Europe needs an emergency fund fit for purpose
Europe needs an emergency fund fit for purpose
Speaking today during the Dáil debate on the European Stability Mechanism Bill Sinn Féin Finance spokesperson Pearse Doherty TD, said that: “the Eurozone needs an emergency funding mechanism” but that “it must be fit for purpose.”
Deputy Doherty said:
“Sinn Féin’s firm view is that Ireland and the Eurozone need an emergency funding mechanism. Not only because the Irish government will need to access it come 2014, but because such a fund is vital to stabilise the Euro. This is why we supported the proposed amendment to 136 of the European Treaties.
“But there is no point in agreeing to a fund that is not fit for purpose, that will not achieve its stated objectives and that in all likelihood will make matters worse.
“The ESM in its current form is not fit for purpose. It is based, like the EFSF, on the failed policies of crippling austerity and unlimited bank bailouts.
“Unless the ESM Treaty is amended Sinn Féin will not be in a position to support this Bill.
“Fortunately, for Ireland and for the Eurozone a window of opportunity to amend the ESM Treaty and improve the fund is still available.
“Other EU member states are actively seeking changes to the Treaty. These changes could well be made at the forthcoming European Council summit at the end of June.
“The Irish government should do likewise.
“Next week at committee stage I will table amendments to the ESM Bill. The amendments will be based on five key changes that we believe are required for the ESM to do what it is being set up to do including;
“An explicit option of ESM funds being used to invest in jobs and growth as part of a credible deficit reduction strategy rather than the current focus on austerity; an option for direct ECB funding of the ESM to provide the necessary firewall to stabilise the Euro while limiting the liability to taxpayers and individual member states; a clause ensuring that programme countries are not required to contribute to the fund; a requirement for strict stress tests and write down of toxic debt as a precondition for any ESM funds being used to recapitalise banks, whether directly or indirectly via loans to governments; greater accountability at an EU and member state level and the removal of the immunity granted to the fund and its board members.
“It is time for the government to stand up for the interests of Irish citizens just as the government of Spain is doing for its citizens. Ensuring that Ireland has access to an emergency fund that works for Ireland and for Europe is the best way of doing this.”
Note for editor:
Full text of Pearse Doherty TD ESM Bill Second Stage – 7.5.12
The crisis in the Eurozone is deepening every single day. Nobel Prize winning -economists are telling us that the euro has only a 50-50 chance of survival.
Since 2010 the peoples of Greece, Ireland and Portugal have been paying the price for an economic crisis that we did not create.
We are being forced to pay the bills of bankers, speculators, developers and politicians who ran our economies into the ground.
Some of these bankers, speculators, developers and politicians were home grown. But many were also from the stronger economies of the European Union such as France and Germany.
And all of these national actors were encouraged in their reckless endeavours by a European Commission that was part of the same failed policy consensus.
The policies of light touch banking regulation; unsustainable tax regimes; cheap money; and aggressive lending all combined to create an unsustainable boom and a catastrophic crash.
It should come as no surprise that the very same politicians and bankers who got us into the crisis have proved unable to get us out of the crisis.
How could it be any different?
For two years political leaders across Europe have been dithering and procrastinating. They have held eighteen European Council crisis summits. Most of these have been marked by indecision and disagreement. When decisions have been made they have either been insufficient or counterproductive.
Throughout the entire Eurozone crisis our political leaders have been misdiagnosing the causes of the crisis and in turn proscribing the wrong medicine. As a result they have been making the patient sicker and sicker by the month.
If they are allowed to continue they will kill off the patient entirely – with devastating consequences for the economies and societies of the member states of the Eurozone.
The crisis in the Eurozone is not a fiscal crisis. The excessive deficits are a symptom of much more fundamental problems.
The crisis in the Eurozone was not caused by the profligacy of the periphery. The unsustainable debts of some member states are a symptom of much more systemic problems.
The crisis of the Eurozone was firstly a banking crisis; leading to a debt crisis which in turn had led to an investment and employment crisis.
Focusing on deficit reduction alone, important as it is, is a mistake. The two most urgent questions facing the Eurozone are firstly how to reduce unsustainable levels of debt and secondly how to increase investment in job creation to stimulate economic growth and social regeneration.
Unfortunately our political leaders simply don’t understand this. The European Council, the European Central Bank, the European Commission and our own Fine Gael-Labour government continue to misunderstand the problem and in turn pursue the wrong solutions.
That is why the Eurozone crisis is getting worse.
That is why Greece is approaching a state of social, economic and political collapse. That is why Spain is now in the process of negotiating access to emergency funding. That is why the Irish and Portuguese governments will more than likely be looking for additional emergency funding when the current programmes end.
For two years political leaders across Europe argued that the Eurozone crisis was a fiscal crisis confined to the periphery of the Eurozone. By this logic the solution was to impose harsh fiscal discipline on the people of the periphery while all the time protecting the European banking system with unlimited bailouts.
Crippling austerity and unlimited bank bailouts has been the sole focus of actual Government policy at home and in Brussels.
When Fianna Fail and the Green party led the state into the Troika programme in 2010 Sinn Féin said that it wouldn’t work. We were right.
When Fine Gael and Labour committed themselves to continuing the same failed policies of their predecessors Sinn Féin said it wouldn’t work. We were right.
The policies of crippling austerity and unlimited bank bailouts are not assisting our return to the sovereign bond markets.
Rather the consequences of these policies are; rising unemployment; declining growth; mortgage distress; emigration; inequality; poverty – a downward spiral of social, economic and political instability.
The policies pursued by European political leaders, including our own Government have failed.
Increasingly even bodies such as the OECD, the IMF and now the European Commission are waking up to this failure.
The Eurozone’s problem is not lack of fiscal discipline; it is a famine of investment forcing millions of people onto the dole; it is a decline in living standards relentlessly depressing the domestic economy; it is crippling banking debt loaded onto the shoulders of tax payers and in turn freezing country after country out of the sovereign bond markets; it is the futile policies of austerity which not only fail to resolve the crisis but actually make it worse.
For two years Sinn Féin has been arguing for a better way. We have put forward solutions aimed at reducing the debt; growing the economy; and getting the public finances in order in a way that is fair and assists economic and social recovery.
We have argued for a write down of that portion of the public debt that originated with the banks – most importantly the promissory note – both to make our debt more sustainable and to assist our return to the markets.
We have argued for an EU wide approach to the banking crisis – demanding a new and rigorous round of stress tests of all European banks to expose the full extent of their toxic assets to be followed by a write down of these toxic assets before any recapitalisation.
We argued for the European Central Bank to become a lender of last resort, either directly or indirectly, both to banks in need of recapitalisation and to states locked out of the sovereign bond markets.
And crucially we have argued for a massive investment in job creation
– through national funds and European Investment Bank funds to get people off the dole and back to work.
You can-not balance the books with 14% unemployment. You can-not cut and tax your way out of this crisis. Only with real and substantial investment in jobs can you return to growth and in doing so reduce the deficit to sustainable levels.
In the context of this alternative strategy for jobs and growth Sinn Fein supports the creation of a Eurozone emergency fund to provide funds to member states frozen out of the bond markets.
Our preference would be for the ECB to fulfil the role. Only the ECB has the firepower required to shore up the euro. The ECB is also the only body capable of providing such funding without exposing ordinary taxpayers and individual member states to the kinds of liabilities that have been foisted on the people of this state in recent years.
Given the rapidly deteriorating situation in Spain and Greece we believe that a vehicle for providing such emergency funding is urgently required.
And so to the legislation and treaty that are before us today.
The question the Oireachtas must ask itself during this debate is not whether the Eurozone needs an emergency fund – clearly it does.
Nor is the question whether Ireland should have access to such a fund – clearly we should.
The key question we must address is whether the European Stability Mechanism as it is currently presented will provide Ireland and the Eurozone with the necessary tools to assist in stabilising the currency crisis in order to assist Governments to regain access to the sovereign bond markets.
When the EFSF was established Sinn Féin, along with many others, rightly criticised its design.
We argued that imposing anti-jobs and anti-growth austerity as a condition for emergency loans would be counterproductive.
We argued that mounting toxic private banking debt onto the shoulders of the state and taxpayer would make our debt burden unsustainable.
We argued that such conditions would block a return to growth and reduce the ability of the state to return to the sovereign bond markets.
The fact that Government ministers are starting to accept that the state is unlikely to re-enter the bond markets in 2014 is evidence that Sinn Féin’s analysis has been proved correct.
We also argued that the EFSF would not be big enough to cope with the growing debt and investment crisis across the Eurozone.
The fact that the European Council has come forward with a new permanent emergency funding vehicle in the form of the European Stability Mechanism demonstrates that again Sinn Féin’s analysis was correct.
Unfortunately neither the European Council nor the Irish government appear to have learned from the mistakes of the very recent past.
The ESM is based on the very same flawed policy agenda as its EFSF predecessor. It contains many of the same limitations and weaknesses of the EFSF.
Sinn Féin has a genuine concern that the fund as currently proposed will not help stabilise the Irish or Eurozone economies. Indeed we fear that, just like the EFSF, it will make matters worse.
At the core of the fund are the failed policies of unlimited bank bailouts and crippling austerity; these are the strict conditions referred to in the ESM Treaty.
The Treaty is very clear when it says that the conditions attached to any future loans will be negotiated by the European Commission and European Central Bank.
And what will these conditions be? More austerity in the form cuts to spending on front line services in health and education; more tax hikes on low and middle income families; more sales of profitable and strategically valuable state assets; more damage to the fabric of our society; more damage to our domestic economy.
This approach has failed both Ireland and the Eurozone.
For any emergency fund to work it must be part of a strategy aimed at investing in jobs creation and economic growth.
In Sinn Féin’s view the articles of the ESM Treaty must be amended to include an explicit commitment for emergency funding to be used to stimulate social and economic recovery – primarily in the form of investment in job creation.
If the Irish government is serious about developing a European wide growth agenda; if the European Council is serious about developing a Europe wide growth agenda then amending the ESM Treaty to transform it into a tool for job creation and growth is essential.
Sinn Féin is also concerned that, once again, taxpayers, will be forced to bail out banks to an unlimited extent. The current total fund for the ESM is €700 billion. Ireland’s contribution to this is a staggering €11 billion. While the initial call up is €1.2 billion, once established the ESM can call on the remainder of the total as it sees fit.
The Treaty also gives the ESM board the power to increase the total fund at its disposal.
This morning the newspapers were reporting that Spanish banks may require funds in the region of €100bn and this may come from the ESM funds.
Theoretically such funds would be provided in the form of loans – either to the Spanish government or directly to the Spanish banks. But does anyone in this house really believe that a loan to toxic Spanish banks in the region of €100bn would be repaid in full?
Just as the Irish government will never recoup the vast majority of the €64bn plus that was pumped into the Irish banks – nor will the ESM fully recoup funds injected into the Spanish banks on the basis of the current ESM funding model.
In Sinn Féin’s view the articles of the ESM Treaty must be changed to reduce the risk of exposure to the taxpayer and indeed to the state. This could be achieved by providing an option for direct funding of the ESM by the ECB – either through the issuing of bonds or through quantative easing, depending on which option was more appropriate at any given time.
This would also address another weakness of the ESM in its current form, namely its limited size.
Giving an emergency funding vehicle the unlimited firepower of the ECB would send a signal to the aggressive speculative forces in the markets that the EU will do whatever it takes to protect its currency.
Sinn Féin also believes that a Eurozone emergency fund should be able to lend directly to banks and that such a facility should be retrospectively available to Ireland.
However such a facility should only be made available following rigorous stress tests of the banks in question and a write down of toxic assets held by the banks.
European political leaders must learn from the mistakes of the mishandling of the Irish banking system. Bondholders and banks must be forced to pay their fair share of the crisis.
This means allowing some banks to fail. It means forcing heavy losses on bondholders.
And only then should recapitalisation occur ensuring that the injected funds benefit the real economy and real people.
Failure to do this will mean that Irish taxpayer’s money will be handed over to European banks that in turn will pay bondholders in full.
We are also very concerned that under the current proposals member states in receipt of funds from the ESM would be contributing to the fund.
This raises the prospect of states contributing significant resources to the ESM and then borrowing them back at a cost. This simply makes no sense.
If the ESM is to be based in whole or part on contributions from member states then, just like the EFSF, programme countries must be exempt from making contributions.
It also has to be said that the scale of the liabilities to the Irish state and taxpayer under the current proposal are a serious concern. The treaty indicates a potential liability of €11 billion the total figure could be much more. Given the scale of the Eurozone banking crisis this is tantamount to writing a blank cheque on a scale never seen before.
There are also problems with the lack of accountability of the fund once established and the immunity given to the fund and its board members.
For an emergency fund of this size to function it must do so in an open, transparent and democratically accountable way.
Amendments to the Treaty must be secured to ensure adequate scrutiny and accountability at the level of both the European and member state parliaments.
The proposed immunity for the ESM and its board members must also be removed. No body, especially political leaders making decisions about a fund worth €700bn should be above the law.
I want to repeat Sinn Féin’s firm view that Ireland and the Eurozone as a whole needs an emergency funding mechanism. Not only because the Irish government will need to access it come 2014, but because such a fund is vital to stabilise the Euro.
But there is no point in agreeing to a fund that is not fit for purpose, that will not achieve its stated objectives and that in all likelihood will make matters worse.
The ESM treaty which the Government is seeking to ratify through the ESM Bill was negotiated and concluded in 2011.
You have to ask yourself what the Government was doing during those negotiations. You have to ask yourself why the Government agreed to such a poorly designed fund. You have to ask yourself why, in the twelve months that followed they did not seek to make any constructive amendments.
Fortunately, for Ireland and for the Eurozone a window of opportunity to amend the ESM Treaty and improve the fund is still available.
Other EU member states are actively seeking changes. These changes could well be made at the forthcoming European Council summit at the end of June.
The Governments of Spain and France are standing up for their citizens and working to get a better deal. They are arguing, as are Sinn Féin, that further changes to the Treaty are required for it to be of any assistance in the current crisis.
Next week at committee stage I will table a number for amendments to the ESM Bill.
These amendments will call on the Government not to lodge the instrument of ratification for either the ESM or the Article 136 Amendment to the Treaty on the Functioning of the European Union until a number of specific changes to the ESM Treaty are secured.
Sinn Féin believes that five key changes are required for the ESM to do what it is being set up to do:
1. There should be an explicit option of ESM funds being used to invest in jobs and growth as part of a credible deficit reduction strategy rather than the current focus on austerity
2. There should be an option for direct ECB funding of the ESM to provide the necessary firewall to stabilise the Euro while limiting the liability to taxpayers and individual member states
3. There must be a clause ensuring that programme countries are not required to contribute to the fund
4. There needs to be a requirement for strict stress tests and write down of toxic debt as a precondition for any ESM funds being used to recapitalise banks, whether directly or indirectly via loans to governments
5. There is a need for greater accountability at an EU and member state level and the removal of the immunity granted to the fund and its board members.
In the coming weeks the Government has a real opportunity to work with their European partners to design an emergency funding mechanism that will help countries regain access to the sovereign bond markets; a fund that will play a meaningful role in defending vulnerable member states from speculative attack by the markets; a fund that will assist in creating jobs and promoting economic growth and social regeneration.
Such a fund is urgently needed. However Sinn Fein does not believe that the ESM as it currently stands can achieve these objectives. Unless the ESM Treaty is amended we will not be in a position to support this Bill.
More importantly unless the ESM Treaty is amended it will simply not work.
I firmly believe that there is still time to improve the proposed fund. The question is whether Fine Gael and Labour have the political courage and the political will to seek the necessary changes and the political ability and skill to secure these changes.
During the last fifteen months the Government has demonstrated a remarkable inability to stand up for the interests of Irish citizens at the European Council. Their strategy appears to be one of sitting quietly and passively and waiting to reap the benefits of the hard work of other Governments.
It is time for this approach to end. We will never know what could have been achieved unless the Government starts making demands that are in the interests of Irish citizens.
It is time the Government became an active participant in European Council negotiations.
It is time Fine Gael and Labour started to make demands on behalf of the Irish people, to actively participate in the negotiations and to come back with something better for Ireland and for Europe as whole.