Michael McGrath (Cork South Central, Fianna Fail)

I welcome the opportunity to speak on the Government amendment to the important motion before us. Small and medium sized businesses in Ireland are the lifeblood of the economy, with more than 250,000 of them employing more than 800,000 people. SMEs are owned and controlled by people deeply committed to their business and to the well-being of our country. We welcome the progress in foreign direct investment in recent years, and the contribution of multinationals to our country but we are at the mercy of decisions taken at corporate headquarters of these multinationals in New York and Tokyo. As an economy, we can never allow ourselves to become overly reliant on multinationals and we must place an emphasis on supporting SMEs in any practical way we can. Access to credit is essential to SMEs in our economy. Otherwise, they will not survive and the consequences for our economy will be devastating.

For this and other reasons, the Government introduced the bank guarantee scheme and subsequently the Credit Institutions (Financial Support) Bill, which was approved and enacted. The full details of the scheme were published subsequently. One of the purposes of the scheme was to support SMEs by protecting the stability of the financial institutions they rely on for credit and by maintaining the overall stability of the financial system in Ireland. The guarantee scheme has been successful in restoring access to normal liquidity levels for the banks. The scheme gives the Minister significant powers in respect of the lending practices of the banks, the appointment of representatives to the board and the credit committee of the institutions concerned. By virtue of the scheme the State has greater control in terms of the operation and practices of the banks. In the public interest, the Government must ensure the banks are not engaging in reckless lending, which perhaps happened in recent years. On the other hand, the Government must ensure the normal lines of credit essential to SMEs are open. The Minister made it clear that further steps would be taken, if necessary, to achieve these objectives.

That is why we have had the PricewaterhouseCoopers report, following the examination of the loan books of the banks and the capital adequacy provisions. Arising from the report, the Minister has been in detailed discussions with the financial institutions covered by the scheme discussing, among other issues, the possibility of consolidation of financial institutions in Ireland. While the PricewaterhouseCoopers report found that the capital adequacy requirements of the six banks covered by the scheme in Ireland meet the requirements of the regulator, the reality is that the international wholesale markets have set a different barometer in respect of capital adequacy requirements for institutions to whom they wish to lend.

Some economists have pointed out that we will revert to a more traditional banking system in Ireland, whereby banks will rely on the deposits they have on hand rather than accessing credit on the interbank markets. If that were true, short-term credit may not be as freely available to SMEs in the period ahead as it once was, when banks were overly reliant on accessing credit on wholesale banking markets. The banks have been vilified recently, and some of the criticism may be justified, but without them there would be no economy because the wheels of commerce would quickly grind to a halt.

The motion refers to the European Investment Bank facility of €30 billion which the banks in Ireland can access but that relates to medium and long-term capital requirements and not to working capital. ISME and other representative groups have pointed out that it is the lack of working capital or cash flow that is causing serious difficulty for businesses. We want the six banks to access that €30 billion and provide the funding to small and medium enterprises for medium and long-term projects but it will not solve the immediate issue of working capital, and we should be honest about that. There are some important initiatives in the budget to support SMEs.

The public sector reform initiative announced today will be of benefit to SMEs also because every small business interacts with local authorities, the Revenue and Departments. A leaner, more efficient public service will benefit SMEs along with every citizen in the State.

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