Speech of Fianna Fáil Leader Micheál Martin TD during Dáil Statements on May European Council
The best that can be said for last week’s summit is that it received very little attention and did not cause any new crisis.
However, the record shows that at a time of urgent need for action the leaders of Europe chose to spend their time on the formal discussion of longer-term items.
They did not discuss a single item which might create a job this year or next for one of the 27 million unemployed people in Europe. They did not consider any measure which would restore the bank lending which is vital to the survival of businesses and families. They did not even address the delays in implementing already agreed policies.
The summit’s agenda was effectively as was set out early last year. It included no significant new input from the Irish presidency and it reached no formal agreement. The areas of tax and energy are indeed important for the long-term economic success of the Union, but they are marginal to the immediate needs.
Throughout the five years of this crisis there has been a constant pattern of periods of relative calm being wasted as leaders fall back into complacency. Inevitably they wait for new turmoil in the markets before taking long-needed decisions.
Unfortunately we are now in another period of complacency. There is no discernible movement on any of the urgent measures which should be taken this year to restore confidence and growth to the Union.
Two weeks ago Mario Draghi outlined what he believes is the economic strategy of the Union. He summed it up as ‘confidence, credit and competitiveness’.
President Draghi, who has been by far the most constructive force for change in the Union in the last two years, said this approvingly.
The problem is that it the same strategy which has been in place for the last five years. No one can argue that the current strategy is working and to expect it to suddenly deliver growth and jobs is unreal.
The very discouraging decision of March’s summit on the Union’s Budget has confirmed that there will be no direct stimulus coming from Europe – in fact the opposite will be happening. I accept that the scope for changing this in the near future is almost zero, though I certainly don’t believe that the Taoiseach or anyone else should talk of it as a good agreement.
Because of this we have to focus on other steps which can be taken. There are four specific actions which could be taken by the Union in the coming months which would collectively have a positive impact on the economy: support for extra investment by states who can afford it, completion of the banking union, political support for the ECB’s new lender of last resort facility and a frontloading of some programmes in the new budget.
End Avoidable Austerity
There are states, such as Ireland, which have no alternative but to maintain a policy of further cutting deficits.
However there are others who have significant room for maintaining spending or even increasing it. The common policy of cutting deficits has made the economic situation of all worse – with most countries now missing both growth and budget targets.
June’s summit will sign off on country-specific economic recommendations. Ireland and others should insist that these recommendations end the policy of uniform austerity. States may well continue with their self-defeating policies, but we should stop endorsing them and we should support any states which have room for stimulus spending to implement it.
The absence of a banking union to go with monetary union was at the very core of the creation of the financial crisis. The agreement to form a banking union was seen as impossible two years ago but it has been agreed in principle. Without this a restoration of normal credit flows within the Eurozone is impossible.
Of the core pillars of such a union, regulation, deposit insurance and a resolution regime, negotiations are delivering at best a half-banking union. Without a single approach covering the whole Eurozone the basic principle of sustainable confidence in the banking system will not be achieved.
If the negotiating process goes on for too long, and if the final agreements continue to be watered down, a renewed destabilising of banks is entirely possible. We should not be willing to accept something we don’t believe delivers what is needed.
The pace of negotiations must be speeded up. It should be a permanent item on the agenda of the full Council summits until it is finalised.
Political Support for ECB
A rapid collapse of the Euro was avoided by the statement from the ECB last July that it would do “whatever it takes” to save the common currency. In doing so it marked a radical departure from rigid orthodoxies and immediately restored confidence in European investment markets.
This move was an unequivocal success. In spite of this it continues to be the subject to regular sniping and the legal basis of the most important measure, Outright Monetary Transactions, has been challenged at senior political level.
If any part of the ECB’s new strategy were to unravel the impact would be severe. Even with these changes the Euro does not have a central bank which can support long-term growth, but it has at least stopped causing major damage.
It is surprising how few political leaders have clearly outlined their support for the ECB’s new policies. This is serious because there has been no push-back against the flawed claims that the ban on monetary financing of governments has been infringed.
There is a clear need for political leaders to address this and at least prevent any doubt about whether the ECB’s new policies are permanent.
Frontloading benefits of MMF
The Multi-annual Funding Framework Agreed in March is a step backwards for the Union. An already inadequate budget is to be cut and the sharpest cuts are to be made in areas where the Union is making the biggest impact. The Taoiseach said yesterday that the level of youth unemployment in Portugal and Spain is shocking. It is. What is also shocking is that he and the other leaders of the Union are pretending that they are doing something by creating a fund worth €144 per year for each of the young unemployed people in Europe.
I accept that the deal will not be reopened, however there are specific steps which could be taken to immediately improve its impact, or at least put off its most damaging features.
The Parliament’s demand for this year’s shortfall not to be taken out of the Budget should be supported. In addition, where it is possible to bring forward investment initiatives or support programmes they should be frontloaded.
The 10% cut in rural support schemes is already deeply damaging. We are lead to believe that there will be a conclusion in relation to the CAP negotiations by the end of next month and I sincerely hope that the final deal will actually preserve the family farm as well as productive farmers.
Treating States Fairly
The final immediate step which could be taken to help recovery is to ensure that all countries are treated equally and that none suffer disproportionately from the fact that current policies were absent in the first four years of the crisis.
It is incomplete but there is at least today a framework for dealing with banking collapse and sovereign debt pressures. Some countries, including Ireland, did not benefit from the new measures and were effectively left to carry an unfair burden as Europe sought to hold the line on policies now acknowledged as failed.
As the Taoiseach belatedly put it in October “Ireland was the first and only country which had a European position imposed upon it in the sense that there wasn’t the opportunity, if the government so wished, to do it their way by burning bondholders”.
He doesn’t like to repeat that much because it gets in the way of party politics, but it is a powerful case for Ireland.
These legacy issues are not some side point of little relevance, they actually go to the heart of achieving recovery and restoring popular support for the Union. There is a shared responsibility for the failures of past European policies and this has not been fully acknowledged.
The recent deal on promissory notes is progress, but it goes nowhere near meeting the justice of Ireland’s case. In fact, the entire fiscal benefit of the deal could unravel if the Central Bank of Ireland were to be forced to sell off its new holding of bonds earlier than planned.
If recovery in Ireland is to be fully underpinned then we need further movement. Specifically, the ECB should not only allow the Central Bank to hold its Irish bonds to maturity, thereby returning interest payments to the Exchequer, it should commit to returning profits on its holding of sovereign debt to each country’s Central Bank. A deal on this has already helped Greece significantly.
If these two measures were implemented Ireland’s fiscal position would have a secure improvement of over €2 billion per annum. It would also remove much potential for resentment about unfairly carrying the burden for inflexible and failed European policies of the recent past.
At the moment 100% of the space in budget figures which ministers have started arguing over has come about because of changes to EU policies on debt.
A more comprehensive and equitable response would make a huge contribution to Ireland’s recovery, as well as to the recovery of other countries.
As was long-scheduled, last week’s summit addressed the issue of the administration of tax systems particularly to combat fraud. Nothing surprising came in the final communique. The measures involved should be studied further, but in principle they are to be welcomed.
The international headlines concerning our administration of corporate taxation were not helpful and, in many cases, were not informed. This is a complex area and it is simply not the case that Ireland is or ever has been a tax haven.
Over the years we have given up key areas of tax competition in the name of transparency and cooperation. It appears that the US issue is with the failure of their companies to repatriate profits; it is not that they have been routed through Ireland.
In cases such as Apple, you have a major employer which has been here for decades. Much of the work carried out by them and other multi-national companies would be lost to Europe were Ireland not so successful in attracting them and allowing them to make a long-term commitment to growth.
I want to acknowledge the words and actions of the Taoiseach, Tánaiste and Minister Noonan over the last week, together with those of our diplomats and the IDA. It has been a strong and well-argued response. I and my party support you in this work and will continue to do so.
The Taoiseach is also right in pointing out how a secure and affordable energy supply is vital for economic growth. He is wrong to say that any major new policy has been agreed or that what is to be agreed this year will play a role in our recovery. The benefits of a single energy market are some time off.
Given that there was space on the agenda to discuss international developments it was surprising that leaders had nothing to say in their communiqué about Syria.
I have concerns about the position taken by Ireland at this week’s Foreign Affairs Council and our argument against lifting the arms embargo on the Syrian rebels.
I accept that this is not a black and white issue; however history indicates that such embargos are inherently one-sided. Russia, Iran and others have sold major amounts of arms to the Assad regime. Hezbollah, which is a client organisation of Iran, has confirmed that it is directly involved in fighting on the side of the regime. As such, an arms embargo only significantly impacts on the rebels.
Twenty years ago in Bosnia, the imposition of a supposedly even-handed embargo directly aided Milosevic and caused enormous damage to the Bosnian government. We should not allow such a thing to happen. The surest way to undermine an agreed settlement is to allow the regime to strengthen its position or to convince the rebels that the only place they can win support is from the extremes.
I think the Franco-British position is the correct one.
Separately there is a need for us to step-up Europe’s support for democracy in the middle-east and elsewhere. This week the secretariat of the European Endowment for Democracy opened its doors in Brussels.
This was the initiative of Radek Sikorski when he held the presidency of the Council. It is an excellent development. We should congratulate him for bringing the project this far and, as a country, we should commit to becoming a major funder and supporter of the EED.