Joan Burton (Dublin West, Labour)

Miss Marple or Hercule Poirot with his little grey cells would have little difficulty in identifying three prime suspects, the Government, the banks and the construction industry. What was the motive? Greed for money on the part of the banks and construction industry and greed for votes on the part of Fianna Fáil.

The Government, and more particularly the former Minister for Finance, now Taoiseach, Deputy Brian Cowen, boosted pre-election spending in 2006 and 2007 to the point of reckless endangerment. He was the darling of the banks and the building industry who cheered him on to blow the bubble even bigger. Cheap credit and globalisation eased the path for the banks while Deputy Brian Cowen stuffed the building industry full of juicy tax-breaks that drove land prices and construction inflation higher and higher.

When I pointed out to him that the State was losing hundreds of millions of euro every year in stamp duty evasion by the big builders while young couples paid large amounts of stamp duty on modest houses in Drumcondra and Glasnevin he refused to close the loophole, even though he acknowledged that the loophole in 2006 alone allowed the construction industry to evade €260 million in stamp duty. Now the bubble has burst and it is the ordinary Joe and Josephine who is paying for the fall-out and the bail out.

Some budgets ago, as Deputy Brian Cowen was Minister for Finance and blowing the boom, in response to his recklessly pro-cyclical budget I reminded him of John Lennon's song "Dear Prudence, won't you come out to play". Brian's flirtation with prudence, if he ever had one, was short lived. Blowing the budget won him the election. This week, however, his Government had to pay the price for its incompetence, not to mention the 54,000 people who have lost their jobs. Since 2 May, when Deputy Brian Cowen became Taoiseach, more than 25,000 people have lost their jobs and we are losing jobs at a rate of 2,000 per week.

This morning, there was an important article in The Irish Times by Dan O'Brien, a senior economist and editor at the Economist Intelligence Unit in London. People who can remember that far back will recall the Celtic tiger was confirmed when The Economist ran articles describing it as a parallel to the Asian tigers, even though people such as David McWilliams had coined and used the term previously. Therefore, this article is significant and I want to know whether what it states is true.

To quote Mr. O'Brien:

the Department of Finance now expects a general Government deficit of nearly 3 per cent of gross domestic product (GDP) this year, having enjoyed a surplus of a similar magnitude as recently as 2006. This six percentage point deterioration amounts to the most rapid two-year decline of any euro area country at any time since the single currency was launched.

This bears out the statistics quoted by Deputy Kenny yesterday from EUROSTAT. Mr. O'Brien continues to state, "Bad and all as the official figures are, they understate the gravity of the position. To achieve the new target, general Government revenues in 2008 would have to remain at last year's levels." Given a rapid and accelerating decline in tax revenues in the first half of 2008, this would require a miracle in the next six months, according to Mr. O'Brien. Without such a miracle, the deficit will be closer to 4% of GDP.

He states: "In 2009, even assuming no further reductions in revenues and a curbing of the rate of expenditure growth, the deficit is set to increase towards 6% of GDP or above?" Is this true? Does the Minister for Finance acknowledge what most of us know that the two most important pillars of the modern economy are consumer and investment spending, which accounted for three quarters of Ireland's GDP last year? According to Mr. O'Brien:

Further double-headed risk to the public finances comes from the rising cost of servicing a low-but-rising Government debt. The recent upward movement in interest rates on most Government bonds reflects rising inflation expectations.

If fears of higher global inflation come to pass, this trend will accelerate. Is this true? He further stated:

Making matters worse for Ireland has been a re-pricing of risk by those who invest in Government bonds? As recently as last year, investors considered Government debt to be as risk-free as any in the euro area. In 2008 investors have been demanding a premium to take on and hold Irish public debt [that is rated closer to that of Italy rather than Germany, as it should be].

Is this true?

Irish banks claim to be socially prudent, responsible corporate citizens, yet history tells us the opposite. Deputies from an agricultural background will recall their role in the land bubble of the late 1970s where the same bank would fund different bidders desperately in pursuit of the same land. Has pretty much the same not happened more recently in the housing market? Lending policies of banks played a large part in pushing up prices by providing additional cash by, first, extending the average length of a mortgage from 20 to 35 years, which was called product innovation, second, when even that had gone too far, moving to provide interest only loans and 100% mortgages — less scrupulous financial institutions went beyond that — and, third, bidding up land prices for developers to absurd amounts.

It is rumoured that the banks want the Central Bank, the National Treasury Management Agency and the National Pensions Reserve Fund to bail them out by buying out many of these doubtful mortgages and loans. This was referred to by Mr. Boucher of the Bank of Ireland when he appeared before the Joint Committee on Finance and the Public Service last week. He said discussions were taking place. Unable to find any more suckers willing to part with their money, the banks want the State to play the role of patsy. Will the Minister for Finance state categorically whether the Government is thinking about using the taxpayer to bail out the banks?

The Government hung tough on Waterford Glass recently, when there was a question over jobs in the Waterford area. The Taoiseach should not be coy and he should tell the House what he is thinking. Shareholders of Irish banks have received significant dividends over the years and it is time for them to put their hands in the pockets and subscribe to rights issues, as is being done in the US and the UK. Stock markets and professional investors know this must happen and they are avoiding the shares until that happens. Even the managers of the banks' own pension funds know it and they have been net sellers of bank shares for some time. This is the appropriate way for the banks to deal with their own home made crisis. Should the taxpayer be expected to bail out the speculators or people who have acted recklessly? We are all familiar with Mr. Sutherland's lectures on moral hazard. If a young couple having difficulties repaying their mortgage is bailed out, that is moral hazard but if the banking system is bailed out, that does not seem to be moral hazard. The Jesuits developed the concept of moral hazard in the Middle Ages but I do not know what is their position in this regard.

Another example of the banks continued ruthlessness in pursuit of a profit is their activities in the credit card market. In nine of the past 12 months, customers have repaid less than they spent in the previous month. Despite new spending in May 2008 being less than May 2007, repayments were only 89% of April's spending. The majority of better off people who hold credit cards have no difficulty clearing their bills but banks have focussed on those on lower incomes or students who have no income.

I refer to the discussions between the Government and the regulatory bodies. Where were the guardians of our financial system while all of this was going on? The Governor of the Central Bank and the Financial Regulator have repeated their mantras to whoever will listen that "Irish banks are fundamentally sound" — we all hope so — "there is no crisis", "Irish houses are not overpriced" and "Irish developers are not going broke", when it has become increasingly clear to the rest of us that the banks, unfortunately, have problems. There is a housing crisis because houses are massively overpriced, although they are reducing. Young people can no longer obtain mortgages even if they could afford them and the higher interest rates.

A number of Fianna Fáil's paymasters in the construction industry are in mortal financial danger. As that redoubtable Cork developer, Owen O'Callaghan, said in a recent interview about his fellow developers and the current difficulties in the construction industry, "There will be blood". Unfortunately, we are witnessing the blood of construction workers who have to take their holidays now and returning to find they have no job.

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