House commits €7bn to euro zone safety net

LEGISLATION THAT will oblige Ireland to provide guarantees of just over €7 billion as part of an EU bid to ensure the overall stability of the euro has passed all stages in the Dáil.

The €7 billion is part of a euro zone package worth a total of €440 billion in guarantees to allow for the provision of loans to euro member states unable to get funds from capital markets.

The European Financial Stability Facility Bill acts on the deal reached by euro zone countries to try to ensure the overall stability of the euro.

Minister for Finance Brian Lenihan stressed that “it is only if a guarantee is called that the State will be obliged to fund its share of the guarantee in question. Therefore, apart from a small amount of paid-up capital, no money is being called upon.”

He said “in the highly unlikely event that a guarantee is called, this will not mean that Ireland will never see its money again”.

Under the legislation a euro zone special purpose vehicle (SPV) will be created and this company “remains liable for funds paid under any guarantee”.

Mr Lenihan added that it will “endeavour to secure repayment of any underlying loan in default with a view to returning such funds to guarantors as soon as possible.”

He said “in the difficult times we have been experiencing, our membership of the euro has been and continues to be of critical importance to the economy. It is therefore incumbent upon us to play our part in defending the currency, not only because of the principles of solidarity and responsibility that came with our membership of the euro, but because ensuring the ongoing financial stability of the euro area is vital to our economic recovery and future success.”

Acting Fine Gael finance spokesman Kieran O’Donnell said that “if this package is never called in, we will have succeeded. If it is called in, then there are major issues.”

He said that “in the European context, the concern is that Ireland is moving into a debt crisis. Our national debt has doubled.” There was a general view that the Government did not move quickly enough to react to the financial crisis when it evolved in 2007.

Labour spokeswoman Joan Burton highlighted the Irish bank guarantee due to expire at the end of September and which is under “advanced” discussions with the European Commission for an extension. Ms Burton said that “as far as banking and financial information is concerned, we are living in a secret society”.

She said “some €30 billion of senior debt is coming up for rollover between now and the end of the year. Earlier answers by the Minister suggest the figure may be as high as €74 billion.”

But she had not been provided “with a definitive answer”.

Sinn Féin finance spokesman Arthur Morgan, who opposed the legislation said: “Bizarrely, the debt crisis is being fought with more debt. I do not subscribe to this legislation because one cannot treat a debt-fuelled over-consumption problem by adding much more debt.

“This is an illogical position in which euro zone governments are guaranteeing their own debt before it is even issued.”