The only realistic manner in which the Government's planned rainy day fund can be used is for a bank bailout, Sinn Féin has said.
The party made the claim following the release of Department of Finance documents to it under the Freedom of Information Act. The papers released to its Cork North Central TD Jonathan O'Brien include briefings prepared for Minister for Finance Paschal Donohoe setting out how the fund can be used.
The Government has already said the reserve, which will eventually reach a maximum of €8 billion, cannot be spent to counteract the effects of Brexit.
Examples of how the funds might be deployed are situations encountered by other EU countries, such as mass refugee inflows or emergency measures taken in the face of, or in anticipation of, terrorist attacks.
Mr Donohoe says he does not anticipate the reserve being used for another bank bailout, but does not discount the possibility.
“I would not expect the rainy day fund to be required to bail out banks. However . . . we do not know what crises we could be faced with in the future.”
He ruled out its use for Brexit: “To set out from its inception that the rainy day fund would be available to meet Brexit or climate change challenges could lead to moral hazard problems.”
The papers reveal that the fund would allow access to liquidity in the event of the State’s inability to source funding on international markets due to external or domestic reasons. “The existence of such a fund would provide the exchequer with some financial ‘head room’ in the event of such a scenario.”
However, the Minister also cautions the capitalisation would be inadequate to meet the borrowing requirements incurred in the financial and economic crisis after 2008, which amounted to €175 billion.
Political consensus and the fund
The reserve will be financed by an initial injection of €1.5 billion from the Strategic Investment Fund and a budgetary allocation of €1.5 billion. The measure has been supported strongly by Fine Gael and Fianna Fáil, which first suggested the idea.
According to Sinn Féin the only reasonable conclusion is that the fund will be used for bailing out the banks.
“The only shock this economy has witnessed in the past decade is a financial crash that was followed by a bailout of the banks,” said Mr O’Brien.
“This is unacceptable and covers the rainy day fund in a total lack of transparency; €500 million is not a small sum. But a huge allocation of revenue that could be invested into our creaking health services and broken housing sector,” he added.
However, Fianna Fáil finance spokesman Michael McGrath said all the main international bodies are in favour of a rainy day fund.
“While there may be scope for further design changes to the fiscal rules to accommodate such a buffer, there is no doubt that such a fund can be used in the event of an economic shock. The ultimate decision maker would be the European Council in conjunction with the European Commission,” he said.