Peter Mathews (Dublin South, Fine Gael) | Oireachtas source

I thank the Minister for his presentation. I too would like to make a few observations and then ask one or two questions. The observations follow from the blueprint for a deep and genuine EMU conference yesterday to which Deputy Donnelly referred. One thing came across forcibly to me, especially from the first session which was introduced by José Manuel Barroso, followed by Olli Rehn, Jeroen Dijsselbloem and Victor Gaspar both finance Ministers whom the Minister will meet next week. The point was developed in Sharon Bowles's presentation. She is always first class because she is robust, has clear thoughts and clear expression, using language we can understand. That is in contrast to Mr. Barroso's presentation which was very turgid, very foggy, aspirational, full of hypothetical language, abstract ideas and disconnected from the world and the Europe in which we live. In the Europe in which we live there are 20 million people unemployed which is a very serious situation and derives, as is now admitted, from banking messes across the eurozone.

The Cypriot and Irish banking messes are actually quite similar. They both arose from the collapse of asset values on their balance sheets. In the case of Cyprus these were Greek bonds which were unrealisable and therefore there were losses. In the Irish banks it was loans to the property, housing and construction sectors and other businesses which collapsed causing losses. Mr. Yves Mersch, who is an executive member of the board of the ECB, also gave a presentation. By a slip of the tongue he said that the cases of Ireland and Cyprus were different because in Ireland's case it was a bailout and in Cyprus it was a bail in. In fact the ECB must have been conscious when our system was collapsing that it needed to do something to avoid the domino effect of the contagion that would assuredly have happened. The mess was left in Ireland and with the people of Ireland. That is wrong. I made that point in the break-out discussion that followed and it can be seen in the recording of the conference.

I said it was wrong that €31 billion of losses in the case of one bank should have been converted into loans to that bank to redeem bondholders and the residual financial damage was inflicted on the Irish people. This was done circuitously, through a promissory note which re-inflated a busted bank. After that explanation to the 500 people present there was a strong round of applause, not for the fact that I had said it but because the knowledge had come into the debate in clear and understandable English. That is what we thirst for in Europe.

There will be an opportunity when we have the stage next week to explain these things. The banking system is still buckling at the joints across the eurozone and in the developed countries of the financial world. Sharon Bowles, who is on the finance and monetary committee, agreed that they are only beginning to understand the amounts and scale of balance sheet and off-balance sheet contingency liabilities in the shadow banking world and in the exposures that the traditional banks have off-balance sheet. These are very big, through re-hypothecation of financial securities and assets, which are being re-mortgaged four and five times, especially in London where some of the people who understand this and take the trouble to try to measure and assess it are quite scared by the scale of what is going on there.

Let us go from those general principles and observations to where we are at in our own case. It looks like there will be further bank recapitalisation. That is not a strange suggestion to anybody who is honest in their thoughts. The reason is that the mortgage loan losses are only now being acknowledged and recognised. Fiona Muldoon told us about the SME difficulties, of €50 billion of loans half are under stress and impaired. The figure for losses in the banking system started off at €23 billion. Had that been adhered to the banks would have just about been kept out of State control. I got my date wrong. It was on 17 September 2009 that I presented the previous Minister for Finance with a grouped balance sheet of the six banks and an eight page document describing what had gone wrong in the loan to deposit ratio. That is the ratio across the eurozone that showed all the banks that failed and continue to fail and just about survive how it went wrong. That is the doom loop between banking and sovereigns because banks take on the bonds that sovereigns issue and when they are not collected or their yields go high and their values fall their balance sheets start buckling. It will take people with a bit of mental stature to stand up and explain these things in easily understood English and not using all the hypothetical, abstract words, long sentences and polysyllabic words that have obfuscated and caused fog. We want clear home-grown language such as Sharon Bowles uses.

I have two questions, first, how much capital do our banks need? Provision has been made against the transfer of €16 billion in loans from IBRC to NAMA. What are the existing provisions and what more will be needed because I do not believe they will be collectable at the net book values of the loans? Today there is an interesting article by Martin Wolf, which TheIrish Times has reprinted from the Financial Times, in which he examines what has been happening, led by the biggest economy in the eurozone, Germany, and why its rigid adherence to the chosen path of deficit control and insistence that there be a pan-European solution is inherently contradictory, cannot work and ought to be stopped. It is a very readable article and I commend it to the Minister.

The Minister mentioned on our own patent-----