James Reilly (Dublin North, Fine Gael)

At a time when the current Taoiseach was Minister for Finance, the Central Bank stated clearly in three separate financial stability reports that the Irish financial system faced grave risks. The Central Bank felt so strongly about these risks that it mentioned them in its annual reports of 2004, 2005 and 2006, also when the Taoiseach was Minister for Finance. The annual reports of the Central Bank were addressed to the then Minister for Finance, Deputy Cowen, who either did not read them or ignored the warnings in them. The Central Bank blew the whistle and rang the alarm bells loudly. We are in this terrible mess because the then Minister for Finance did not listen to or act on the Central Bank's warnings. The Governor of the Central Bank produced three annual reports for the Taoiseach while he was Minister for Finance. The warnings in those reports cannot be denied - they are written in black and white and are available for everybody to see.

In the 2004 annual report of the Central Bank, which was published in 2005 when the Taoiseach, Deputy Cowen, was Minister for Finance, the Governor clearly expressed his alarm about the turn the economy was taking. He was concerned about the amount of money people were borrowing. The 2004 report warned that a sudden fall in house prices was the greatest threat to the stability of the banks:

The risk of an unanticipated and sudden fall in residential property prices, accompanied by an increase in the default rate among mortgage holders .... is the risk that poses the greatest threat to the health of the banking system.

In the third paragraph of the Governor's foreword to the 2004 annual report, he states:

There are still concerns, however, about the increase in indebtedness in the economy, after another year of strong growth in mortgage and non-mortgage credit last year, with the ratio of debt to disposable income of households now in excess of 120 per cent.

On pages 33 and 34 of the report, the Governor of the Central Bank continued:

The overall conclusion of the Financial Stability Report 2004 was that 'the Irish banking system is currently in a good state of health despite the sharp slowdown in the growth rate of the economy that occurred in recent years. Our central expectation, based on our assessment of the risks facing both the household and non-financial corporate sectors, as well as the current shock absorption capacity of the banking system, is that its current good state of health will not be compromised over the medium-term horizon. However, this central expectation does not preclude the possibility of adverse developments which, should they materialise, could have serious financial consequences for households, corporates and banks. The risk of an unanticipated and sudden fall in residential property prices, accompanied by an increase in the default rate among mortgage holders, who may have been too willing to take on ever higher levels of indebtedness at the bottom of an interest rate cycle, is the risk that poses the greatest threat to the health of the banking system.

The former Taoiseach, Deputy Bertie Ahern, told people they were missing the boat, to get on quickly to buy and that his main concern was that if they did not act immediately, property would be out of their reach within a few years but the fundamentals were correct. The current Taoiseach also stated the fundamentals of our economy were sound. People were mocked and those who issued warnings and sounded alarm bells were accused of financial treason and of being naysayers. Commentators who were prepared to go out on a limb and call it like it was and who advised about the very things the Central Bank was warning could and would happen were ignored and scorned and laughed at. It was suggested scurrilously at one stage that such people should go away and consider suicide.

I am afraid it is questionable to introduce a Bill now which seeks to change the method by which the bank operates without addressing core difficulties around the fact that it issued warnings and the fact that the regulator was asleep at the wheel. Was he asleep at the wheel because somebody had administered a hypnotic substance or because somebody told him to look the other way? We do not know and we will not get the answer through the current investigations. It is clear a combination of factors, many of which had the hand of the Government on them, has led us to the sad and sorry mess we are in now.

The Central Bank sounded the alarm bells repeatedly. In its 2005 and 2006 annual reports, which were addressed to Deputy Brian Cowen as Minister for Finance, its officials clearly repeated these warnings. If they had been heeded, there would have been no need for the bank guarantee and we would not have found ourselves in the position we were two years ago. Five years prior to the guarantee, the financial stability report of the Central Bank warned that the banks were becoming more vulnerable because they had begun to borrow money from abroad to give people mortgages in Ireland. Any semblance of probity and prudential lending went out the window. The old adage that applied to bankers whereby they did not lend more than 80% of their reserves flew out the window under the eyes of the then Minister for Finance who cheered from the sidelines along with the then Taoiseach. Not alone did they fail to observe the golden rule of only lending 80% of their reserves, they exceeded this threshold to borrow money from abroad, which has left us in a position where Ireland has one of the highest levels of personal indebtedness in the developed world.

On several occasions the financial stability report warned that the financial system would be in trouble if, in the future, Irish banks were unable to borrow money from abroad. It stated: "It is increasing the banking system's dependence on cross-border inflows of funds, thereby introducing risks around both the continued availability and cost of these cross-border funds in the future". How prescient, for that is precisely where we find ourselves. The inter-bank rate rather than the ECB rate impacts on the ordinary man or woman on the street when he or she seeks to borrow money or renegotiate a mortgage. The inter-bank rate has shot up because banks no longer trust each other's deposit base. Government members presided over a scenario where bankers could defraud the regulator with ease by moving huge sums from bank to bank and rename it as an investor deposit as opposed to an inter-bank loan. The more we are reminded of how we got here, the more angry people will be and the more convinced they will be that this legislation is a smokescreen and a fig leaf to distract from the problems we face and the reasons we face them.

The report also stated:

In the presence of market stress there is no guarantee that this source of funding would be available to an equal extent. [That has come to pass]. This poses the question as to what the impact on the supply of credit might be in the event that Irish banks, for whatever reasons, would not be able to source adequate funding from these markets.

They have had to be recapitalised by the taxpayer. The report also highlighted that too much money was being borrowed. The officials clearly emphasised that their models were issuing warning signals because of the level of borrowing in the economy and they called the speed at which debt was accumulating "particularly worrying". They stated: "The Central Bank has warned on numerous occasions that the recent and current levels of lending growth may be excessive". That was code for the Minister to put the brakes on but he looked the other way. The report continued: "Private-sector indebtedness... is now at historically high levels. ...In addition to a concern on the overall level of indebtedness, a particularly worrying aspect is the speed at which this debt continues to accumulate." The then Minister for Finance took no action and allowed the party to continue.

The report further stated: "The Bank's concern with excessive credit growth in Ireland and household indebtedness is borne out by the credit related indicators, most of which, issue warning signals as credit growth continued to increase rapidly in 2003." Despite the bank warning that the speed at which debt is accumulating was "particularly worrying", Deputy Cowen did nothing. It was referred to as "masterly inaction", which has led to a catastrophe for the country. Any right minded, reasonable, logical person would have to conclude his failure to act caused the amount of debt to double during this term in office. Because of his inaction, for every €1 that the public owed when he became Minister for Finance, they now owe €2. The public owes an additional €190 billion because of his failure to act. Irish household debt increased twice as quickly as it did in the rest of Europe. For every €1 of income that Irish households earned, they owed almost €200 by the time Deputy Cowen left the Department of Finance

Rather that debating the technicalities of the structures of the Central Bank, we need answers from him. Did he read these reports when he was Minister for Finance? If so, why did he ignore the warnings? The legacy of his tenure is horrifying and it is there for everyone to see and, unfortunately, to live with. It is possible to calculate the total debt in the economy. EUROSTAT provides figures for every member state's national debt and total household debt. The figures are shocking. The Greeks are in their mess and they are drowning in debt. Every Greek person would have to pay €37,000 to clear the debt owed by the Greek Government and Greek households. What of the Irish? Every person would have to pay €70,000 to pay the debt owned by the Government and Irish households. That is almost twice as high as the amount for Greece. The figure is astronomical. One way or another that money must be paid back by ordinary working people. The Government debt must be paid by money collected in taxation and household debt must be paid from workers' take-home pay. People who are trapped in unemployment will not be able to contribute to paying money back. If the debt is to be paid back by workers, then every worker will have to pay €165,000 to clear it. The figures from EUROSTAT are real. They come from the central banks and finance departments of each of the countries concerned. The data is from 2008 and 2009. I doubt it would be unreasonable to presume that today's figures are even worse.

This very clearly highlights the dangers of the Government's plans for Anglo Irish Bank. It is daft to think we can take on the bank's losses when every worker is already expected to pay €165,000. Keeping the bank open will be a catastrophe for this country.

See this speech in context