Ruairi Quinn (Dublin South East, Labour)

I had to stifle a grin because I was trying to secure support for my colleague, Mr. Bree, but I said to him afterwards that the proposal was nonsense and simply impossible. However, if I am accurate in my recollection, within 18 months the new Minister for Finance, Mr. Charlie McCreevy, went one step further by designating the entire upper Shannon area under section 23. The consequences of that are self-evident.

I am told that when the Leinster rugby team went professional and its young athletic players in their early 20s suddenly found themselves with salaries out of all kilter with what their peer group was experiencing at that time, they were encouraged by financial advisers to put their money in property as the Eircom share issue experiment had bombed. Many of them purchased apartments in Carrick-on-Shannon. Some of them go up there periodically to have a barbecue or party, but those properties are essentially wasting away. These guys felt that since they were paying very heavy taxes - which, in fact, they were not - that this was a type of no-cost option. All of the people in the transaction chain were front-loading. They assumed no responsibility because they were not travelling the same journey as the people who bought into these types of developments. The landowner, builder, auctioneer and solicitor were all there at the beginning, but they assumed no responsibility for what has happening.

The upshot of all of this was the massive dependence on property to which the Minister of State referred. The Minister of State suggested that we could not have done anything else. That is not the case. While the Opposition must be constrained in some of its comments because we are not in possession of all the facts, governments can and do take action. The Government could have dampened down the spending explosion by way of additional taxation. Some positive actions were taken by Mr. McCreevy, particularly the investment of the proceeds of the Eircom privatisation into the National Pensions Reserve Fund.

In general, however, instead of leaving tax breaks in place and incentivising banks to get rid of the money accruing to them by offering it, at apparently low risk, to customers in order to unlock equity in their primary residence for the purpose of investing in property, the Government should have harnessed the energy, expertise and resources of the construction industry to build, for example, decent schools. As we speak, there are 50,000 primary school children that we know of learning in prefabricated buildings. Some children will spend their entire primary school experience in a prefabricated construction. Money should have gone into that type of long-term infrastructural investment.

This would have had two effects. First, it would have provided decent school buildings of a standard which one would expect. Second, it would have soaked up capacity within the construction industry and prevented the hyper-inflation in property prices that developed. Development of the public sector could not proceed at a reasonable pace because the prices quoted by the private sector construction industry - the capacity of which was so stretched that we had the proverbial Polish plumber coming to Ireland and not France - for far more tightly regulated public sector contracts were simply nominal prices the purpose of which was to deliver the message that the public sector should get lost. The industry was more than happy to continue its jerry-building and lightly regulated activities in the private sector.

The property boom coincided with the over-extending of credit to individuals who had no experience of investing in property or becoming landlords. It was made to appear absolutely effortless. When the crash came following the collapse of Lehman Brothers, the impact in this country for individuals was far higher than it was in any other country. One of the reasons people are so angry is that they are up to their oxters in debt. The 1980s were tough enough because the country was in debt, but there was very little private sector or personal debt. People are seething with anger because they were encouraged to over-extend themselves and now feel duped. This is not to say there was not an element of greed in all of this. These were so-called responsible adults who are ultimately responsible for their own actions. However, they had no experience of any of this. When the Minister of State and I were of college-going age we were not receiving letters from our bank offering an extension of €10,000 on our overdraft. We might have put the money into prize beer but not into prize bonds.

That culture was there and we were all talking about it. Yet the Department of Finance did not intervene, the Minister for Finance did not intervene, the Central Bank did not intervene and the regulatory authorities did not intervene. When some people suggested there was something wrong with the system, they were told by the then Taoiseach, Deputy Bertie Ahern, in a speech in Donegal, that if they were so pessimistic about the Irish economy and so worried about the future, why did they not simply go off and commit suicide. That is where we were.

This time two years ago the Government was faced with a crisis. It must have been extremely scary for those directly involved, most of whom, including the Minister, Deputy Brian Lenihan, had come to their jobs very recently. The Minister is a very talented barrister and without question a very able individual, but he has none of the economic experience that would have been of help. It will be for the history books to tell us the facts of what happened that night two years ago, if those facts were recorded in a format that will ensure they end up in the archives. From what we know, it is my guess that the banks lied through their teeth to the Government on the night in question and that people were spooked, just as Allied Irish Banks spooked the Government back in the 1980s when we were left with the mess of ICI.

There were two options available to the Government two years ago. The first was simply to take Bank of Ireland and Allied Irish Banks - the systemically important banks for the regular operation of our economy - into temporary public ownership, and to take into nationalised ownership the basket case that was the boutique Anglo Irish Bank. For reasons that may only emerge in the future, that option was turned down by the Ministers in question and, as I understand it, by senior officials in Merrion Street. Instead we had the NAMA concept which nobody fully understood. We also had the underwriting of the guarantee in respect of which - let the record show - Labour Party did not oppose Second Stage on that evening two years ago. We did not oppose the principle of a guarantee. When we explored the implications of this guarantee with the current Minister, what we got was waffle. It was very eloquently phrased waffle, but waffle. Faced with a lack of clarity we opposed the Bill. We were the only party in this House to oppose it, not on Second Stage but on Final Stage.

NAMA has been a moving target of facts. When it came to evaluating how much it was going to cost and how long it would take and so on, the narrative changed each time. Medium-term economic value is an economic concept that does not, to the best of my knowledge, exist in any economic textbook of which I am aware and I would not describe myself as an economist. What would have happened had the Labour Party proposal at that time been undertaken? Our proposal was that we get rid of the Governor and entire board of the Central Bank because they had failed and appoint a new Governor. As it turns out the new Governor is an excellent individual of international reputation who has done a spectacular job so far. We would not have stopped there. We would have sought the establishment of a banking commission, headed up by an Irish person of international reputation but specifically and uniquely made up of, say, a former German central banker and former American central banker, people of credibility so that the international community would realise we were having a serious look at ourselves and this was not some type of Sicilian inquiry run by Sicilians.

We would then have taken Anglo Irish Bank and put it where it is; a clapped out bank. We would then have taken on the two systemic banks that we need, Bank of Ireland and Allied Irish Bank, whose share value had collapsed to what it is today, approximately 50 cent. We would have got them for virtually nothing. We would then have recapitalised them and, not nationalised them, but taken them into temporary public ownership and said, not through some slash and burn intervention but in an orderly way: "Thank you for your services but we are going to replace you." We would then have said to the next tier of management - we have very good experienced prudent banking management as the history of those two banks has demonstrated over the past number of years - here is the deal: "We want you to fix this bank and run it so that the economy once again functions; your salary, if you take the job, is what you are currently on plus 10%. There will be no bonuses but in seven to ten years time when we refloat these two banks in a much stronger economy the State will take from that flotation the equity it has put in plus the accumulated cost the taxpayers had to pay - that is all we would want as we would not necessarily be trying to make a profit from this - with the balance going to the shareholders and, by the way, we will ring-fence 5% of the equity raised and that will be divided among yourselves by way of bonus." We would then request that the following morning they work to get the Irish economy functioning.

What is happening now is that the economy is not functioning. We need an economy that is growing. I accept it will grow slowly at first because confidence is shattered. I know what this means because the economy was previously shattered in 1991-1992 and in the early part of 1993 when I was Minister for Enterprise, Trade and Employment. There is a lag in terms of confidence and market reality. Had the two main banks started lending to the private sector this time two years ago we would be in a far different place now. I have heard from Chambers of Commerce and individual business people that AIB and, to a lesser extent, Bank of Ireland, in order to avoid falling into a situation whereby its majority shareholding is owned by the State they have been extracting capital from ordinary small businesses. Let us take a book shop as an example, the total sales of which, as the Minister of State well knows, peaks between September and Christmas. The remainder of the year overheads are higher than income. This type of business needs a facility with the bank to cover the 12 month cycle. This is normal practice in any type of cyclical business. What the banks have been doing is unilaterally changing the terms of overdrafts and increasing the terms, conditions and interest rates on these facilities. This is the reason for the dip in the second quarter of economic activity in our economy.

It is hoped that given we are to be a 91% owner of AIB and, possibly, a 50%, if not close to it, shareholder in Bank of Ireland, that Merrion Street, the Minister, Deputy Lenihan and Minister of State, Deputy Mansergh, will do as was done with Irish Life. In the 1930s, the life assurance industry was restructured and Irish life was established from the remnants of four failed entities. The Government then stood back from it and allowed it to reconfigure and get on with running a commercially vibrant business. The great success of Irish Life is that it was 98% owned by Merrion Street and there was virtually no political interference in its operation just as there was no political interference with the operation of Renault in France as distinct from the BMC in Britain. It was a commercial operation. The contrast was the constant interference with ACC at the behest of the farming community.

The Government now owns AIB. For God's sake, do not screw it up. Change the management along the lines I have set out, bring in new directors, keeping the public interest directors on board and then give them a remit and tell them you will not second guess their commercial decisions. The fear Merrion Street officials have of being responsible for a bank will then be insured and protected. The sole job of AIB and Bank of Ireland will be to grow the economy, slowly at first because that is how it will start. If it is allowed to start slowly without interference it will then start providing working capital. There is an enormous amount of capital in this country; the savings ratio has never been higher. If it does this, we will have the type of economic growth that will enable us to draw down the national debt and bring it back to manageable proportions, which is possible. If we do not do this, we will be in serious trouble.

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