Arthur Morgan (Louth, Sinn Fein)

We need an immediate exit strategy. This can be achieved through the creation of a State bank by nationalising the positive assets, including the deposits and performing loans of AIB and Bank of Ireland, and transferring them into such a new bank. It can also be achieved by allowing the bank guarantee to lapse, for the remaining assets of AIB, Bank of Ireland and Irish Nationwide to be divided up between the bondholders of those institutions, and securing all deposits in the State bank, given that all its activities would be under sovereign guarantee.

It is becoming increasingly clear the Government will bankrupt the State if we continue to repay the bondholders. The bondholders must be cut loose and the guarantee allowed to lapse. The taxpayer has no obligation to repay both senior and subordinated bondholders at Anglo Irish Bank on the grounds that the terms of these securities allow for the possibility of them not being paid back if the bank is insolvent. This is why banks get to count these securities as part of their regulatory capital. Furthermore, none of this debt matures until 2014 at the earliest and these bonds will no longer be covered by a State guarantee.

All the banks are to varying degrees zombified, being unable or unwilling to provide credit to the economy. We must, therefore, transfer the deposits into a new, single, State bank which would be safe and thus re-open credit streams.

Through public ownership, the State will be in a position to directly control finance and ensure credit is injected into the real economy. Scarce public funds should not be used to continue to bail out bondholders from their own reckless behaviour. It is time the Government accepted that the current strategy to restore our banking system has failed.

Ireland and Europe operate under a financial system called capitalism. That system prescribes that if a business venture fails, then the loss arising falls on the shoulders of the investors. These bondholders were private investors investing in private enterprises. Why is the Government changing the rules in this case? Is it so it benefits its cronies?

On "Morning Ireland", the Minister for Finance used an analogy about the consequences of a sovereign debt default. He compared it to telling one's bank manager that one will not repay one's existing loans but is looking for a new loan anyway which would, naturally, lead to a refusal. That is, however, grossly misleading. Why would the State not receive a loan from the bond markets? It has always honoured its sovereign debt commitments. In the case of Anglo Irish Bank, it is a case of private bondholders funding private banks, so this analogy is not true. Unfortunately, the Government seems to have been getting away with this argument so far. An exit strategy from the current debt crisis is imperative and a new system of public banking must be established.

An economic policy that is reduced to focusing solely on saving banks and reducing a deficit, without any attention to the growth side, is doomed to failure. The Government has committed to put in whatever capital is necessary for splitting Anglo Irish Bank in two and its subsequent recapitalisation, with today's figures peaking at a whopping €34.3 billion, but the economy outside the banks is being grossly neglected.

The Government claims that the overriding priority is to reduce the public sector deficit to the Maastricht treaty limit to 3% of GDP by 2013/14, and that massive cuts to spending will achieve that. Sinn Féin disagrees on all counts. Our overwhelming priority is the economy, restoring growth, reversing the tide of business bankruptcies, getting people back into work and restoring funding to our schools, hospitals and investment in our infrastructure. These are the policies that will actually secure deficit reduction, as tax revenues rise and welfare outlays lower as people are brought back into employment.

The deficit is a symptom of the crisis, not its cause. The deficit appeared precisely at the time of the recession; before then the Exchequer annual returns were in modest surpluses. Government policy has exacerbated that deficit, producing the highest in the euro area at 14.3% of GDP. The underlying deficit, excluding the extra money that can always seem to be found for bank recapitalisations, is still an enormous 11.6% of GDP.

Government policy is a complete failure, even on its own terms. No reputable international or domestic agency, IMF, OECD, EU or the ESRI believes the 2013/14 target will be met and most forecast the deficit will rise further in the short term. All these agencies concede that the prospects for reducing the deficit are dependent on the levels of growth achieved over the medium term. This is the real determinant of the deficit. The bitter experience of the last two years is that cutting spending has weakened growth and therefore led to a wider deficit. A pro-growth strategy is required to revive economic activity and narrow the deficit over the medium term. This would include investment in growth-enhancing education, research and development, infrastructure, health and child care.

It is claimed that further cuts of at least €3 billion will be required as the domestic crisis deepens. This is the madness of repeating a policy which has already failed. The cuts have failed in their stated objective; the opposite course is actually required. Just as lower government spending sharpens the downturn, lowers tax revenues and increases welfare outlays, so increased Government spending can do the opposite. That is the way to close the deficit through Government investment.

The continuing problems of the economy here are entirely homegrown. The Government provides money to financial institutions in previously unimaginable quantities but there is no control over the use of money, no safeguarding of the essential economic functions and no accountability for the damage that has been done. The decision of this Government today is frightening. I do not believe the Government has a mandate to exercise such a decision. If the Government refuses an election to allow the people to decide on the enormity of what is happening, the least it should do is to allow people to share their opinions through a referendum. Future generations will remember this as a black day.

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