Michael McGrath (Cork South Central, Fianna Fail)

In the brief time available to me I want to pose the following question. What would be the consequences for the country of not renewing the eligible liabilities guarantee tonight? Where would we be as a country? Where would our banking system be?

If we take the perspective of a United States multinational with a large corporate deposit in an Irish bank tonight and it learns tomorrow morning that the guarantee which was in place was not renewed, what would it do with that deposit? The first thing it would do is move it out of the Irish banking system and into one in another country where the guarantee was extended to end December, which would completely undermine the funding base of the Irish banks. Undoubtedly, there would be a flight of deposits from this country tomorrow morning in the event of the Labour Party's view holding sway in this House tonight, which I hope will not be the case.

The second consequence is that the Irish banks, which currently rely on the guarantee, would not be able to access funding on the wholesale markets because they cannot access them without a guarantee being in place. Even if they were able to access some funding, it would come at such a price by the bond holders on the international markets that the banks would have no option but to immediately hike up interest rates for businesses in Ireland and for personal customers. Those are the two obvious consequences I foresee in the event of this House rejecting the extension of the eligible liabilities guarantee.

As Deputy Kennedy said, the scheme has been approved by the European Union. It has been recommended by the Governor of the Central Bank, Professor Honohan, and Matthew Elderfield, the Financial Regulator, both of whom the Opposition parties claim to have respect for, and this initiative before the House tonight is on their recommendation. We all agree that we want to see the Irish banks weaned off the guarantee. We want to see it withdrawn on a gradual basis but it must be done in a responsible fashion and one which allows the Irish banking system to plan its way out of the guarantee currently in place.

I heard Deputy Kenny during Leaders' Questions seek to characterise Professor Honohan's comments on the banking report and claiming that he said the Government was wrong on the guarantee. Glib comments such as those by political leaders do not help our cause, and I invite him to read again page 14 of the report where Governor Honohan clearly endorses the substance of the guarantee. One can argue around the edges of it, including the 3% sub-debt and so forth, but he clearly backed the need for an extensive guarantee to be put in place.

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