In a crisis there is an instinct to adopt a plan and demand unswerving commitment to it. Often, the reaction is to brand those who question or criticise the plan as heretics, unpatriotic or populist. Perhaps the instinct is understandable. However, if the new EU initiatives are to succeed, there must be robust scrutiny of the plan to ensure that it works.

The Eurozone is in deep crisis because of design flaws when it was first established. These design flaws were not carefully watched after it was put in place. It has now developed into a full-blown crisis.

We need to understand what went wrong before we set out a solution. The Eurozone when it was established:

• Embraced a range of economies that could be said to be convergent;
• Lacked the tools necessary to promote that convergence;
• Lacked the stabilisation tools needed to deal with a crisis that affects some member states more seriously than others.

These were significant design flaws, but the biggest missing element was the lack of a clear understanding among member states of what was required of them to make their membership of the new Eurozone a success.

We need look no further than Ireland to see how our economic leadership entirely forgot what it took to succeed in a small open economy. The Government, the bankers, the regulators and many other powerful interests simply ignored the gathering storm clouds:

• Gross spending by Government grew at 12% per annum after the Eurozone was formed, twice as fast as beforehand and 50% faster than the growth in GNP;
• Export growth collapsed to less than one quarter of the rate that had applied before we joined the Eurozone, and we lost market share consistently for six years in a row;
• Unit wage costs grew at five times the rate before we joined the Eurozone, significantly at a time when Germany cut its growth in unit wage costs to zero. In just six years Ireland lost a 25% competitive edge compared to Germany;
• House prices doubled, rising much faster than before and the exposure to foreign sources of funding of our banks increased sixfold.

Those who criticised these dangerous trends were treated with contempt. Ireland, of course, was not alone and several other countries used the arrival of cheap Eurozone money to develop unsustainable policies. However, it must also be recognised that there hasn’t been a collective understanding at EU level of what it required to make the Eurozone work either:

• The Stability and Growth Pact simply was unenforceable;
• The Growth Strategy articulated in Lisbon was not carried through;
• Member states adopted a go-alone strategy (just as evident amongst the strong, as amongst the weak);
• The ECB adopted a narrow focus on consumer prices and ignored what was happening to the asset bubble developing in some member states.

Faced with this crisis, the European governments cannot be faulted on their willingness to be innovative. But we must be willing to question to what extent the EU has engineered a workable solution in its range of interventions – bilateral aid to Greece, a Stabilisation Fund (jointly funded with the IMF), its new approach to pre-vetting budgets, and the new relaxation of the rules applied by the ECB in relation to the purchase of government bonds.

These are significant measures. It is hoped that will bolster the Eurozone at least in the short term, and provide breathing space to undertake further reforms. However, there are still major missing pieces:

• A credible EU growth strategy;
• Supports to structural reforms to create more competitive Eurozone economies, particularly in the deficit countries.

There are legitimate market fears that countries like Greece and Portugal who have huge external deficits will simply not be able to rebuild a strong exporting economy on the basis of a diet of fiscal retrenchment alone.

Ireland is fortunate to have greater resilience because we have a much more robust export sector that continues to trade in balance. However, our banking policy involving the transfer of bad loans and failed banks onto the back of taxpayers has doubled our debt and put us right into the spotlight.

Ireland must also look to see whether we are, in this process, creating a credible recovery strategy. Fine Gael is clearly of the view that the Government’s current approach, which involves:

• Writing whatever cheques are necessary to bail out the banks; and
• Retrenchment by slashing capital budgets, raising taxes and cutting pay;

is simply not enough to build a recovery. Under this Government, Ireland simply does not have a credible jobs strategy. That is the fatal Achilles Heel of the approach that is being adopted here at home and may soon be copper-fastened in Europe.

Ireland is also deeply handicapped by the chronic failure of this Government to reform a Budget system that is simply not fit for a corner shop:

• There is no independent appraisal of the fiscal stance adopted by Government, so reckless Budgets have prevailed;
• There is no prior scrutiny by parliament or any other person of the choices being made, so property tax reliefs stoked up a bubble;
• No targets are set showing what spending must achieve, so waste was rampant and no one was held accountable;
• The whole untested and unexamined package is simply rammed through in one vote in one day.

Onto this dysfunctional Budgeting system, we are now being foisted with a pre-vetting procedure in Brussels. This is to be done by finance ministers of overseas governments on the advice of the European Commission. Fine Gael has been roundly criticised for being so bold as to question this approach. However, the vital question is: will this recipe of a failed government approach and political oversight by overseas ministers deliver the sort of strategy that Ireland and the Eurozone needs?

I think there are strong reasons to believe that the strategy for Ireland itself will not be the appropriate one. Let us not forget:

• That the Commission itself has not been successful in developing a credible growth strategy for Europe;
• It is also clear that European finance ministers have focused solely on one dimension of this crisis – namely fiscal retrenchment;
• This process will not be exposed to the thinking of the wider Irish society whose commitment and sense of unified purpose can alone sort out Ireland’s problems;
• It is also clear that Europe will not be greatly concerned at the prospect of emigration of the brightest and the best from Ireland as part of a policy of correction.

Far from being a Eurosceptic, I recognise that there is a serious need for co-ordination of fiscal policy within the Eurozone. I also recognise that there is an absolute right on the European community to penalise those member states who wilfully act in a way that damages the interest of the Eurozone.

However, I do not subscribe to the view that prior fixing of the Irish Budgetary stance, and prior penalty setting to ensure compliance with this ahead of a debate in Ireland, is a healthy way to confront our problems. I see that spokespersons for the governments in France and Germany are taking a not dissimilar position. I believe that we can work with others to develop these proposals into something workable. However, the EU recognition that parliaments should have a role must be enforced in Ireland. Far from dismissing criticism, the Government should be spelling out how it will radically reform this creaking Budgetary system.

Above all, Ireland needs to internalise the necessary corrections of the catastrophic policy errors that have been made in the past. We can only do that if a new strategy is developed and debated here at home:

• To revolutionise our approach to spending public money;
• To undertake deep-seated reform in the way we structure and deliver public services;
• To set out an ambitious plan to build strong arteries in areas like electricity, broadband and water that can support economic recovery;
• To adopt a broad-based approach to delivering competitive costs in every sector of our economy, in a way that is seen to be fair;
• To move quickly to support policies to keep our young talented people at home in a position to rebuild our economy.

Ireland can correct the errors of the past, but we will not succeed if responsibility for this work is simply passed over to others.

Speech by Fine Gael Deputy Leader & Finance Spokesman Richard Bruton TD on the Euro Loan Area Facility Bill 2010 in Dáil Éireann on Tuesday 18th May