Kieran O'Donnell (Limerick East, Fine Gael)

I am delighted to contribute to this debate tonight. Everyone agrees there is a problem with credit flow in the SME sector. In July 2008, I asked that the chief executive officers of the main banks, Bank of Ireland, Allied Irish Bank and Anglo Irish Bank be called to appear before the Joint Oireachtas Committee on Finance and the Public Service, one of whom, Mr. Richie Boucher, is now chief executive officer of Bank of Ireland, to discuss the flow of credit to the SME sector. At that time the CEOs stated there was no problem in terms of the provision of credit. This should have been a warning sign that the banking sector was under enormous pressure. A little less than three months later the bank guarantee scheme in respect of the covered institutions was introduced.

We must now consider what is being proposed by Government and the Opposition parties. The Government is effectively proposing to put €25 billion into the banks and €43 billion into NAMA, which amounts to €68 billion of taxpayers' money. The question that arises is whether this will get credit flowing to the SME sector. I recall, when the Government guarantee scheme was being put in place on the night of 29 September, the Minister for Finance, Deputy Brian Lenihan, stating this was about ensuring credit would flow to the real economy. Almost 18 months later this has not happened. The Government is hoping that NAMA will free up liquidity and deal with solvency in the banks. While it will deal with solvency, we do not know for how long because many loans are not being taken over by NAMA. It should free up liquidity. Former chief executive officer of Allied Irish Bank, Mr. Eugene Sheehy, is on record as stating before an Oireachtas committee in response to Deputy Burton and me that AIB could not give a guarantee it would be using the NAMA bonds to access credit. We are now putting approximately €25 billion into Anglo Irish Bank and Irish Nationwide Building Society, two institutions that will never lend. As Deputy Bruton asked earlier: "Is this good use of taxpayers' money?"

The question that must be asked is: "Is what the Government is doing good for the economy and the SME sector?" The Minister, Deputy Lenihan, stated in regard to Bank of Ireland yesterday that it was good for the economy, the taxpayer and the shareholders. However, is putting €25 billion into two dead banks, namely, Anglo Irish Bank and Irish Nationwide Building Society, good for the SME sector, the economy and the taxpayer? The answer in both cases is "No." What we need is a proper strategy in terms of getting credit flowing to the small business sector. Labour Party and Fine Gael Party policy seek to achieve the same result. Fine Gael's policy is the establishment of a national recovery bank which will effectively provide State equity of €2 billion thus allowing that bank to access credit from the European Central Bank and providing much needed liquidity to the SME sector through the vehicles of the existing banks. This would be a proper barometer and a proper risk-sharing mechanism. It would allow us to go to the banks to buy good loans and a risk-sharing mechanism could be put in place to ensure lending takes place.

The chief executive officer of ISME, Mr. Mark Fielding, appeared before the Joint Committee on Economic and Regulatory Affairs today. The Mazars report has been much quoted by the Irish Banking Federation. The Departments of Finance and Enterprise, Trade and Employment appear to have had no involvement in this report which was launched by the Irish Banking Federation and Mazars. The limitations in that report are astounding. Institutions of the sophistication of Allied Irish Bank and Bank of Ireland can give no breakdown of new and existing lending or between small and big business. I do not believe they cannot do that. Despite these limitations, the Mazars report states that lending to the SME sector is decreasing consistently. The Central Bank monthly statistics show that in the 12 months to end February there was a €12 billion decrease in private sector credit from the institutions. This is the same amount the Irish Government has invested, by way of €3.5 billion direct State investment in Bank of Ireland and €8 billion to €9 billion in NAMA through the National Pensions Reserve Fund.

The question that must be asked is, "Is Government policy working?" The answer, in respect of credit flow, is that it is not. The answer in regard to whether it is working in terms of the banks' insolvency is, yes at the moment it is. The answer in regard to whether it is working in terms of getting the banks to lend is, "No." The banks will continue to shrink their balance sheets. They are responsible to their shareholders. The Government has committed €12 billion to Bank of Ireland. As regards the plan in terms of getting credit flowing to the SME sector, in respect of the €3 million to the two main banks, we will not know the result of this particular exercise until 14 May. Furthermore, the credit oversight review process will take time. Businesses need cash. Without cashflow businesses cannot survive. We have a banking crisis and we need a mechanism to get credit flowing to the SME sector. Businesses are going out of operation not because they are not profitable but because they do not have cash. There is an old saying in business that cash is king. If a business does not have access to credit it cannot survive. The Government has committed to paying the SME sector within 30 days. However, many Departments are not honouring that commitment which in turn is putting enormous pressure on the SME sector.

The second strand of the Labour Party motion, in terms of providing credit, is investment in strategic infrastructure. Fine Gael has put forward an alternative proposal through NewEra, which effectively amounts to accessing resources of the National Pensions Reserve Fund, a national recovery bond, funding from the European Investment Bank, commercial lending by the State institutions to ensure we have vital and necessary infrastructure in energy, telecommunications and water. We need to ensure our broadband penetration is among the top five countries of the OECD by 2013. Currently, we are the second worst among the EU 15. In regard to water, we are, outside of capital expenditure, spending €700 million per annum producing clean water. Some 43% of drinking water is lost through leakage. We need a strategic approach in this regard.

The Government has lost sight of the fact that credit flow equals jobs equals survival of business, which is a simple formula. The Government proposes to invest €3 million in the two main banks. It must also put in place a proper job strategy that ensures an avenue for lending to businesses that are struggling and need funding. My concern, in terms of the Mazars report, is that the figures provided by the banks relate in the main to rolled up interest. They are squeezing existing businesses to get repayments and allowing rolled up interest, which gives the impression they are providing credit. It is window dressing.

What is the Government going to do to ensure credit flow? The Labour Party proposal is a valid one. Fine Gael has put forward an alternative approach, namely, a national recovery bank, which seeks to achieve the same purpose. The Labour Party has proposed the establishment of a strategic investment bank. What will the Government do to ensure a proper jobs strategy? Mr. Mark Fielding, head of ISME, stated today that the Government has no such business proposal. What is required is a proper jobs business proposal to ensure the SME sector can get credit into viable businesses and to provide necessary infrastructure. The role of Government is to provide a way to allow enterprise to prosper.

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