Multiannual Financial Framework 2014-20: Discussion with Minister of State

Wednesday, 27 June 2012

Joint Committee on European Union Affairs Debate

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Chairman: Information on Dominic Hannigan  Zoom on Dominic Hannigan  I remind members to switch off their mobile telephones as they cause interference with the sound recording. I welcome the Minister of State, Deputy Lucinda Creighton, to today’s meeting to brief the joint committee on the ongoing negotiations on the EU budget - Multiannual Financial Framework 2014-2020, which will cover seven years and will be applicable to 28 member states of the European Union, including Croatia, which is to join the Union in July 2013.

It is essential that future multi-annual financial frameworks reflect the consolidation efforts being made by member states to bring deficit and debt onto a more sustainable path. The next multi-annual financial framework must ensure that the European Union’s budget is geared to lifting Europe out of the crisis it is currently in, all of which adds to the complexity of the negotiations.

I now invite the Minister of State to make her submission.

Minister of State at the Department of Foreign Affairs and Trade (Deputy Lucinda Creighton): Information on Lucinda Creighton  Zoom on Lucinda Creighton  I understand the joint committee had a briefing last week from officials, which I do not propose to duplicate. I hope we can have a good discussion in any event.

I thank the Chairman and joint committee for scheduling this discussion on the Multiannual Financial Framework 2014-2020, which we have spoken about on pretty much every occasion I have attended pre-General Affairs Council briefings given it has been on the agenda of each recent meeting of the General Affairs Council. However, it is useful to have an opportunity to consider the issue in a little more depth. I am interested in hearing the views of members and their suggestions in that context.

The multi-annual financial framework is a dossier of real importance for the Union’s medium term future. We must not let the current economic crisis blind us to this fact. Many of the issues of the day are reflected in the ongoing debate on the MFF, most notably economic growth and employment, but medium and longer term planning, in terms of how the EU will use its resources, must also be addressed. I am pleased, therefore, that the joint committee has taken a long term interest in our MFF negotiations.

The Commission presented its proposal for the MFF at the General Affairs Council, which I attend, in June of last year. The Council formation has responsibility for handling the MFF. Discussion in recent months has been focused on the so-called negotiating box, namely, the set of draft conclusions which will form the outline of an eventual agreement by the European Council. We discussed the latest draft of the negotiating box at the General Affairs Council meeting in Luxembourg yesterday. I expect General Affairs Council discussion of the multi-annual financial framework, MFF, to intensify during the upcoming Cypriot Presidency, leading to a final agreement between the Commission and member states at one of the European Council meetings later this year. Although we are approaching broad agreement on much of the textual elements of the negotiating box, we have yet to discuss detailed figures, and this is where the most contentious debate will arise.

The European Parliament will play an important role in the final agreement. Formally, the Parliament’s role is that of giving its consent to the MFF and this is not a formal co-decision issue. However, the Parliament has contributed substantially to the ongoing debate. Its members attend briefings before and after Councils and there are regular MFF consultations between the Presidents of the Council, the Parliament and the Commission, and MEPs also take part in informal Council meetings. Last week, while in Strasbourg I attended a plenary debate with the Presidency on elements of the MFF, so it is undergoing thorough consideration in the Parliament, notwithstanding the fact it is not part of the formal co-decision procedure.

In addition, approximately 50 pieces of sectoral legislation falling under the MFF will need to go through the Parliament under the so-called ordinary legislative procedure. This process will largely take place during the Irish Presidency and will be steered by us. We are already laying the groundwork for this in our contacts with the Parliament. When I visited the Parliament last week and on a number of previous occasions, I met consistently with all the key actors on the budget committee, including rapporteurs, chairs and vice chairs, etc., to ensure we have a good understanding, communication and co-operation with some of those key personnel.

The Parliament has made it clear that it is not ready to give its consent to the next MFF regulation without reform of the so-called own resources system, or the rules by which the EU budget is funded. This is a matter in which the Oireachtas will eventually play a part. The revision of the “own resources” system will require ratification by national parliaments after any final deal is struck, so the Oireachtas will be directly involved.

As members will be aware, the Commission’s original proposal, which we broadly supported, amounted to €1,025 billion over seven years. This is divided into five different headings for spending. Heading 1 is Smart and Inclusive Growth, with the Commission proposing funding of almost €491 billion, about 48% of the total MFF. The heading is divided into two sub-headings; heading 1a, Competitiveness for Growth and Jobs, covers research, innovation and skills, as well as the new connecting Europe facility, which would support investment in the Union’s transport, energy and digital networks. It amounts to €116 billion or 11% of the total MFF. Heading 1b, Economic, Social and Territorial Cohesion, covers more traditional cohesion policy spending and amounts to approximately €375 billion or 37% of the total MFF.

Heading 2, Sustainable Growth: Natural Resources, is the most important for us as it covers the Common Agricultural Policy. That is no surprise to the committee, given the various conversations we have had. The importance of the CAP for Ireland is of course well-known and I will return to this in greater detail later. Heading 3, Security and Citizenship, is the smallest heading. The Commission has proposed €18.5 billion for this, or approximately 2% of the total. This will cover migration and internal security programmes, including food security. We think there is real potential for the EU to add value for its citizens here.

Heading 4, Global Europe, covers the Union’s action beyond its borders. The Commission has proposed €70 billion for this or approximately 7% of the total. Most of this will go to support development co-operation, assistance to pre-accession countries, and the European neighbourhood policy. It is important that the EU establish itself as a global player to better project our values, and of course we have a particular interest in development aid. Heading 5, Administration, covers the administrative expenses of the institutions, including pension arrangements. The Commission has proposed almost €63 billion in funding for this, approximately 6% of the total. We think that at a time when Ireland is cutting back on its administrative costs, the Union should be able to do likewise while remaining effective.

The Commission’s proposal includes revenue measures, the so-called own resources, including a new VAT resource and financial transaction tax. We believe that the existing gross national income-based resource provides the fairest and most effective base for funding of budget because it reflects the economic and social position of member states. We would have serious concerns about a financial transaction tax - and these concerns are shared by many EU partners – if the tax were not a global one.

Divisions among member states on the MFF are on predictable lines. Roughly speaking, net contributor countries want a reduction in the overall envelope, with many calling for a reduction of €100 billion or 10% of the budget. Many also call for significant reductions in the size of the CAP. Newer member states oppose any cut to cohesion funding and call for concentrating resources on the least developed regions, stressing the need for simplification and flexibility and for conditionality mechanisms to be fair and balanced.

Ireland has a particular position among member states, with two factors particularly relevant to us. First, we remain a net recipient of EU funds, although the trend is towards a neutral position towards the very end of the MFF period. The estimated figures for 2010 show that Ireland received €1.89 billion from the EU budget and contributed €1.35 billion, resulting in a net position of plus €530 million or 0.3% of GDP. This does not include research receipts to private bodies, estimated at about €85 million in 2010, which would bring our net position under EU budget to in 2010 to approximately €630 million.

Second, our receipts from the EU budget are overwhelmingly through the CAP. In 2010, some 86% of Ireland’s EU receipts were received under the European agriculture guarantee fund and the European agriculture fund for rural development, whereas Structural Funds accounted for approximately 6% of our total receipts and research approximately 4%. Of course, like all other member states we want a properly funded and properly functioning EU, with the right mix of priorities, fair allocation of resources and a focus on jobs and growth. Nevertheless, the two factors I mentioned influence our approach, and during the negotiations, Ireland will naturally seek to maximise its allocations under all headings.

Given the budgetary figures which I have outlined, our overriding national objective will be to protect the allocation for CAP. The CAP provides the framework within which the sustainable development of a competitive and efficient agricultural sector is pursued and also provides the resources to assist in its achievement. In this way the CAP makes a vital contribution to economic growth in Ireland and across the EU. Agriculture’s future potential in this regard is underlined by the fact that food production must increase substantially if growing global demand, expected to increase by 70% by 2050, is to be satisfied.

In Ireland, the CAP underpins the ongoing modernisation of the agriculture sector, which has seen the average size of farms grow from 22 hectares to 33 hectares since accession to the then EEC in 1973. In recent years the greater market orientation of the CAP, together with its increasing focus on the sustainable development of the agricultural economy and its responsiveness to the evolving demands of consumers has helped the sector to become more competitive and maximise its contribution to the economy. The CAP’s support for primary agriculture provides an essential platform for the agrifood and drinks sector, which is now Ireland’s largest indigenous industry, accounting for 18% of total industrial output, employing 150,000 people in all parts of the country and generating annual output of approximately €24 billion. The sector makes a significant contribution to the net inflow of funds to the Irish economy, with export earnings estimated at €9 billion in 2011, up from €8 billion in 2010. It also generates a considerable multiplier effect, with 70% of the sector’s expenditure on Irish goods and services.

This is not only a national interest. At EU level, primary agriculture alone contributes 1.9% to gross value added and 5.6% to employment. The food and drinks sector is the largest manufacturing sector in the EU representing some 9% of industrial value added and over 10% of industrial employment. We have argued in the course of the MFF negotiations that the CAP is an instrument for the EU’s economic growth through its support for agriculture, agrifood and the rural economy. We have also argued that Europe needs a strong consumer focused, agricultural production base and we will continue to press these points.

I shall deal with the other large block of spending under the MFF, namely, the EU cohesion or regional policy. We see it as an investment policy that supports job creation, competitiveness, economic growth, improved quality of life and sustainable development. These investments support the delivery of the Europe 2020 strategy. We agree that regional policy is also the expression of the EU’s solidarity with less developed countries and regions, concentrating funds on the areas and sectors where they are most needed and can make the most difference. During the period 2007-13 the EU will invest a total of €347 billion in Europe’s regions. EU cohesion policy has been a force for change over the past ten years and has made a genuine contribution to convergence and growth in the EU and has directly created over 1 million jobs, invested in training to improve the employability of over 10 million people, co-financed the construction of over 2,000 km of motorway and 4,000 km of railway and set up at least 800,000 small and medium-sized enterprises. The Commission’s proposal would see cohesion funding for Ireland for the MFF period decline substantially in comparison with the 2007-13 period since our relative GDP per capita would exceed 90% of the EU average. We are seeking to address this by proposing a change to the reference period to reflect the recent downturn and by giving increased weighting to youth unemployment and to real GDP decline. We have supported a greater focus of Structural Funds being placed on growth and jobs.

The Government’s aim in the cohesion package negotiations under way is naturally to maximise Ireland’s allocation. We will argue strongly that cohesion funding has had a major impact on key economic and social programmes throughout the country and that funding for 2014–20 period must be maintained to help secure Ireland’s recovery. We will also argue for a differentiated approach to allow member states and regions the flexibility to select priorities according to their specific circumstances and the demands of their national reform programmes.

Our position on the MFF is not a purely protective one. We will seek to make the most of opportunities presented in new proposals and, in my opinion, research funding under heading 1 provides significant opportunities. Research and innovation are critical growth drivers. Given the relatively long lead in times needed to reap the impacts of investments and reforms in this area, it is important to build on earlier investments to maintain impact. Implementing growth enhancing policies and addressing societal challenges will help to raise the competitiveness of the EU and its member states, which is necessary against a background of ever fiercer global competition. Europe cannot afford to cut its investments in research and innovation while its main competitors such as the US, Japan, China, and South Korea are developing ever more ambitious strategies. The Commission’s proposal for the MFF envisages an allocation of €80 billion for the proposed Horizon 2020 research, development and innovation programme. Agreement on the substantial increase in research funding will support efforts at national level to bring about growth and jobs. Ireland is working to ensure an alignment of our research and innovation investment with those areas of opportunity most likely to deliver jobs. Through complementary and mutually reinforcing research and innovation policies at national and EU level we can all play our part in achieving our shared objectives for Europe 2020.

I would like to sound a note of caution about our negotiating position. Although we have common ground with some member states, such as France and Belgium on the CAP or with the UK and Finland on research spending, or with Sweden and the Netherlands on development spending, we are not part of a clear block such as the so-called Friends of Cohesion or the 1% Club, or as they like to call themselves the Friends of Better Spending. We must tailor our negotiating stance to address this and as we prepare to assume the Presidency of the Council our position must also reflect that role.

These are not auspicious times for budget negotiations. The read across the international financial situation and the domestic budgetary situations within member states clearly complicates the discussions. There is a renewed commitment by all parties to ensure that we have an MFF that supports growth and jobs and that must be in our national and collective interest. The MFF is a negotiation and not a normal legislative or budgetary procedure. The negotiation is not between Ireland and the EU but between all of the member states and the institutions. The result will have to be one that we can all accept and a compromise that we can all live with. Of course there are different economic and fiscal approaches and different understandings of what constitutes good budgetary practice. At the end of the day it will be about fairness, what each member state considers as a fair deal for them and a fair deal for the others around the table. I am grateful for the committee’s attention and I am happy to try to answer its questions and hear any suggestions.

Chairman: Information on Dominic Hannigan  Zoom on Dominic Hannigan  I thank the Minister of State. I call Senator Colm Burke.

Senator Colm Burke: Information on Colm Burke  Zoom on Colm Burke  I thank the Minister of State and for again making time available to debate the issue here. My question is on research and development and I raised the issue in the Seanad yesterday evening when the Tánaiste was present. I have expressed my concerns previously and I may have expressed them in the Minister of State’s presence too. I am concerned about how Ireland is losing out on investment in research and development, particularly to the United States, by people from outside of the European Union. We do not seem to have a coherent policy in Europe that encourages people from outside of the European Union to come into Europe and be part of the research and development process. I understand that over 70% of those people are going to the US.

One of the issues that we are dealing with at the moment is our speedy response to job creation which is welcome but we also need to examine long term issues. Last week the former US President, Mr. Bill Clinton, commented that Ireland is the only European Union country where the population is younger than the US. We have a huge task ahead of us because the birth rate here has increased in the past ten years. It presents major challenges for us, not only for the next five years but for the next 20 years. I welcome what has been said here about research and development but Europe needs to place a greater emphasis on it over the next 12 months and it must ensure that we can grow research and development at a faster pace.

Deputy Timmy Dooley: Information on Tim Dooley  Zoom on Tim Dooley  I welcome the Minister of State and her officials and I thank her for her presentation. I have a couple of comments to make and a few queries for her. Does she get the sense, in terms of her negotiations with member states, that she is dealing with the existing framework? Is it only a matter of tweaking a few percentage points up or down? Does she get a sense that there is a real interest in using the multi-annual framework as a method to stimulate activity in our flagging economy across Europe? On the one hand, measures are being taken to address the banking crisis, an agenda espoused by the French President, but on the other hand, there is a necessity to stimulate economic activity. Does she get a sense that economic activity should play a greater part in these negotiations and that we must realise that the economies across Europe have changed fundamentally since the last programme was put together? If so, perhaps she will talk a little about it.

Earlier the Minister of State mentioned revenue measures, particularly the financial transaction tax. Can she tell us how member states think that they will work? Please tell us about the member states that expect or believe that the tax will proceed under enhanced co-operation? I do not understand how it will work for them. Obviously it would have implications for those member states and would put them in an anti-competitive position. Perhaps the Minister would discuss that.

The Minister set out clearly how important the CAP is to the agricultural and agri-food sector and to the rural economy. I note she talked about the strong consumer-focused aspect of it. Often in discussions about Europe, the CAP is seen as an instrument simply to support the farming or rural communities. What was its sole purpose at the start is largely lost, the notion of protecting the source of our food. Also, it has advanced to a greater extent in recent years in terms of food traceability and food safety. As a result we have had to deal with policies relating to the lack of use of antibiotics and growth promoters and so forth. There is a very strong element in the CAP dealing with security of supply and the quality and safety of the food that is consumed in Europe. This is done at relatively affordable prices. That might be challenged in the current environment but all of this has a very strong consumer focus. However, nationally and throughout Europe there is a lack of understanding on the part of citizens about who really benefits from the Common Agricultural Policy, the consumer. That fact is often lost, so I am happy the Minister has identified it. It is a particularly important aspect of the negotiations but, sadly, the negotiations are viewed as simply negotiating on behalf of farming communities. Part of that is due to the fact that much of negotiation is represented by the various different organisations or advocacy groups for farming bodies. Sadly, some of the consumer oriented bodies do not take as proactive an approach to the CAP. Perhaps that is something the Minister could examine in her discussions with the broader civic society groups.

Deputy Pearse Doherty: Information on Pearse Doherty  Zoom on Pearse Doherty  Cuirim fáilte roimh an Aire Stáit. I have a number of ceisteanna about the comments and observations she made.

With regard to the Structural Funds, she mentioned that the State is seeking to change the reference period. It is an issue I raised in the finance committee. The reference period is before the economic downturn in Ireland and throughout Europe, and I understand that Ireland is looking for a one year extension of the period, which would not really encapsulate the effects of the crisis in Ireland. Will the Minister of State outline the rules? She mentioned 90% but must we be below 75% or 90% of the EU average? What is the reference period at this point and what are the reference periods the State is seeking? Will she also comment on the impact that using GDP instead of GNP is having on our position? Obviously, the GDP figures look better on paper but in reality Ireland’s economic activity is best reflected through GNP. Has the Minister considered the option of looking at a region? While the State might be still above the average EU GDP, certain regions within the State, particularly the Border, midland and western, BMW, region, could be under that. I have asked for these details in the finance committee but I understand this work has not been done. Perhaps the Minister of State could shed some light on it. It is crucial for areas that have been under-developed that we maximise the potential of this funding in the future.

In respect of the macro economic conditionality, the Commission and some of the wealthier states are seeking to be able to suspend Structural Funds payments to countries that do not impose macro economic conditions, that is, they are not implementing the austerity treaty targets. This is grossly unfair and will cause huge problems for projects on the ground, which could be suspended by the Commission mid-stream or even before they are begun, as a result of a state not being able to meet binding targets. What is the position of this State regarding what the Commission and some of the wealthier members are seeking in these conditions?

The PEACE programme has been hugely beneficial to this country, North and South. It has enhanced the Border region, in particular, and has led to a system where there is a greater understanding of all traditions. It has dealt with some of the legacies of the conflict. There is no clarity about the PEACE IV programme at present. What is the Minister of State’s understanding of the negotiations on PEACE IV? Does she believe it should remain or should it be within the ERDF? Does she believe there should be an extra fund beyond the commitments of the Irish and British Governments to ensure its uniqueness, given the impact such a programme has on a country such as ours which is a programme country and the difficulties with co-financing some of the measures under the PEACE programme?

Deputy Dooley referred to the significance of the CAP for our economy and particularly for rural Ireland. Obviously we support the position of the Government that we must maximise the potential of the CAP envelope. It will be a boost to local and rural economies, particularly for the farmers affected. However, last year the top 15 earners from the CAP were private companies, and there has been much debate about placing a cap on CAP payments for the larger beneficiaries. Does the Government support that idea? If so, what figure would it have in mind as a maximum? Many farmers are struggling to make ends meet from their income, but many are not. The idea that the top earners were private companies is difficult to swallow for many farmers, particularly in my county, who have experienced successive cutbacks and are finding things difficult, despite the rise in prices for farming produce in recent months.

Given the focus on pillar two, environmental development, does the Minister believe this could facilitate the agri-environment options scheme, AEOS, making a comeback through this funding? If so, has the Government a position on it? The Minister for Agriculture, Fisheries and Food, in a response to my parliamentary question yesterday, said he is still considering bringing forward a replacement for the AEOS. It is a huge issue for farmers throughout the State. It is a massive issue for farmers in my county. They have experienced a drop in their income as a result of it. They depend on this funding. In the focus on pillar two is there a way to ensure we have a fit-for-purpose AEOS in the future?

Finally, is Ireland seeking exemptions from some of the programmes to which it contributes, such as nuclear technology or EU border security forces? Ireland contributes to many programmes. I recall the Minister saying, in response to a question from me, that our contribution to the European space programme is €15 million each year. Are there any programmes to which we currently contribute, such as nuclear technology, from which we are seeking an exemption?

The Minister mentioned the financial transaction tax in her presentation and the proposed model of funding for the Commission in the future. There are three options. One is maintaining the current system through a proportion of the country’s VAT take. Another is funding through a financial transaction tax, which will not happen across the European Union and is unlikely to happen even across the eurozone states. There are also other options. What is the Government’s preferred option? What does the Minister envisage as the likely outcome and what are the other options being considered? Is the Government planning to object to countries receiving rebates? If not, what is its position in regard to that question?

Deputy Bernard J. Durkan: Information on Bernard Durkan  Zoom on Bernard Durkan  Like others, I welcome the Minister of State and wish her well in the task that lies ahead. This is a most important time for European Union evolution for two reasons. The EU is responding to the challenges of the economic downturn globally and on the Continent of Europe. That has been a very considerable challenge. There has been some justifiable criticism about European Union institutions to the effect that they did not react quickly enough. There were various reasons for that. I am quite happy at the progress to date and that, at last, there appears to be a recognition that we move forward together. That is the important part of the theme. The MFF is most interesting in the sense that it gives us and, I hasten to add, our European Union colleagues time to reflect on the benefits of moving in step together, of moving intermittently or of having contradictory views on what the right options are. The European Union is finally beginning to settle down.

As the Minister of State identified in her opening remarks, the challenges are not over yet. The headings under which this country can benefit are also the headings under which the rest of the European Union can benefit. We need to keep emphasising the importance of being part of the European Union. Each member state is equally entitled to benefit from whatever happens in the EU. In the past, there has been a tendency for member states to go off on the tangent which best suits their interest. That may seem like a good idea at the time but it is not good in the long run. What is required in the long run is for the Europe Union to think as a single entity. By moving in that direction, it will achieve economies of scale and far more than it has in the past.

One of the problems from which the Europe Union has suffered over the past number of years is that, sadly, it appears to market speculators and others that there is no unity of purpose. As long as that element is missing, there will be doubt and suspicion and a lack of stability no matter what we do.

In regard to the headings the Minister of State laid out, smart and inclusive growth affects the entire European Union. The population of the European Union is 450 million, the third or fourth largest group on the globe. It is hugely important. The European Union’s energy policy is progressive and useful but I cannot understand how the purchasing power of 450 million people has never been fully realised or recognised on the global markets.

In regard to competitiveness for growth and jobs, I compliment the Minister of State and the European Union institutions on the progress in that area. It is of huge importance for every member state of the European Union as well as potential member states. What we need to emphasise most is the competitiveness part of that. If any part of the European Union becomes less competitive and if jobs go to locations outside the Union, we must ask ourselves if we want those jobs, whether menial or high-tech. Do we want the jobs to go to locations outside the EU or to locations within it in a way which will benefit all of the people throughout the Union? That challenge must be met.

The Minister of State spoke at length about economic, social and territorial cohesion. That is very important and emphasises the point we keep raising that one country should not try to progress at the expense of another or that one member state should not speak, act or, in any way, take any action which would militate against the interests of other members states. That means that everybody must be responsible. We cannot have a situation where a member state, including our own country, decides, or member states decide, to opt out of what is required to be done at a given time and to expect others to carry that responsibility. If we do that, we sow the seeds of suspicion and for a lack of stability in the future. That is something we cannot afford anymore. We need to stabilise the Union and give a clear impression to people throughout the world that we are serious about our business.

A financial transaction tax would be a great idea if it could be applied globally, otherwise it is of no benefit. Our own financial services would suffer dramatically, as would those in other small countries in the European Union. We could not afford something which was not applied globally. Such a tax would be a good idea but it is of no benefit if it is applied to one area. That applies to all European Union legislation. Every country must be conscious of its neighbour and of the impact of legislation it embraces on its neighbour, whether large or small.

Senator James Heffernan: Information on James Heffernan  Zoom on James Heffernan  I welcome the Minister of State and thank her for what was a comprehensive and informative report. I would like to make a brief comment on our position in regard to cohesion spending and regional policy. In the past, this country has benefited greatly from this fund. We have a fantastic road network which, I imagine, is the envy of many of the accession countries. However, I express a note of concern that we will see our share of this funding decline substantially. Will the Minister of State outline the steps we are taking to address this issue? She is proposing a change in the reference period. What exactly will that change be, or to where is she looking to push it out?

I welcome the fact we will place greater focus on the funds being used for growth and employment, in particular on youth employment. The provision of jobs is still a major problem. Where does the Minister of State see that money going to? In what type of industries would she see us investing? Will it support regions which have been hardest hit, like my own region of the mid-west? We are suffering a little and we have not seen any substantial investment in the past number of years. I hope the Minister of State will support us in trying to address that issue.

Deputy Paschal Donohoe: Information on Paschal Donohoe  Zoom on Paschal Donohoe  I welcome the Minister of State. It is like she never leaves because she is here so often. I have a question on her contribution and a couple of questions on where Ireland and the European Union stands. One of my questions follows up on a point Deputy Durkan made about the financial transaction tax. How does the Minister of State see that evolving? It has always appeared to me that the most likely way anyone will support it is if everyone is in it. The concerns we have regarding our services in Dublin are the same as those people in Paris and Berlin have about their services. If those countries find themselves in a position where their banks or industries could be competitively disadvantaged, they will be quick to articulate the concerns we are speaking about at present.

My question, now that it has become crystal clear that not everybody will be in it, is how it will evolve. Does the Minister of State see something happening at the end of this period?

More broadly in terms of where Europe stands, we saw the report of the so-called four wise men on the way the European Union could evolve. The Minister of State commented on it yesterday. The thinking appears to be about further evolution to a fiscal union, with a banking union being an intermediate step towards that end. It is vital that we think not only in terms of the solution to future difficulties but also the solution to current difficulties. As crucial as the economic crisis is, we must relegitimise this in the eyes of the public. If the solution that is developed further widens the gap between the people and those they elect, I question whether it will be politically sustainable in the long-run let alone economically sustainable. Is that strand of thinking getting enough focus at present?

I have raised this issue previously with the Minister of State who has responded to it. I am quite glad that the rhetoric of a member state being asked to leave the eurozone has reduced. It always appears to be a truly terrifying example of people who should know better, rushing like lemmings off the side of a cliff. It is one thing facing into this issue when everybody knows how to do it and assuming everybody wants to do it, but when neither condition is in place, to describe it as lemming-like would be a compliment. Is the dimming down of the rhetoric being matched by the discussion taking place in the Council and in the conference? Is that a vista that we can gladly wave goodbye to?

Deputy Colm Keaveney: Information on Colm Keaveney  Zoom on Colm Keaveney  I welcome the Minister of State, Deputy Lucinda Creighton. I thank her for her comprehensive and energetic report. It would appear that things are moving apace in Europe on the fiscal and budgetary integration of the Community. It is important in light of the previous contribution, that we have an honest debate on how far we want to go in an economic community that is rapidly losing its social infrastructure in the context of trying to protect against the type of rhetoric that was described by others and particularly the isolation of certain elements of the community in context of the vulnerable economic situation they are in. We need to debate the issue internally in order to decide where we want to be in the discussion and what we can contribute.

The most important contribution we can make in the context of the eurozone crisis is to address our domestic financial situation. In that respect, would the Minister of State be able to add to the technical discussions that are taking place on the ESF structural funding that is unused for various reasons? My colleague, the Senator from Limerick, has raised the perception of unfairness in the distribution of Structural Funds. The lack of a triple A rated bank opens up technical problems with respect to the European Investment Bank. The EIB is not enabled to provide much needed resources for capital intensive programmes. My concern is that in the absence of our capacity to have a triple A rated bank or a sovereign guarantee to attract private investment to the domestic economy, work needs to take place in regard to the Structural Funds that are unused to underpin the guarantees that are required to engender confidence in our ability to pay back what we owe and thus attract investment. It is critical to investment that we honour our debt. That is a great challenge for the Government. Can the Minister of State offer any report in respect of progress that could be or is being made on the technical discussions surrounding the unused ESF funding from across the community and how it could be used to underpin the sovereign guarantee in the absence of a triple A rated banking system?

That is important and it has resonance for many of the Deputies and Senators who are present, in particular for some of the capital programmes that are waiting to get the go ahead. I know of many public private partnerships where significant projects cannot go ahead because of that challenge. Can the Minister of State advise on whether we are making progress in that respect?

Deputy Lucinda Creighton: Information on Lucinda Creighton  Zoom on Lucinda Creighton  I thank members for their broad range of questions and comments. I appreciate all of the comments. I will begin with Senator Colm Burke’s reference to research and development, a point he raised previously. I agree with his analysis and it is fair to say that in terms of the European institutions trying to address and step up the issue of research and development, the Horizon 2020 strategy is the basis for it. The Commission is due to produce new proposals in the next few weeks about attracting some of the top talent in the field of research and development to Europe, but it must be on the hook of Horizon 2020. I am glad to see there is a commitment to allocating significant funding to it. I met the Commissioner for Research, Innovation and Science, Máire Geoghegan-Quinn, at an event in Belfast in the past week or two and I am sure she would like to see even greater funding allocated under the proposed MFF, but there are so many competing interests. On the one hand Ireland would love to see additional funding on top of the proposed €80 billion for research and development and innovation, but we must be realistic and acknowledge that would potentially impact on other funding allocations such as the Common Agricultural Policy, which would be against our national interest. We must find a balance, but I agree we must be ambitious. The potential in terms of private investment in research and development is enormous and that is where there is a need for a joined-up, EU-wide approach encompassing both public spending at a European level, national level and private spending. That is what the Commissioner is driving. I am very impressed by her efforts thus far. She is making a real impact both in the Commission and in her general sphere.

Deputy Dooley asked a number of general questions, including whether there is a sense that a process or modality used in previous rounds is being tweaked or whether there is some new thinking. We have a little of both. If one deconstructs the way in which the budget has been formulated in recent decades, countries such as Ireland risk being disadvantaged because the final outcome is not yet known. We are reasonably satisfied with the Commission’s proposals and certainly satisfied with the opening position on the Common Agricultural Policy. We need to think twice before demanding an entirely new way of doing things. There is a conscious effort to modernise the budget in several respects but we are somewhat critical of the Commission’s proposal in respect of simplification. There is room for less bureaucracy and further simplification. We hear much about simplification but we need to see it in action. While we are moving in the right direction, much work remains to be done.

It is correct to focus the multi-annual financial framework on the Europe 2020 agenda, which is the growth strategy for Europe for the coming years. The emphasis on research and development and innovation is also an important modernising factor. Even the Common Agricultural Policy, which is viewed as archaic by certain countries that are less supportive of the CAP than Ireland, is focused on greening and modernising agriculture and availing of new opportunities and technologies. Everything needs to be modernised.

The way in which we approach cohesion expenditure is being modernised in the budget and must be tied into national reform programmes and the Europe 2020 agenda. On the whole, the budget is balanced and modernising, although there is no major shift from the past funding model and the main headline expenditure policies continue to be Cohesion Funds and the Common Agricultural Policy.

Unfortunately, the budgetary process always commences with highly divergent views from the member states. Countries from the east are highly supportive of expenditure on cohesion programmes and want the budget to increase. Ireland is strongly supportive of the Common Agricultural Policy and cohesion policy. Other countries - by and large the net contributors - remind us of all the sacrifices being made in the individual member states and argue for restraint and reductions in the budget. Member states are, therefore, starting from different positions and must move towards a middle course through a process of negotiation.

We disagree with those who believe an ambitious budget is not necessary. We need growth and enhanced employment opportunities across the European Union. It is ironic that some of the countries that have signed up to the zero growth agenda, in other words, an agenda of reducing the EU budget, are also those which speak of a need for stimulus. There is, therefore, a contradiction in their position in that they seek an increase of €120 billion in European Union expenditure to stimulate growth and jobs, while also seeking to reduce the multi-annual financial framework. The framework is the budget of the European Union and is designed to achieve economic growth, deliver benefits to member states and demonstrate solidarity. I hope we will be able to blow these contradictions out of the water as the process advances.

A number of speakers asked about a financial transaction tax, FTT. I concur with Deputy Bernard Durkan’s position on the matter. The more I have followed the debate on an FTT in the past year, the more convinced I have become that such a tax is the wrong solution. At a time of economic stagnation, if not decline, in Europe, it would be madness to disadvantage Europe vis-à-vis financial services in the rest of the world. Approximately 30,000 people are dependent on financial services for employment in Dublin. It does not make sense to say to investors, job creators and all forms of financial service providers: “No, thank you, why not take your business to Singapore or New York?” As the German Finance Minister, Mr. Wolfgang Schaeuble, stated some months ago, the financial transaction tax is dead as an own resource proposal. It has been proven that it is dead as a potential source of income at the level of 27 member states. A number of countries now wish to move forward with it and they have explicitly acknowledged that agreement will not be obtained among the 27 member states or, for that matter, the 17 eurozone member states. I would not advocate taking the latter approach, which is not feasible in any case. A number of countries have opted to proceed by means of enhanced co-operation.

It will take some time and a great deal of thought and effort to develop a financial transaction tax that is workable across the borders of nine EU member states. The Commission’s own proposals, as it acknowledged, were seriously flawed. Ireland cannot block countries from proceeding with such an approach and it would not be in the spirit of European co-operation to do so. At last week’s ECOFIN meeting, the Minister for Finance, Deputy Michael Noonan, indicated Ireland would neither participate in nor stand in the way of a financial transaction tax. We must now allow the process to take its course. Those countries which wish to proceed with an FTT can drive it forward in co-operation and consultation with the Commission.

The benefits of the Common Agricultural Policy are clear. For the past 14 or 15 months, the Minister for Agriculture, Food and the Marine, Deputy Simon Coveney, has taken a strong position on CAP. This is not only a matter of protecting the incomes of farmers in Ireland or elsewhere, although that is also a concern and it would be an irresponsible public representative who did not care about incomes, livelihoods and the need to sustain rural communities. The key argument in favour of maintaining CAP funding is that the policy assures Europe of quality food at a time of increasing food shortages in the world. Food safety and quality are increasingly a concern for member states. Europe has the best food production and highest standards in the world. This is a disadvantage as it sometimes creates difficulties in bilateral agreements and with the World Trade Organisation. Nevertheless, CAP is worth preserving because we have the best quality food in the world and are able to feed our people and others elsewhere in the world better than anyone else. We must continue with production and convince other member states which do not share our view on the value of maintaining the current quality and level of food production. As the largest exporter of high quality beef in the world, Ireland has a role to play in this regard. We must maintain our position as market leaders across the agrifood sector and demonstrate that protecting the Common Agricultural Policy is not only a matter of self-interest but one of protecting the common interest. I could not agree more with members who have made this point.

Deputy Doherty asked about the reference period for Cohesion Funds, an issue to which Senator Heffernan also alluded. It is not true that Ireland has sought an extension of only one year. We began with a proposal from the Commission which examined the 2007-09 period. In the negotiating box, that was extended by one year following representations by Ireland and others. That is not set in stone, it is simple in the shake up. Our position is to seek to have it extended to the latest possible date, that is, as close as possible to the beginning of the multi-annual financial framework. That would be the ideal outcome in terms of the reference period.

It might be useful to share a paper which was circulated by Ireland for the friends of the Presidency group, the official level group which deals with the multi-annual financial framework, MFF, negotiations, and the GDP and GNI disparity. Our GDP per capita is third highest in the EU in GNI terms we rank twelfth highest and we want that to be reflected in the outcome. We might circulate that paper to members because it is useful and goes through the issues. It will not take too long as it is only a four page document. It sets out more clearly where we are coming from. The other elements we are pushing to have taken into consideration in the calculations are levels of youth unemployment, which in Ireland is one of the highest in Europe, and regional declines in GDP. All of these issues are in the mix in terms of the negotiations and we are pursuing them. Members can rest assured we are not disadvantaging ourselves in our negotiating position, we are seeking the maximum possible flexibility. The reality is that all these measures are relative. While Irish GDP has declined, so too has GDP across the rest of the European Union. Relatively speaking we still are one of the wealthiest states in the EU. That puts us in a difficult position when it comes to the status of, say, the BMW region. We are working hard to get some flexibility but it is difficult particularly when many countries, especially from the east, who are much poorer than Ireland. Having benefited from cohesion in recent decades, many countries which are poorer than Ireland also expect to benefit from it. That is the nature of solidarity in the EU but we are working on it.

The Deputy’s colleague, Senator Kathryn O’Reilly, also asked about macro economic conditionality last week when I appeared before the committee in advance of General Affairs Council. Suffice it to say I share the Deputy’sreservations. That payments should be suspended to countries at a time when they are struggling to grow their economies is contradictory. I have expressed these concerns on different occasions in my interventions at the General Affairs Council. I understand the logic behind it. There is merit in trying to ensure that countries meet their targets and obligations but there is range of regulations and measures in place that oblige countries to meet targets. Whether the fiscal treaty or the six pack, the architecture is in place and I have significant concerns about the MFF being used in that way. We must see how that negotiation progresses. Needless to say, a number of countries have expressed concerns, as we have done.

In regard to PEACE funding, the Minister for Public Expenditure and Reform, Deputy Brendan Howlin, is spearheading the issue and has made approaches to the British Government on our behalf. We now have a joint proposal coming from Ireland and the UK to the Commission in respect of PEACE IV funding. While I am optimistic about that, some work remains to be done on it. I share the Deputy’s view that PEACE funding in the Border region has been vitally important to the communities there and has helped to shape social solidarity and contributed an enormous amount through voluntary and community groups. It is a hugely successful story and we want to continue it.

In regard to the cap on the Common Agricultural Policy, we are broadly in supportive of having an upper limit. There are plenty of examples of bizarre recipients of CAP payments. I do not wish to name them but it will not affect Ireland because no farms benefit on that scale. We support the proposal for an upper limit on CAP payments. That is appropriate because some payments can be considered to be quite bizarre. On the agri-environment options scheme, there is some flexibility under the proposed MFF. There is no reason a similar scheme, if not AEOS, cannot be introduced under the CAP. However, we have to wait and see the budget allocation for the Common Agricultural Policy and whether, under the funding allocated, such a scheme would be possible. In theory it is possible but it depends on the relative budget amounts and, obviously, we are pushing for the maximum. If we are successful it will be possible to introduce schemes of a similar nature in the course of the next few years.

Contributions to programmes such as nuclear technology are not differentiated in the budget, therefore it goes into the central budget and every country contributes according to the gross national income index. They are part of programmes that are part of the EU policy agenda and are paid for centrally. There is no possibility of an exemption and we are not seeking an exemption.

In regard to the European Space Agency, we are making an annual contribution of about €15 million per year. That is not part of the EU budget but is a separate agency. Irish companies and academics receive grants from that agency which benefits all of the European Union. While a space agency may appear to be out there, it contributes much to research and development and various research that takes place in Ireland and in all the member states. We are certainly not seeking an exemption from that.

We are not in favour of the own resources position. We support the GNI index as it is one that suits us. It is the fairest and takes into account relative wealth and different considerations in terms of demography in member states. It is a system that works and we are supportive of it. While there is a clamouring for own resources from some member states and especially from the European Parliament, it is not that widely held. There are different options on the table but the FTT is the one that was being pushed most trenchantly by some member states and, particularly, by the Parliament. That is now off the agenda. Whether others will raise their head and take off in terms of expectations from member states remains to be seen but I do not expect any dramatic move towards own resources during the MFF. I may be proved wrong but I do not believe there will be.

On the issue of rebates, whether we radically change the budget, from a pragmatic point of view we are looking at not dramatically changing the way in which we agree budgets. On that basis, if we are to retain the GNI contributions, Common Agricultural Policy funding, cohesion funding and so on, rebates, unfortunately, are a part of life. They are a reality and certain member states will insist on them. They are the net contributor countries. As always, I expect a row to the end, mainly between the countries which receive the rebates. I do think there is any likelihood of rebates being abolished or not being a part of the MFF negotiation. They are a fact of life and I do not think that is going to change.

I agree with Deputy Durkan’s point on FTT, which I already addressed. I am increasingly of that opinion and I thank him for his comments on the growth and jobs agenda. Senator Heffernan asked about the cohesion spend and the proposed change to the reference period. I think I have answered that already. We are not just looking for an extension by one year, but for the closest possible date to the MFF coming into effect. That is supposed to be the beginning of 2014. While wishing our Cypriot colleagues the very best in pursuing the negotiations in the second half of 2012, we certainly hope that the deadline will be realised.

I already alluded to the BMW region and the difficulties in terms of the calculations. We are working very hard but we have to be realistic as well. It goes back to the point of relative wealth. While we have seen a decline, so has almost every other country and that makes it quite difficult to get any significant changes in the negotiations.

Deputy Donohoe asked how the FTT will evolve. I do not think it will be a very rapid process and will take some time to work out. We are talking about 19 countries not being initially part of the FTT. Others may opt to join it if it turns out to be a roaring success. Obviously the UK has a huge financial services sector, but it is largely peripheral countries like Cyprus and Malta which have a very strong position on this, as does Ireland and a few other countries that are really dependent on the financial services sector for employment and contribution to national GDP. We simply cannot afford to disadvantage ourselves versus the rest of the world. We will have to see how it works out, but I would not be of the view that we will be joining it any time soon.

The report of the four wise men on EMU is not strictly related to the MFF and I fear that we could be here all day talking about this. My initial response is that I am very supportive of the thrust of this paper. We face a juncture on whether we want to save the euro or not. If we wish to save it, steps must be taken. Banking union is one of them. Eurobonds and the mutualisation of debt are absolutely essential. I am happy with the paper as it has a parallel process which moves in the direction of debt mutualisation and also requires countries to share more information with each other, co-ordinate fiscal policy, economic policy and so on. I can live with that process, but we must have the assurance that the end game ensures some form of debt mutualisation.

In my opinion the currency crisis is now entirely being driven by perception of unsustainability of debt in certain member states. Once the markets finish with one member state, they move on to the next. It is like a domino effect. The completely incongruous aspect of all of this is the fact that debt levels in Europe are not that high, relatively speaking, compared with other parts of the world. What is driving the markets is a conviction that we will not work together to find a common solution. When we dispel that conviction in the markets, we will take the pressure off our currency, so we have to move in that direction. I would like to see it happen quicker than outlined in the paper submitted by the presidents of the four institutions. Interim measures need to happen to make a clear statement, especially in respect of changing the role of the European Stability Mechanism so that it can directly bail out European banks without routing it through the sovereign. The more we load debt onto the sovereign in country after country in the EU, the more we are fuelling this crisis, the longer it is going to go on, the more dangerous and precarious it gets and the more pressure our currency comes under. Our economic progress can potentially be severely undermined by that. Growth across the European Union cannot really fully be restored until we solve the currency crisis, so it all comes back to this one thing. I am supportive of this paper, but I would like to see it move more quickly and I agree with the Deputy that we need to see more immediate measures to ease the pressure that we are experiencing from the markets. Other countries are experiencing this in more acute terms because they are still borrowing from the markets at exceptional rates.

The Deputy’s point about the democratic legitimacy and the gap between the citizens and the institutions is very good and we are all conscious of it. I am pleased to say that it is well reflected in this paper. We have four elements in the paper and the fourth one is about democratic legitimacy and finding ways in which the citizens of Europe can be part of the process. There is also a reference to national parliaments and to the European Parliament, which is very important. We are going to have to look at new ways of bringing the institutions closer to the people. There are proposals floating around------

Chairman: Information on Dominic Hannigan  Zoom on Dominic Hannigan  You asked me to let you know when your response had reached 30 minutes. It is now 30 minutes.

Deputy Lucinda Creighton: Information on Lucinda Creighton  Zoom on Lucinda Creighton  I am nearly at the end so I will finish that point. We need to come up with some innovative ideas. I would like to see a convention, which I think would bring together actors from the national level, from the European Parliament and from government level and allow them explore meaningful ways in which we can revitalise the European institutions and give them much more democratic legitimacy. The President of the Council is essentially appointed by the Heads of State and Government, while the President of the Commission is appointed by agreement of the Heads of State and Government and approved by the Parliament, but essentially appointed. The president of the euro group is appointed, while the President of the European Parliament is elected by Members of the European Parliament. They are very remote from the people. That does not take away from their genuine drive to find solutions and I am not questioning them in any way, but it is striking that they are all so many steps removed from the citizens and we really have to address that. I favour a directly elected President of the Commission, who would also act as President of the Council. That would be a very significant step in the right direction, but we need to do much more than that.

I agree with the point made on the rhetoric about a Greek exit. We have had this conversation previously and I could not agree more. Deputy Keaveney asked how far we want to go in EMU. I agree that we need to have a discussion about it. A convention would be the appropriate forum because it allows representatives of national governments and parliaments to come together. Even though the last process did not lead to a European constitution as was originally envisaged, it was an excellent process and we need to see more of that. It is set out in the Lisbon treaty so it needs to happen if we are going down this road.

The domestic financial situation is obviously in difficult straits. The idea of using structural funds does not have any bearing on this country at all, because we do not have unallocated or unspent structural funds. Absorption rates in some eastern European countries are really dire and they are really struggling to absorb funds that are allocated. We should be trying to assist them. There needs to be more solidarity from countries like Ireland. We have one of the best records in Europe in the absorption of Structural Funds, and that is a good thing. We should be proud of that fact, but we should also be assisting other countries in trying to do the same thing. The more buoyant other economies are, the better for us. We have products and services to sell. We should all see the whole thing as a common endeavour and we should be maximising the potential of the Single Market. We do not have unused Structural Funds.

I had dinner with the President of the European Investment Bank, Mr. Werner Hoyer, on Monday who was previously my counterpart, the German Minister for Foreign Affairs. He is an excellent politician who is very interested in assisting Ireland. Mr. Hoyer is to visit Ireland next week - I will unfortunately be in the Balkans - to meet with the Minister for Finance, Deputy Michael Noonan, and Minister for Public Expenditure and Reform, Deputy Brendan Howlin.

A difficulty arises in terms of the need for the European Investment Bank to maintain its triple A status. It cannot leverage up the €180 billion, about which we spoke, unless it has its triple A status as a fail safe. A contradiction arises in terms of the EIB being asked to invest its leveraged money in countries that do not have triple A status because its triple A status could be at risk, which could result in its becoming ineffective. It is a balancing act.

We must find ways of identifying good projects. The European Investment Bank does not only lend to banks and governments. For example, Bord Gáis has benefited from EIB funding as have many other semi-State and private entities. However, it is important the correct projects are identified, on which there is currently much work going on. We will have a clearer picture following Mr. Hoyer’s visit here next week to speak about specific options and opportunities. The National Treasury Management Agency is another option in terms of guaranteeing some of the projects which the State might like to pursue. There are ways around this but we must be clever and give ourselves the best possible opportunity to maximise potential investment from the EIB.

Chairman: Information on Dominic Hannigan  Zoom on Dominic Hannigan  I thank the Minister of State for attending our meeting today and for briefing us on the ongoing negotiations in regard to the multi-annual financial framework, in respect of which we wish her every success.

The joint committee went into private session at 12.30 p.m. and adjourned at 12.35 p.m. until 2 p.m. on Tuesday, 3 July 2012.


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