Appearance before the Joint Committee on Finance, Public Expenditure & Reform
Thursday 8th November 2012
I would like to thank the Chairman and Committee members for inviting me to speak to you today in advance of the Ecofin Council of Ministers early next week. I would like to open by giving an overview of the European and International dimension to the work of the Ecofin Council. As this will be the penultimate Ecofin Council under the Cypriot Presidency, I will take the opportunity to brief you on some of their key dossiers. Lastly, I will speak about the agenda for Tuesday’s meeting, after which I will be happy to take questions and observations from Committee members.
Process: The work of the Ecofin Council, is heavily influenced by the work of the European Commission; the priorities of the rotating Presidency, currently held by Cyprus; the work of Heads of State and Government, which meets regularly in European Council Summits in Brussels; the ongoing volatile situation in the financial markets relating to the crisis in the Euro area; and the work of the G20 and the IMF.
Specifically in relation to ongoing international developments, the G-20 met earlier this week in Mexico and it considered a number of the issues that we are going to be discussing later in the week at the Ecofin Council. The G20 Summit closed on Monday and the Mexican Presidency issued the usual Communiqué setting out decisions taken.
In relation to the EU presidency, the Cypriot Presidency has still a third of its term left to run and it is committed to making progress on a number of key dossiers including the Single Supervisory Mechanism, under the Banking union heading, and additional measures to strengthen economic governance, referred to as the Two-pack.
·On the Single Supervisory Mechanism, the Cypriot Presidency has said it will do all in its power to secure agreement during its tenure. On the Two-pack, it is also hopeful that it will be able to respect the European Council invitation of 18-19 October 2012 and reach agreement with the European Parliament with a view to adoption by the end of 2012 at the latest.
·The Cypriot Presidency has also successfully coordinated a review of the European Semester and it will shortly submit a synthesis report to Council bringing together the deliberations over the last few months of various Council formations. This will help inform the roadmap on the organisation of work for the 2013 European Semester which will be prepared by the incoming Irish Presidency.
Turning now to next Tuesday’s Ecofin meeting, my Department has already supplied the Committee with the latest draft agenda for the meeting and I will now highlight some of the key issues that will be discussed:
1.At next week’s Council meeting, Ministers will be updated on the progress on the trilogue discussions that are under way to achieve agreement on the Two-Pack. I also expect that the Council will be asked to give a mandate to the Presidency to continue negotiations with the European Parliament on the basis of a new set of compromise suggestions which will be put forward by the Presidency.
2.It should also be noted that the Scrutiny Sub-committee of the Joint Oireachtas Committee on Finance and Public Expenditure and Reform is meeting on 14th November. The sub-committee has invited officials from my Department to the meeting to discuss the Two-Pack, as well as the Financial Transaction Tax and the Common Consolidated Corporation Tax Base.
3.Returning to the upcoming Council meeting, the Commission will present an update on the status of the Revised Capital Requirements Rules. The proposal is currently at trilogue stage of negotiations, and it is likely that the Commission will urge that these negotiations come to a conclusion. The need for stronger capital and liquidity standards for EU financial institutions is evident from the financial crisis and Ireland recognises that this is a vitally important piece of legislation.
4.There will be a state of play report on the Single Supervisory Mechanism including an exchange of views. The latter will be on the basis of the Presidency report that will be prepared following an Ad-hoc Working Group on 5-6 November. Under the proposal the ECB will take on the prudential supervision of credit institutions. A regulation amending voting procedures in the European Banking Authority is also proposed as part of these reforms. The objective is to ensure equitable treatment of euroarea and non-euroarea Member States within the Single Supervisory Mechanism.
5.A State of Play discussion on the Financial Transactions Tax is scheduled for the meeting. At the June 2012 ECOFIN meeting, it became clear that agreement on the Commission’s draft Directive to introduce a Financial Transactions Tax would not be reached at EU-27 level. Those countries who favour the tax are now trying to introduce it by way of “enhanced co-operation”, under which at least nine countries must participate. I understand that 11 countries (Germany, France, Austria, Belgium, Portugal, Slovenia, Spain, Italy, Slovakia, Estonia and Greece) have written to this effect to the European Commission. On 23 October 2012 the Commission submitted its proposal for a Council Decision to authorise enhanced cooperation in the area of financial transaction tax. The Council will have to decide after consent of the European Parliament. A subsequent Commission proposal for a Directive implementing the enhanced cooperation in the area of financial transaction tax should follow in due course.
6.The Mandate for negotiations of amendments to the Savings Taxation agreements with third countries will be discussed at Ecofin. There will be a proposal to the Council to adopt relevant decisions authorising the opening of such negotiations, and we hope that the proposal will be agreed.
7.We will discuss in restricted session issues related to the implementation of the Stability and Growth Pact. In particular, the items discussed will pertain to Greece and may include recommendations for specific measures to be taken by Greece to address its excessive deficit.
8.The Presidency will inform the Council on the follow-up of the ECOFIN-related decisions taken by the European Council on 18-19 October. The October Council was dominated by discussion on economic issues and in particular the interim report on the Future of the Economic and Monetary Union which identifies the single supervisory mechanism and the broader banking union as essential building blocks to delivering a genuine EMU.
9.The Council will have an exchange of views on the outcomes of the annual meeting of the IMF and World Bank Group in Tokyo and on the G20 Finance Ministers and Governors meeting in Mexico, as well as a possible follow-up.
10.TheCouncil Conclusions on Climate Finance – Fast Start Finance will be agreed in advance of the 18th Conference of Parties to the United Nations Framework Convention on Climate Change (UNFCCC) in Qatar from 26 November to 7 December 2012. The Environment Council adopted conclusions on the other aspects of the preparation for Doha on 25th October.
11.Draft Council conclusions on the annual EU statistics package will feature on the agenda. This may only be an “A” item on the Council agenda, which would allow for its approval without any major discussion.
12.Finally, Ministers will have an exchange of views on State Aid Modernisation from which the Presidency will draw its own written conclusions. The Competitiveness Council on 10 December 2012 will also deal with this issue but is not considering adopting Council conclusions. It is expected that Ecofin will subsequently adopt Council conclusions taking into account the Presidency conclusions from the November Ecofin discussion and the discussion at the December Competitiveness Council.
Ireland’s Economic Situation
Before concluding, I would like to say a word on our own economic and budgetary situation. My Department’s latest projections were set out in the 2012 Stability Programme Update, which was published on April 27.
GDP growth returned last year and further modest growth is anticipated for this year, again coming from the external side. It is expected that somewhat more broadly balanced growth will develop next year and beyond. However so far, the exporting sectors are leading the recovery, and this underscores the importance of restoring sustainable growth in the euro area which is a key trading partner for Ireland. In this context, resolving the difficulties in the euro area will be vital. Furthermore taking account of the Exchequer Returns for the first 10 months of this year, our budget is on track and I am confident that fiscal targets will be achieved again this year.
My Department will produce revised forecasts for 2012 and later years shortly. These will take account of domestic developments over recent months and the current outlook for the international economy. However, given the worsening of the external environment - particularly in key trading partners - it is clear that short-term growth prospects will be weaker than previously anticipated in the April Stability Programme Update.
Resolving the crisis
A considerable amount of progress has been achieved on the reform programme and enhanced governance measures in the EU as a whole and in the euro area. EU2020 – the EU's growth strategy for the coming decade – is now well-embedded across the EU. This is also true of the EU Semester which has now become an important part of the annual work stream of the Commission and Council. The successful implementation of the 2013 Semester will be a priority for Ireland’s Presidency. The Euro Plus Pact, which is now in place as part of the EU Semester, has concrete goals aimed at fostering competitiveness and employment. The Six-Pack, which came into effect last December, will reform the Stability and Growth Pact by, among other things, by ensuring better budgetary surveillance and focusing on prevention and correction of macroeconomic imbalances. The Two-Pack will therefore be the key final pieces of the reform strategy for the euro area.
The Four Presidents’ Paper on the Economic and Monetary Union was released in June. The paper’s “four essential building blocks” are proposals for an integrated financial framework, budgetary framework, economic policy framework and for greater democratic legitimacy and accountability. An interim report of President Van Rompuy was presented to the October European Council and a specific roadmap for the achievement of a genuine Economic and Monetary Union will be presented at the December 13-14 European Council.
Moving forward, it is Ireland’s view that the focus must be on delivering, in all respects, the commitments already agreed by the Heads of State and Government, including those of 29 June. Those commitments were vital in giving certainty to the markets and for Europe’s credibility.
Ireland will mark forty years as a committed member of the European Union next year during our Presidency. We take up the Presidency of the European Union on 1 January 2013 and will work in collaboration with the other members of our “Trio” - Lithuania and Greece. During that time, membership of the EU has been good for Ireland in terms of attracting a considerable amount of foreign direct investment and in gaining access to a much bigger market for our exports. Equally Ireland has been perceived by our European Partners and successive members of the European Institutions as a diligent, pragmatic and constructive member of the Union. We have demonstrated this continuously during the past six occasions when we held the Presidency of the EU and have gained a reputation for holding efficient, businesslike and pragmatic Presidencies – Indeed in 2004 we presided over the enlargement of the EU to 25 Member States. The Government believes that Ireland’s future is intimately linked with continued membership of a strong and vibrant EU and as a member of the Euro area. It is the intention of this Government to continue to proactively engage with senior officials in the EU Institutions and our EU partners in the implementation of policies aimed at strengthening growth and stabilizing turbulent financial markets. This is reflected in the main themes of our Presidency which include promoting growth and restoring the EU’s competitiveness.
Thank you for your attention and I will be happy to respond to any questions or observations you may have.
Department of Finance
Upper Merrion Street