Willie O'Dea (Limerick City, Fianna Fail)

I thank Deputy Lenihan for agreeing to share time. I welcome the rigidity of the stress tests but the Minister referred to various learned commentators. Although I am sure he is aware of it, I point out to him that a number of learned commentators have also questioned certain aspects of the stress tests. It has been suggested, for example, that a rather benign view was taken in regard to inflation, interest rates and the decline in disposable income. I note too the Irish Central Bank has rebated very substantially downwards the figure put forward by the consultants in regard to potential losses on mortgages. That is a classic case of having a dog and barking oneself. I would like to know on what basis that was done.

Concerning what the Minister stated about the medium facility, there is a commitment in the programme for Government which I shall read for the information of the House: "As an interim measure we will seek to replace emergency lending to our banks with medium-term affordable official financing in a way that can restore confidence amongst other potential lenders in the liquidity position of our banks". The experts to whom the Minister referred take the view that the benefit of recapitalisation of the banks is somewhat limited in attracting depositors and investors if the same banks consistently have to replenish their emergency funding. That is the point of view expressed and I agree with it. As noted in the programme for Government, it is a question of confidence. The Minister stated that confidence in the Irish banking system is fragile at present. Therefore, if something less than an actual definitive facility is put in place the banks will be left in a shakier position to realise the ambitions the Minister apparently has for them.

I entirely discard what the Minister mentioned in respect of the 5.8% and the 1% rates. The programme for Government states that the medium-term official financing would be at an "affordable" rate. We did not envisage and I do not believe the Government envisaged that if it was possible to persuade the ECB to grant this facility it would have to pay at 5.8%. If it can get money at 1%, what is the point of persuading people to lend it at 5.8%, even if it is on a more definitive basis? That is camouflage.

Depositors and lenders need security like this to restore deposits in the banking system. The Minister was premature when he spoke about the return of deposits in the past week. A week is a long time in politics but it is a short time in banking. The Minister boasts that interest rates on Irish bonds are a shade short of 10%. I do not see any early return to the bond market based on that.

We have heard Ministers state that there is no change in policy on bondholders; senior unguaranteed bondholders cannot be touched, and I note Deputy Lenihan's remarks, but it is a joke to say there is no change in policy. We all remember the grandstanding, blustering and boasting during the general election, that not a red cent more would be given to the banks and that bondholders would be dealt with. On that basis, many people voted for the Government parties, particularly for Fine Gael. We are now back where we are told we cannot touch the senior unguaranteed bondholders. Why? Because the ECB says so. It is supposed to have a gun to our head, because we are €150 billion or €160 billion in hock to it and it could pull down the whole system. How likely is that to happen? The ECB knows, as well as everyone else, that the Irish banking system is a financial nuclear reactor and if it is triggered, contagion will spread far and wide.

Deputy Lenihan outlined how we need those investors in future to put money into the banks. That is true but it could be argued both ways. Are people less or more likely to invest in a bank in a country that can pay its sovereign debt or in a country where there is a doubt about that? The programme for Government stated that we must step back from the edge of national insolvency. We are a step closer to it now, unfortunately.

Sustainability is now an issue. Some of the European experts predict that the debt to GDP ratio in 2013 will be 125%, with the Government's forecast at 113%. That is the red zone. Another Minister said our being able to dig ourselves out of this financial pit depends on growth, the size of the debt and the interest we are paying on it. Those are not separate; they are intertwined. Being able to dig ourselves out of the pit depends on the amount of money being taken out of the economy, which comes back to the size of the debt and the interest we pay on it.

A recent report in the Financial Times indicated that Mr. Axel Weber, head of the German Central Bank, appeared to have joined the debate and supports the notion of burden sharing by senior bondholders. That is an interesting development.

The restructuring the Minister talked about is simply implementing the bailout deal between the previous Government and the EU. Part of the deal involved deleveraging, with non-core loans being transferred to a separate vehicle for gradual disposal. The same applies to the disposal of assets and I welcome the fact the Government will not do it by way of a fire sale. As a necessary follow-on, the restructuring would have to take place anyway. There is nothing new here.

We are now back to the old duopoly, with the two pillar banks, AIB Bank and Bank of Ireland. That was perhaps inevitable but the Minister claimed the foreign banks based here would provide the necessary competition. They will provide that competition but it is like saying there is competition in a race where ten horses were entered, five of them were taken out, leaving the other four to provide competition for the favourite. There was more competition before and it has now reduced, creating the spectre of a return to the 1970s, where the two major banks formed a cartel and crucified their customers. I know the Minister intends to introduce regulations to ensure that does not happen but it will be difficult to achieve. We must also bear in mind as we approach 15% unemployment that 7,000 people who were working in the financial sector have already lost their jobs, with several thousand more likely to follow.

The Minister's announcement did not refer to that strange creature that appeared in the Labour Party manifesto, a strategic investment bank. This bank was supposed to sprout out of the ground and grow like the bean stalk in the nursery rhyme to the extent that no man, woman or child, widow or orphan, would be denied access to it. It would bypass all the difficulties of our toxic debt and loans. The Labour Party insisted on putting it into the programme for Government, probably to save face, but I always suspected that Fine Gael thought it was nonsense, which it is. It appears in the programme for Government but if we look at what this plan says about medium-term, affordable official financing, in about 12 months, the document will look dog-eared. That idea is another that bites the dust, the low hanging fruit is falling already. I am glad it appears, from the Government announcement, that the Paul Daniels approach to banking has been abandoned.

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