Brian Cowen (Laois-Offaly, Fianna Fail)

I will take the second question first. The issue of recapitalisation does not necessarily mean that one will get more expansive lending facilities or policies. One of the issues that arose in the debate here concerning the Bill which forms the basis of the bank guarantee scheme — as set out before the Houses of the Oireachtas and subsequently enacted — was a strong assertion from various parts of the House that there were lending practices in excess of what was prudent and which should not have been provided in any circumstances. One of the issues that is now arising for all banking systems in the context of the ongoing turmoil relates not just to capital adequacy ratios, but also what lending practices will be. To what extent is there confidence in business circles to seek funding and get it? To what extent are banking and lending institutions becoming more conservative as a reaction to what has happened? Their access to medium or long-term lending is only now beginning to emerge in inter-bank markets, which certainly was not the case in the first three or four weeks of this crisis when it hit us recently. These are big issues and that settling in financial markets has not yet occurred.

We see what is happening in equity markets in terms of business sentiment and what people are saying about business confidence. In fact, we know there are many share listings which are currently way under the known capitalised value and assets of many companies. That is an indication of how soft confidence is or how much it has evaporated. One of the issues about the bank guarantee scheme which the Minister has outlined to the House, relates to ensuring lending practices are prudent. We have to find the balance between ensuring we have learned the lessons of the expansive credit we saw in the past and which led to some of the problem, although it was not necessarily the source of the problem, and this must balance out against business requirements. The House can be assured the Minister for Finance, myself and the Minister for Enterprise, Trade and Employment, will continue to assess and watch to see how we can ensure and encourage lending institutions to provide necessary lines of credit for the maintenance of jobs for those businesses which have expansion or investment plans. We know others are in retrenchment mode and are not seeking lines of credit but are just trying to keep their heads over water and get through this phase. It is obvious there is no solution of one size fits all nor has this been suggested by the Leader of the Opposition. Unfortunately, one of the consequences of the turmoil is the obvious reaction within banking and within business regarding seeking and obtaining access to credit. How this is feeding into the real economy is of concern to us all.

People sometimes see this financial crisis as something which only concerns the financiers or the bankers. It also concerns business and employers having access to lines of credit so they can conduct their business. On the other side, people with creditors are finding it difficult to bring in payments on time which in turn affects their own cash flow arrangements and impacts on their ability to continue to maintain previous levels of employment. Therefore, this is having and will have an impact on the real economy.

In so far as is possible and in the public interest the Government must ensure the banking facilities and the banking and lending institutions continue to do business. I raised this issue in a speech at Trinity College within days of the guarantee being announced, the need for banks to be open for business and the need for Ireland Inc. to stay open for business.

I refer to my recent trip to China. It is important to point out that Irish business is out seeking business in new markets and Ireland is much admired in many respects for the services such as international services, financing, educational services and for the small and medium-sized enterprises working in food, recycling, energy products and a range of areas where business to the tune of €65 million to €75 million was done in the space of a week. It is clear from the discussions that took place in China that big changes need to happen. The US economy was working off big deficits, financed from trade and capital surpluses mainly from Asia and OPEC countries. We need to see more saving and less consumption in that economy and less saving and more consumption in Asian economies and overall we need to have an international financial system with the confidence of business so it can get back to normality as quickly as possible. The global nature is reinforced when one attends meetings such as those I attended where I listened to accounts of the Singaporean, Malaysian and Korean economies. In the case of South Korea, its currency has dropped 30% in a week. We are all familiar with the situation in Iceland but this is a continuing issue. It should be remembered that this is an ongoing problem and I agree with the Leader of the Opposition that we need to monitor it closely on an ongoing basis so we get the balance right between the need for prudent lending to reinforce business confidence and confidence in the banking system while at the same time ensuring businesses get access to lines of credit in order for them to continue in business and to avoid having to lay off people.

On the question about the Lisbon treaty and our engagement with our European partners, the Government has indicated to our partners that we will engage with them to see in what way they can address the issues which we have identified as being matters of major concern in determining people's attitude towards the treaty. Having conducted and completed that exercise and reported back to the December Council meeting about the ongoing work, we will determine where we go from there as a country. I ask the House to note the European response to the Georgian situation, climate change, the international financial crisis and the co-ordination mechanisms that have been devised under this Presidency, and the fact Europe has led the debate. There will be a meeting in November with the Americans, the Asian countries, the Chinese and others, to talk about a new Bretton Woods 2 arrangement which will basically revise the whole financial architecture which has determined world money markets since the end of the Second World War. This is an indication of the significance and the imperative of co-ordinated action at European level and the need for European institutions to enable quick and agile decision-making to be taken and initiatives and political leadership to be provided at European level in respect of issues which are of global and not just regional significance. We will have to discuss this in our public discourse after December when we will need to figure out for ourselves where we stand with regard to these matters and where Ireland's interests lie.

It has been reinforced to me in the past number of months that membership of the euro area and access to the liquidity of the European Central Bank has been fundamental in maintaining financial stability in our own domestic system which came under threat and without which I would hate to think where we would be today or what sort of an economic discussion we would be having today. Before we took the decision to protect the system there could have been a wiping out of 25% of GDP in a matter of months and the country would have been set back by 20 years. This is the size of the contribution that the European Union and its institutions has made to this country in recent months, post-dating the Lisbon treaty rejection and the arguments circulating in the debate beforehand. This new set of circumstances, these new realities that have come home to roost and are continuing to be contended with at global level by many serious regional organisations and large and small countries, continue to and must inform our future attitude and position with regard to the European Union. These are issues we need to address and reflect upon. However, I am not here to advocate that position in respect of this Question Time but it is important we do not forget and that we highlight this for the Irish public so they know that were we dependent on the limited resources of our own Central Bank in the context of what was an assault on the system, I would hate to think where this country would be today without membership of the European Union.

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