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Written Answers - International Agreements

Thursday, 9 February 2012

Dáil Éireann Debate
Vol. 755 No. 1

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 52.  Deputy Michael McGrath Information on Michael McGrath Zoom on Michael McGrath  asked the Minister for Finance Information on Michael Noonan Zoom on Michael Noonan  the role the new permanent rescue facility, the European Stability Mechanism, has in providing funding to countries to recapitalise banks; and if he will make a statement on the matter. [7420/12]

Minister for Finance (Deputy Michael Noonan): Information on Michael Noonan Zoom on Michael Noonan The European Stability Mechanism (ESM) treaty was signed by euro area member states on 2 February 2012. Its purpose will be to provide financial assistance to its members that are experiencing or being threatened by financing problems. The ESM will take over the tasks currently fulfilled by the European Financial Stability Facility (EFSF) and the European Financial Stabilisation Mechanism (EFSM). Aside from loans to beneficiaries, it will provide precautionary financial assistance and loans to member states for recapitalisations of financial institutions. The decision to grant financial assistance will be made by the Board of Governors of the ESM, following assessment by the European Central Bank (ECB) and European Commission, and under strict economic conditionality. The terms and conditions upon which financial assistance for recapitalisation shall be granted will be specified in a financial assistance facility agreement.

 53.  Deputy Michael McGrath Information on Michael McGrath Zoom on Michael McGrath  asked the Minister for Finance Information on Michael Noonan Zoom on Michael Noonan  his views on when Ireland signed up to the reinforced Stability and Growth Pact, known as the six-pack; if he will set out details of the way the fiscal measures contained therein affect Ireland; when the six-pack became effective in Irish law; and if he will make a statement on the matter. [7421/12]

Minister for Finance (Deputy Michael Noonan): Information on Michael Noonan Zoom on Michael Noonan The 2008 financial crisis and the ensuing turmoil in sovereign debt markets highlighted the need to introduce reforms designed to address the weaknesses that had become evident in the European Union’s economic governance. In September 2010 the EU Commission published six pieces of draft legislation designed to enshrine many of these reforms in the form of an economic governance package comprising six legislative measures known as the Six-Pack. Having gone through the normal consideration processes, the Six-Pack was adopted by the ECOFIN Council and approved by the European Parliament in September 2011.

The five Regulations (two amending and three new) in the Six-Pack subsequently entered into force on 13 December 2011, when they became part of the national law of every Member State in the EU. The sixth element of the Six-Pack is the Directive on requirements for budgetary frameworks of the Member States. Article 15 of this Directive requires that “Member States shall bring into force the provisions necessary to comply with this Directive by 31 December 2013”.

The Six-Pack measures apply to all 27 EU Member States or to the euro area 17 as appropriate.

The Six-Pack provides for:

Stronger preventive action through a reinforced Stability and Growth Pact (SGP) and deeper fiscal coordination: Member States are required to make significant progress towards medium-term budgetary objectives (MTO) for their budgetary balances. Under the Six-Pack, expenditure benchmarks will now be used alongside the structural budget balance to assess adjustments towards the MTO. An interest-bearing deposit of 0.2% of GDP will be imposed on non-compliant euro-area countries.

Stronger corrective action through a reinforced SGP: The launch of an Excessive Deficit Procedure (EDP) can now result from government debt developments as well as from government deficit. Member States with debt in excess of 60% of GDP should reduce [125]their debt in line with a numerical benchmark. Progressive financial sanctions kick in at an earlier stage of the EDP. A non-interest interest-bearing deposit of 0.2% of GDP may be requested from a euro-area country which is placed in EDP on the basis of its deficit or its debt. Failure of a euro-area country to comply with recommendations for corrective action will result in a fine.

Minimum requirements for national budgetary frameworks: Member States are to ensure that their fiscal frameworks are in line with minimum quality standards and cover all administrative levels. National fiscal planning should adopt a multi-annual perspective, so as to attain the MTO. Numerical fiscal rules should be introduced that promote compliance with the Treaty reference values for deficit and debt.

Preventing and correcting macroeconomic and competitiveness imbalances: Over the past decade, Member States have made economic choices which have lead to competitiveness divergences and macroeconomic imbalances within the EU. A new surveillance mechanism will aim to prevent and correct such divergences. It will rely on an alert system that uses a scoreboard of indicators and in-depth country studies, strict rules in the form of a new Excessive Imbalance Procedure (EIP) and better enforcement in the form of financial sanctions for Member States which do not follow up on recommendations.

Also under the Six-Pack enforcement is strengthened by the expanded use of ‘reverse qualified majority’ voting. Under this voting system, a Commission recommendation or proposal to the Council is considered adopted unless a qualified majority of Member States vote against it.

The Six-Pack measures represent the most comprehensive reinforcement of economic governance in the EU and the euro area since the launch of Economic and Monetary Union. It marks a concrete and decisive step towards ensuring fiscal discipline, helping to stabilise the EU economy and preventing a new crisis in the EU.

It is the Government’s view that all of the measures contained in the Six-Pack — including those with relevance to fiscal matters — provide a sound basis for helping all EU Member States to work together for a return to financial and economic stability and towards achieving the core objective of sustainable growth and jobs. Ireland is committed to observing all of the requirements under the Six-Pack.


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