Martin Mansergh (Tipperary South, Fianna Fail)

The purpose of this debate is to clarify the choices we have to make over the next four years and the fundamental reasons for them. There are, unfortunately, no relatively painless exits from the situation in which we find ourselves. To clear up one persistent misrepresentation, State underpinning of the banks, while adding tens of billions of euro to the national debt, is not a main contributor to the general Government deficit that has to be reduced from an underlying 11.9% of GDP this year to 3% by 2014. Interest on those payments to the banks do, however, add to the problem, and have been one of the reasons for the markets' focus on Ireland, not least because the capital injections have led to a spike in the deficit to 32% this year.

Some 90 years ago, between the Government of Ireland Act, 1920 and the Treaty, the two parts of Ireland went their separate ways. By majority choice, Northern Ireland remained part of Britain, with devolution since restored after a long breakdown on a much different and consensual basis. Northern Ireland faces serious difficulties, in terms of allocating expenditure with a budget much short of what all would claim it was promised by the previous British Prime Minister. The Executive and Assembly have almost no responsibility for raising taxes or the public finances as a whole, for banking supervision or the health and well-being of the much larger economy of which it is a region.

In 1920, Home Rule was also put in front of the people of the 26 counties on the Statute Book. Instead, the people chose, and fought, to become separate and independent, to be ultimately responsible for their and our own economic viability and financial creditworthiness. For a long time, we were relatively poor and fiscally conservative, but we lived within our means, so there was never any question of default no matter what the pain, neither following the Civil War, during the economic war nor the Second World War, although in 1925, as part of the boundary agreement, Britain agreed to write off our estimated share of their national debt. For a long time, we were even a creditor nation.

Partial default is not an alternative to pain. The measures taken two years ago and since to underpin our banking system have so far succeeded, albeit at a previously unimaginable cost. As former President Clinton said on a recent visit to Ireland, "If you do not have a banking system, you're toast". Unless we want to reclassify ourselves as a Latin American country of the 20th century, we have to stick to the hard road. In future crises across the western world, the treatment of bondholders may well be handled differently, by agreement among the EU and the G20, but we cannot change the rules now, unilaterally and midstream acting as a guinea-pig, except at great cost to ourselves and to our reputation as a country in which to invest and to which it is safe to lend. Even the valid and reasonable distinction between senior debt and subordinated debt is, as we have seen, not entirely unproblematic for everyone concerned.

There are three reasons we need to achieve the 3% deficit target by 2014. The most fundamental reason is that it is the level that equals stabilisation of the public finances. At 3%, given minimal levels of growth and inflation, the economy is growing faster than the debt. For 20 years from 1988 to 2007, when the Exchequer was borrowing 3% or less or was in surplus, the national debt reduced steadily in gross terms as a percentage of GDP from a peak of 118% to a low of 23% in 2006 and 2007. The cost of servicing the debt, which was a third of all tax revenue and a quarter of the current expenditure in 1987, declined to a low of approximately 5% in both cases 20 years later. The main reason for reducing both debt and deficit is that otherwise we pre-empt and sterilise large amounts of taxpayers' resources for interest payments, which could be better used for economic and social purposes.

One does not have to be a member of the eurozone to be concerned to bring down the budget deficit to 3% of GDP or under. The British Government has announced a four-year plan to achieve the same in order to stabilise its public finances. As a eurozone member, we do not have the same degree of discretion. The second reason we have to reach the 3% target by 2014, which is already a one-year extension, is that we have agreed to do so with the EU Commission in the first instance and as a commitment vis-À-vis our eurozone partners. It has been clear, particularly since the sovereign debt crisis erupted earlier this year, in the first instance with Greece, that the health, indeed survival, of the eurozone depends on each individual member state, regardless of its size or centrality, taking the appropriate action.

As part of the criteria for membership of economic and monetary union, a deficit of no more than 3% of GDP has been a critical component. That figure first emerged from an informal Finance Ministers' meeting during Ireland's EC Presidency in 1990 in Ashford Castle, County Mayo. It was subsequently written into the Maastricht treaty of 1992, and ratified by the Irish people, with part of the package consisting of very substantial Structural and Cohesion funds, which we have well absorbed.

As a result of the global financial crisis, many countries are in deficit far in excess of that figure. It is not a valid argument to say that because France and Germany marginally exceeded that figure in the early years of the previous decade, the rule no longer applies. It clearly does, since we and others have to find a path back to complying with it. We have been given reasonable, but not unlimited latitude, as our situation cannot simply be attributed to external factors, but was as a result of imprudent behaviour by this country. The third, and even more compelling reason, is the expectation of markets, from whom we will be looking for borrowed funds again from January to be able to maintain public services, incomes and income supports, on which our people and the quality of our society depend.

I welcome the commitment of the main Opposition parties to the 3% target by 2014. It is an acknowledgement by them of the political reality that would immediately face them in Government. There is a public expectation that their approach be set out in more detail. The only comment I would make is that it would be unwise for them to rule out too much in advance, as otherwise there is a risk, as happened with the British Government recently, of having to accept apologetically that in certain particulars they would have misled the country.

The economic argument made by ICTU and the ESRI is that the pain should be more spread out over time. There would be a significant financial cost to that but more importantly, the approach would not be accepted by the Commission, our EU partners, or the financial markets. Heavily indebted states are unfortunately not as in complete control of their affairs as those which are relatively unencumbered. Nevertheless, we want to make the detailed consequential decisions ourselves, not leave them to the IMF.

There is no convincing evidence that Keynesianism works in an Irish context. It did not work in the middle or late 1970s, it did not work in 1980 and 1981, nor was it going to work in the initial phase of our present crisis in 2007 and 2008. The best boost to our economy and to confidence will be to put our finances in order, and take full advantage of recent improvements in Irish export competitiveness, together with any measures we can take to support jobs and improve performance.

Among more extreme and defeatist solutions put forward by one or two commentators are that we should leave the eurozone to permit devaluations, or leave the EU, or become the 51st state of America. Attempting any of those things would be far more damaging and disruptive than anything we must do now. They would effectively spell an end to Irish sovereign independence. We do not have the natural advantages of Norway and Switzerland to stay outside the EU. Few of us want to become an Anglo-American dependency or island tax haven. Geographically, culturally, and politically, we belong to Europe. How few of us would volunteer to apply to join a nuclear superpower militarily engaged all over the world, with the large divides in wealth that characterise the US, and, for all we know in the future, with a "Tea Party" President in the White House? The reality we must face for the moment is that we are closer to Frankfurt and Brussels than Boston or even Berlin. The social market economy patented by Ludwig Erhard and refined by Helmut Schmidt in post-war Germany is a good and successful model for us to adhere to. Unlike the editor of the Sunday Independent, and apologies to one of its columnists, I have no phobias about Ireland becoming more like Germany, as we belatedly internalise the logic, disciplines, and advantages, short-term and long-term, of eurozone membership.

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