Noonan predicts EU will turn to eurobonds

A EUROBOND will eventually be introduced and will spread the debt burden in the euro zone between the 17 countries involved, Minister for Finance Michael Noonan has said.

He told the Oireachtas Committee on Finance, Public Expenditure and Reform that the trend in Europe was towards an increasingly cohesive fiscal policy.

The euro had been created because of concerns at the time of German unification that Germany would become the dominant power in central Europe and break with the Atlantic alliance, he said.

The main drivers of the process had been political. An architecture to protect the currency had not been created and was now being retrospectively fitted, he said.

The primary policy objective for Ireland was that the euro should emerge from the crisis it was now in and that Ireland would remain part of the euro.

Arguments about how to develop the currency were ongoing and mistakes were being made, he said.

The brinkmanship during the summer between the Democrats and the Republicans in the US had not helped matters.

“August was a deadly bloody month,” the Minister said.

He decided the best role for Ireland in the circumstances was to keep its head down.

Mr Noonan was not pessimistic about the future of Europe, though he said its future was dependent on the quality of its political leadership.

The purchase of bonds by the ECB in the secondary market was a “quantitive easing” mechanism and it would be interesting to see how it developed, he said.

Eurobonds or cross guarantees between euro member states were going to come and then Europe would be like the US, he said. The debt burden would become lighter for some states. Overall the debts of the euro zone were only one-third of those of the US, but the decision-making process in the US was more straightforward.

Fine Gael TD Peter Mathews gave his views on the banking situation and said he was urging the Minister to seek a €75 billion writedown of bank debt.

Mr Noonan said it would be a great solution if anyone would agree to it. However, when he makes a suggestion like that in Europe, “they think I’m deranged”. He said his party colleague’s analysis was excellent but his solution was a “kindergarten solution”.

Labour TD Arthur Spring said it would not be right if people who had taken out mortgages at the height of the property boom were still making payments in 25 years’ time when the banks’ difficulties had been long overcome.

Mr Noonan agreed. He said the problem was concentrated among people now in their 30s and it would not be fair if a particular generation was penalised and told they would never have discretionary spending or fulfilled lives, that they would be told they were an “unfortunate cohort”.

He said the problem would have to be resolved and the Government would continue to target it. The position of people who had taken out mortgages from 2004 to 2008 would be looked at in the next budget.

Independent Senator Seán Barrett suggested a pause in the capital expenditure programme so that improved cost-benefit analyses could be carried out. He also said he had “grave doubts” about the value of research and development expenditure, given maths standards at Leaving Cert level.

A number of TDs mentioned the fact that the former chief executive of Anglo Irish Bank, David Drumm, was able to live legally in the US. When Fianna Fáil Senator Thomas Byrne asked if the Government had been in contact with the US authorities on the matter, Mr Noonan said he had no role in the matter. “Can’t you do it yourself?” he asked.