greek debt back on a path to sustainability.
After long discussions, including extensive contact on our behalf with industry representatives, there was agreement that a new programme would be put in place to enable Greece to return to a debt to GDP ratio of 120% by 2020.
This will be achieved through significantly deeper Private Sector Involvement (PSI), based on a voluntary bond exchange with a nominal discount of 50% on nominal Greek debt which is held by private investors.
Euro Area countries have agreed to contribute up to €30bn, while the “official sector” - effectively the EFSF and IMF - have indicated a willingness to provide additional programme financing to Greece of up to €100 billion.
The detail of this complex package will now be filled in, with the intention that the new programme for Greece should be agreed before the end of next month.
Mechanisms to oversee implementation will also be strengthened, though this is not intended to take away from Greek ownership of their programme. The responsibility for its implementation rests firmly with the Greek authorities.
That is, of course, as it should be.
Critically from an Irish perspective, Euro Area leaders have reiterated that Greece requires an exceptional and unique solution. As we did in July, Euro Area Member States reaffirmed their determination that each Member State will honour fully their own individual sovereign debts.
The Government welcomes this. As I said to the House last week we are working our way through our Programme. Any uncertainty as to our intention to repay what we owe can only have deeply damaging consequences for our efforts to return to the markets at as early a date as is possible.
I therefore insisted that the vulnerable situation of other Member States must be fully taken into account in reaching agreement, and it was.
Another key consideration for Ireland was that there should be adequate firewalls in place to prevent contagion to other vulnerable Member States, including ourselves.
In this regard, we agreed to extend the capacity of the European Financial Stability Facility through two basic leverage options.
The first is effectively through an insurance - credit enhancement – model; the second is a Special Purpose Vehicle (SPV).
The EFSF will have the flexibility to use these two options simultaneously, deploying them depending on the specific objective pursued and on market circumstances.
The leverage effect of both options will vary, but could be up to four or five. This is expected to yield in the region of €1 trillion. That represents serious fire power for the EFSF.
Crucially for Ireland it represents a secure and credible firewall.
I have said many times that we should neither under-estimate or under-sell the extensive range of measures which the European Union has taken in recent years to strengthen our common economic and fiscal policy coordination and surveillance.
The recently adopted package of six legislative measures - the so-called “six pack” - represents an important strengthening of the Stability and Growth Pact. Similarly, the European Semester has helped to ensure that structural reforms stay on track and are coordinated, including in relation to the Stability and Growth Pact. Further, each of the participating Member States, including all Euro countries, have made commitments under the Euro Plus Pact, with the objective of improving the quality of economic policy coordination.
These were all necessary steps which Member States are bound to implement.
Last week’s Euro Summit acknowledged something that the current crisis has brought into stark relief - that our monetary union implies a necessity for a far greater level of coordination and surveillance among those Member States that share our common currency.
This is not for its own sake, but to ensure the stability and sustainability of our currency union. As we have seen time and again over the last three years, what happens in one European country, particularly within the Euro Area, has the potential to spill-over on to others.
With that in mind, we agreed to implement a series of additional measures at national level. These measures include the adoption by each Euro Area Member State of balanced budget rules which translate the Stability and Growth Pact into national legislation.
National Parliaments, including this House, will be invited to take into account EU recommendations on the conduct of economic and budgetary policies.
For Euro Area Members in excessive deficit procedures, the Commission and Council will be able to examine national draft budgets and adopt an opinion on them before their adoption by national parliaments. The Commission will also be able to monitor budget execution and suggest amendments during the course of the year.
I must be very clear that this does not impinge on the budgetary powers and prerogatives of this House. In the case that a country is in EDP, a request to examine the draft budget may come and, if considered necessary, an opinion may issue. But it will remain for the national parliament to decide whether, and on what terms, the budget should be adopted. That is a very important distinction.
But the provision is, nonetheless, an important one that we should support. Where a country is in excessive deficit, its fellow members of the Euro area have a heightened and entirely legitimate interest in how national budgets are managed. If we have learned anything in recent years, it is that the decisions we take as individual Member States have potentially serious consequences for us all. As a small Member State, this offers us important protection.
As a further step to strengthen coordination and surveillance, in the aftermath of the Summit, President Barroso announced that Economic and Monetary Affairs Commissioner Olli Rehn will become a Vice-President of the Commission. I welcome this development which should see the Commission’s hand reinforced.
The final element of the comprehensive package was agreement on ten measures to improve Euro Area governance. These include regular Euro Summit meetings, at least twice a year, and regular meetings of the Presidents of the Euro Summit, the Commission and the Eurogroup.
There is a requirement for the President of the Euro Summit, currently President Van Rompuy, to keep non-Euro Member States fully informed on the preparation and outcome of Euro Summits. Again, this is to be welcomed. I was among those arguing strongly that we should take the utmost care to guard the integrity of the Union at 27. I would not wish to see a situation evolve where there were two categories of membership or an arrangement of inner and outer circles.
Possible Limited Treaty Change
As agreed at the European Council on 23 October, and as I briefed this House last week, we confirmed that the President of the European Council, working closely with the Presidents of the European Commission and of the Eurogroup, will prepare a report for the December European Council on possible steps to further strengthen economic convergence within the Euro Area, to improve fiscal discipline and deepen economic union. As part of that report, President Van Rompuy will explore the possibility of limited Treaty changes.
The December report is to propose a roadmap on how to proceed with these measures. This will, of course, be the subject of discussion in the run up to and at the December European Council meeting. A further report with proposals on how to implement the measures which we agree is to be finalised by March 2012.
I would recall what I said last week on the issue of the possibility of limited Treaty change. It is just that - a possibility. We are approaching the work in the right order – as I suggested – examining first what needs to be done and then how go about it. Where no other means is available, Treaty change is a possibility.
I again made clear my view that Treaty change cannot be part of our response to the immediate crisis – it is too long and uncertain a process. But, looking to the longer term, it is part of a spectrum of possibilities, even if it is one that should only ever be approached with the utmost caution, as we know very well.
I continue to believe that there remains considerable potential within the existing Treaties, which has not been fully explored or exhausted. That is a view that is very widely shared among partners. However, as I have said previously, a small number of Member States takes a different view. I look forward to hearing from President Van Rompuy in December.
Situation in Greece
Finally, I would like to say a little about the situation in Greece.
Last Wednesday’s Euro Summit commended Ireland on the progress we have made in fully implementing our programme. That is gratifying and welcome. But I reminded colleagues that although we are making headway, we have a long and difficult journey ahead of us, and will need the continuing support of our partners if we are to see it through to our destination.
Our partners recognise that our economy has again started to grow, after years of decline. They recognise that even in a difficult international trading environment, we are exporting strongly, as our competitiveness has improved markedly. Our partners see that our public finances have now stabilised, after years of disarray.
I am 100% convinced that the very best thing we can do now to help ourselves is to continue to implement our EU/IMF programme, in full and on time. It is only in doing so that we will manage to return to the open markets at an early stage.
That is what I want for Ireland. I want our full economic sovereignty returned to us as soon as is possible.
I have listened to those who have suggested that what was agreed for Greece is an easy ride or a sweet deal. I would simply point them to the political and economic turmoil in that country.
In Athens, they do not think that they got off lightly. They know that they face a long and very difficult road to recovery.
Even with the new agreement, Greek debt will only be reined-in to 120% of GDP in 2020, and the reality is Greece is highly unlikely to return to the open markets in the foreseeable future.
The decision by Prime Minister Papandreou to put the terms of the new programme for Greece to the Greek people in a referendum is, of course, a decision for him and his government.
What I would say, however, is that for a country in Ireland’s position, the requirement for certainly and for stability is a very real one. That is what European leaders aimed to secure last week.
The agreement we reached is good one. What is more, it was the only one available. There should be no doubt in people’s minds that some other set of arrangements can easily be plucked from the air.
I also share the view of Presidents Van Rompuy and Barroso, expressed yesterday, that last weeks’ agreement is the best for Greece. I know from my dealings with him that that view is fully shared by Prime Minister Papandreou.
I strongly support Greece in its efforts to recover, as Greece supports Ireland in turn. We are partners in a Union and a currency and wish each other well.
We now have available to us a comprehensive package that, taken together, can enable the Union to move beyond fire fighting a series of crises, to growing the economy and getting our people back to work.
What we must do now, with all possible urgency, is implement it.