Carol Nolan Questions Ireland's Exposure to EU SURE Guarantees
Carol Nolan spoke on 29 July 2020 about a technical bill to enable the State to participate in EU instruments responding to COVID-19, focusing on the SURE scheme and voluntary guarantees. She warned that Ireland could face future financial exposure from the SURE guarantee given high national debt and asked whether the VAT rate for tourism and hairdressing would be sought to be lowered.
Bill purpose and SURE scheme
The bill was described as enabling access to funding by allowing the State to participate in European instruments to address the economic impacts of COVID-19, notably the SURE scheme. Nolan cited Financial Times reporting that at least 18 member states had sought loans totalling £94.5 billion from SURE and noted the EU is becoming one of Europe's largest bond issuers, alongside about £50 billion of outstanding bonds used to fund loans to Ireland during the debt crisis.
Questions on voluntary guarantee exposure
Nolan asked for clarity on Ireland's relationship to the voluntary guarantee element of SURE and whether the State will be financially exposed as new Europe-wide debt is created. She referenced a statement by the Minister of State that no more than 10% of loans should fall due in any one year and pressed for detail on when repayment obligations will begin and when the "no money up front" condition would end.
Debt-to-GDP metric and national vulnerability
Drawing on Oireachtas Parliamentary Budget Office figures, Nolan noted Ireland's official debt-to-GDP ratio at 59% — below the EU average and the Stability and Growth Pact threshold — but warned that a more appropriate measure for Ireland shows a 100.2% ratio. She said this higher measure underpins her concern that SURE's voluntary guarantees could create difficult future exposures for the State.
External analysis on SURE's limits and ECB context
Nolan referenced the Brujal Institute's assessment that SURE may be too modest and "solves the wrong problem," arguing access to finance is not currently the main issue for euro-area countries following significant European Central Bank intervention in March and May. She drew attention to the view that if access to finance became a major problem for some countries, SURE would be insufficient.
VAT rate concerns for tourism and hairdressing
Concluding, Nolan raised the 13.5% VAT rate (previously 9%) and asked whether efforts will be made to lower it to help struggling tourism businesses and hairdressers trying to rebuild after major disruption. She acknowledged the government may not have the power to reduce the rate but asked the minister if he would seek to pursue a reduction.
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Thanks. Minister, I am happy to speak on this important but technical bill here today. As we know, the purpose of the bill is in part to provide access to funding sources by enabling the state to participate in European instruments designed to deal with economic impacts of COVID-19. One of the main instruments, of course, is the European Scheme for Temporary Support to mitigate unemployment risks in an emergency, our SURE. And just with respect to the SURE scheme, Minister, as I understand it from reporting in the Financial Times, at least 18 member states have submitted expressions of interests for loans totalling £94.5 billion from the SURE programme. This selling of almost £100 billion of new debt will make the EU the largest issuer of bonds in Europe, aside from the National Governments. This, in addition to the £50 billion of bonds that are outstanding, most of which were used to fund loans to Ireland during the debt crisis. From what I can see, these bonds will then be backed by a system of voluntary guarantees from the EU's National Governments worth £25 billion. Can you provide some clarity about what exactly is the nature of Ireland's relationship to the voluntary guarantee aspect of the SURE scheme? I think this is important because we need to know if Ireland is going to be financially exposed, given the high levels of Europe-wide debt that are about to be created. The Minister of State Deputy Fleming did accept during a debate on this bill in the Shannad recently that one of the most important and most prudent conditions on the instrument includes the requirement that no more than 10% of all loans will fall due for payment in any one year. He also mentioned that one of the benefits of this guarantee mechanism is that it ensures Member States do not have to pay any money up front. But again, what I would like here is more detail on when the money will have to be repaid and when does the period of not up front run out. I also want to acknowledge that there is a sense among some EU observers that while the SURE scheme does go some way toward creating much needed lending capacity, it is far too modest to have a significant impact on the EU's fiscal response to the COVID-19 crisis. According to the Brujal Institute, for example, the main limitation of SURE is that it solves the wrong problem. They also note that access to finance is not an issue for Euro-area countries at this stage, thanks in particular to the massive intervention by the European Central Bank since May and March, and that if access to finance were to become a real problem for some countries, SURE would then become too small. I raise this particular aspect of the problem, Minister, because I think our capacity to access finance here in Ireland will certainly become more of an issue in the months and indeed the years that lie ahead. What I am referring to here is, of course, the rather sizeable elephant in the room, namely the scale of our national debt. We know from the Oireachtas Parliamentary Budget Office that Ireland's debt-to-GDP ratio is currently 59 per cent, and that this is below the EU average and the 60 per cent threshold set by the Stability and Growth Pact. However, using a more appropriate measure of economic activity for Ireland, the debt-to-GDP ratio is 100.2 per cent, significantly higher than the EU average. I do have concerns, Minister, that because we are now part of the voluntary guarantee aspect of the SURE scheme, that any future exposure, as I said before, might make life very difficult for us. Minister, I would just like to conclude by referring to the VAT rate of 13.5 per cent, which was increased from the 9 per cent. I just want to ask, will this be lowered? Because in our tourism sector, businesses are really struggling, and I know that many hairdressing businesses also are trying to get back on their feet, trying to rebuild their business after a significant period of unprecedented disruption. So, I would just ask you, will that be sought? I understand the government hasn't the power to reduce the VAT rate, but I'm just wondering, will you seek to make efforts to lower that VAT rate? I'd be grateful if you could answer those questions.
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