Michael Kennedy (Dublin North, Fianna Fail)

I am pleased to have the opportunity to speak on this Bill, which is the most important Bill to have come before the House on economic matters. There is no doubt in the minds of anyone in the House or outside that we must resolve the banking crisis because our future economic progress depends on a functioning banking system. It is clear that at present we do not have a functioning banking system. Banks are not lending money for the very good reason that they do not have it to lend. The bottom line in respect of NAMA is to provide a cash injection into the banks such that they can lend to businesses and private citizens alike. All citizens expect us to resolve the issue and all Deputies agree that the credit crunch is a significant issue. However, there is disagreement in terms of how we go about resolving the bank credit problem.

I put on record my abhorrence, as all other Deputies have done, at the reckless behaviour of some of our bankers who almost bankrupted the country. I wish to see court action come about as soon as possible. I refer to the four investigations currently being carried out by the fraud squad and we all await eagerly the results because the crazy lending policies carried on for a number of years must never be repeated. This side of the House states categorically that the bankers who carried out this reckless behaviour have done this country a great disservice and we wish to see the fraud squad bring about their investigations as soon as possible. Equally, the need for proper and better bank regulation is now more than necessary and I welcome the appointment of Professor Honohan. He has a very difficult job to do but it is very important and it is a job they must do very quickly. I offer him my best wishes, as does everyone in the House.

I back the NAMA proposal as one of sheer necessity. Inaction by the Government is no longer an option. We must take action and we must do so now. We cannot wait as the problems have been compounded by the worldwide problem. The need for the Government to introduce the legislation to resolve the liquidity problem in banks is vital. In introducing the proposals the Government has not simply dreamt them up overnight. It has consulted widely with international advisers and our own best advisers. All the recognised people involved in economics and finance, including the ECB, the IMF and the ERSI have stated they agree with the NAMA proposals and this point has been missed by the Opposition. I regret that Fine Gael and the Labour Party seem to oppose this Bill for the sake of opposing it. The best advice available to them as well as to the Government would inform them there is no other show in town and we must go down this road. Yesterday, Deputy Joanna Tuffy referred to all the newspapers backing the NAMA proposal. They back the proposal for one good reason: there is no alternative. Common sense tells them that doing nothing is not an option. All the professional advisers at home and abroad clearly state that NAMA is the only way forward.

The Labour Party proposal of nationalisation would have major repercussions for the country. The reputational damage that would be done to us if there were three nationalised banks is unthinkable. The damage such a situation would do to our future funding options and to foreign direct investment in the country is equally unthinkable. I reckon every Deputy has met representatives of companies that have come to Ireland and employ many Irish people. One reason they do so is because we are in the eurozone. Another is because we are a stable country with a stable currency. It is ridiculous to suggest that we should go down the road of nationalising all our banks, even on a temporary basis. Furthermore, I am unsure what is meant by "temporary". Is it ten years, 15 years or 20 years? This would put at risk the 200,000 jobs we have in foreign direct investment here. I have no doubt if we go down the route of nationalisation bank lenders throughout the world would stop funding Ireland. There is no doubt our credibility as a nation for future borrowing would be at risk.

We are all aware how much we need to borrow with a budget deficit of some €22 billion this year and borrowing in the region of €60 million per year. We cannot put at risk the likelihood that lenders, be they foreign or any we have here, would pull the plug on the Government. Equally, with nationalisation, the cost of borrowing would increase substantially. When borrowing in the order of €60 million a day, adding extra costs by way of interest payments is hardly an option.

The overall debt will be approximately €77 billion; it may be a bit less or more. If nationalisation came about, the banks would have to write off immediate bad debts. Although I do not know what the figure might be, I suggest it could be a minimum of €10 billion and probably much more. They would have to do this for good accountancy reasons in the same way any private company would have to write off bad debts.

This would have immediate implications for us as taxpayers. The concept of having to pour money in today to prop up nationalisation and writing off those debts does not make sense and I cannot understand how the Labour Party can dream it up. Quite often it has had ideological reasons for opposing Government proposals and Bills but this does not stack up financially, economically or any other way.

Privatisation would undoubtedly cause us, as a nation, to struggle even more to get our economic position back to where we want. If we had three nationalised banks in Ireland, it would undoubtedly lead to branch closures as to have three or at least two different banks trading in every major town, competing against each other, would be ridiculous. It would do away with competition and there would be branch closures, which would bring about job losses.

The only European country that has gone down the nationalisation route is Iceland and nobody in this House would suggest that it is a role model for economics anywhere, least of all in the country itself. It is now endeavouring to join the EU and become part of the eurozone. Regrettably for Iceland, its interest rate is currently 18% because it is outside the eurozone. As we are part of the eurozone we are borrowing from the ECB at a rate of 0.5%. Deputy Gilmore's temporary nationalisation arrangement is an absolute folly.

I will move to the Fine Gael proposals. In 1983, Fine Gael, in government with Labour, bailed out Allied Irish Banks following the Insurance Corporation of Ireland debacle. That cost the State over €400 million so Fine Gael should not be afraid of dealing with banking crises. It experienced such a crisis in 1983 and overnight it introduced emergency legislation so the Insurance Corporation of Ireland would not collapse, and thereby bring down AIB. Fine Gael should reflect on that.

With regard to the good bank-bad bank proposal, I do not have difficulty with putting €2 billion into a good bank in order to lend but I have a major difficulty with the suggestion that the €77 billion of debts should remain in the bad part of a bank. How does Fine Gael think AIB and Bank of Ireland would trade out of those substantial bad debts? In the current climate, I cannot see how it could be done and no financial adviser, international or national, would agree with Fine Gael on that point.

If those bad debts are left within the banking system, Fine Gael would risk the two banks becoming illiquid and there would be major problems with the balance sheets because of the write-offs. If anything, the banking system in the past 12 months should indicate that liquid assets are very important to us as a country.

The retention of the status quo is not an option, although I have heard some Opposition spokespersons suggest this. We must worry about leaving debts in a bank that clearly does not have the resources to work its way out of the problem. With regard to the Fine Gael suggestion that it would dump the bad bondholders, how is it possible to choose one bondholder to pay and ignore another and withold payment? We must think of our international reputation. Which bank would lend us money in future in that case? It would not happen. Everybody knows we cannot renege on our bad debts. We cannot do it privately as we would get into the black book and we certainly cannot do so internationally. We must knock that idea on the head.

The quicker Fine Gael accepts that this is not the way to go, the better. The Taoiseach and the Minister for Finance offered the party the opportunity to meet the officials in the Department of Finance but for whatever reason this option has not been taken up. It is not too late to speak to officials and understand the reasons behind NAMA.

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