Arthur Morgan (Louth, Sinn Fein)

At outset I should make a confession to the House. I find the Minister of State, Deputy Mansergh, an interesting person. Perhaps one of the reasons why I find him interesting is because of his capacity for understatement. He told us in his contribution on this motion that the Irish banking system is facing ongoing funding challenges. That is news. There are a couple other gems from the same interesting Minister of State, such as "Market conditions have not normalised for credit institutions in Ireland". Who would have guessed? Other gems are include, "Market conditions remain turbulent at present" and "The Government is determined to rebuild consumer and investor confidence in our financial system". How and when will that happen?

There is no consumer confidence at the current time and there is no thrust in the way the Government is handling the crisis, in terms of the economy and banking. The entire focus of Government policy in the past two years has been exclusively on the banking sector. Where are we now? We are in a deep black hole. The Taoiseach is also given to understatement. He told us today at Leaders' Questions, when he was quizzed about the IMF and the EU officials coming in, that the Government will sit down with officials and colleagues to examine the issues that arise. Perhaps afterwards they will retire to Temple Bar for some refreshments.

He told us, in regard to Europe and the past few weeks, discussions took place in recent days regarding some of the technical issues. They were not talking about a bailout. There was no negotiation with the banking sector. We are getting some information from this Government. There were no negotiations on a bailout, rather, there was a discussion about technical issues. The game is up for this Government because as we speak the hotel rooms and aircraft seats are booked for the IMF officials to parachute into this State and see exactly what is going on. They are fed up listening to this Government and cannot believe a word that comes from it.

I do not think the EU is asking the Government what is going on, rather, it is acting. That is why we had the announcement last night that the officials are coming in to slide aside what is left of the corrupt bankers, examine the real situation and put its auditors and examiners into the Department of Finance to see exactly what is going on. Of course there will be some platitudes. We heard the Taoiseach read out a statement today from EU officials which commended the Government and so on, which kept everybody happy and tries to keep the market steady because we do not want to stir the troops too much or have Ireland become Greece and have hundreds of thousands of people on the street rioting. The officials have thrown a few fancy platitudes at the Government to make it look like we are all buddies.

Meanwhile the officials were told to get on the aeroplane, get into Dublin and sort out what is going on. That is exactly what is now happening. The financial needs of the banks far exceed the fiscal capacity of this State which is a serious problem that has not been sorted out. What is going on? The Minister for Finance is running around Europe trying to concoct a yarn and project the nonsense that somehow it is the banks that need to be bailed out and Ireland is sound. It seems to be the case that if he can concoct a story that it is not a bailout for the State and it is just the banks that need a few bob, then the bluff can continue.

Any support of the banks, because of the guarantee scheme, makes it a sovereign issue. The EU is having none of this bluff from the Minister for Finance and the Government. It is now telling them that the officials are going in. Not only did Fianna Fáil ruin the economy of the State, which it did in style, but it also almost ruined the euro as a currency. If that happened, where would the very structure of the European Union be? It would have been threatened. That is some going for what, in relative EU terms, is a small political party, which almost wrecked the entire shop here. What are the means of the Irish banks? According to EU officials, they require a further €80 billion to €100 billion to be poured into this black hole, which is way beyond this State's fiscal capacity. Therefore, there is no option for the Government but to bring in assistance. This would not be necessary if the proper steps had been taken from day one in September 2008. I agree with Deputy Brian Hayes' earlier comments that we were completely and utterly misled. We were misled not just in this House, but also by Department of Finance briefings at the time to the effect that this was a liquidity issue, not a solvency one. We were told that they just wanted to bring the guarantee in for 12 months so that the liquidity would flow back into the system and we could all live happily ever after. Of course, we now know all about the merits and veracity of that comment.

It is amazing that even the Brits are looking in on the job now. George Osborne is running around, putting his hand into the British exchequer to throw us several billion euro because he thinks that the interest he will charge us for it is good value. This further diminishes our sovereignty, which was substantially diminished in any event by a whole series of EU referendums.

Anglo Irish Bank was the cornerstone of this collapse. We know the running around town that was going on with the bank's senior officials. We know about their relationship with supporters and members of the Government. It is incredible that the situation was allowed to prevail as long as it did. A State bank should have been established at that time, which would have brought some stability to the economy. It would have offered some integrity to savers, investors and borrowers. The Government would not consider that option, however, and had no intention of displaying that type of integrity. It had a different mission.

Let us look at the implications of the IMF coming in. I agree with what Deputy Burton said about the IMF's agenda, which would be to slash public services. She said the IMF would count hospitals and it will not take them long. The Government has already closed a substantial number of acute hospital beds and the IMF will help with that project because that is its agenda. It will ensure that public services are slashed and there will undoubtedly be huge tax hikes on low income families, while welfare will also be hit. Meanwhile, there will be no stimulus package to generate economic enterprise and get people back to work. There are almost half a million people still on the live register.

When the Minister of State, Deputy Mansergh, introduced the original ELG scheme in the House last December, he advised that these provisions enhance the banks' ability to discharge their central role in facilitating economic activity in this State. He advised that allowing institutions to issue unguaranteed debt was "key to restoring market confidence in the institutions". I do not think so, however. This market confidence today strongly resembles uncertainty and distrust. Just look at interest rates alone. Last week, the interest rate attached to ten-year bonds issued by the Irish Government rose to the once unimaginable level of 9.26%. It was 7.8% after the Government announced that it was front-loading €6 billion worth of adjustments. A week before, this rate stood at 6.8%, a month ago it was 6.5%, and a year ago it was close to 4.7%. We have, therefore, a clear trend of Government incompetence and its consequences on international markets.

What is now happening is that the dire state of the Irish banking system and its inability to recover is making an EU bailout a reality. The Government is providing money to banks in previously unimaginable quantities, but it has done nothing positive to get those banks functioning. In the first instance, it should have let Anglo go.

If the banking policy is working, and we are told that it is, and if deficit reduction through a policy of cuts is working, why is it becoming harder for this State to avail of international funding? That is something the Minister cannot answer, although I hope he will try to do so when replying to this debate.

To the international media, the Minister for Finance has made a distinction between the State, which was insolvent but liquid, and the banks, which were both broke and cashless. We are supposedly experiencing a banking crisis rather than a national one. However, having underwritten the banks two years ago with a deal that guaranteed virtually all the bondholders' risk, the Irish taxpayer has seen the cost of the bank bailout rise to between a quarter and a half of GDP.

The Government's open-ended commitment to cover bank losses plainly exceeds the fiscal capacity of the State. The losses of the banking sector have become those of the taxpayer. Bank debt has become sovereign debt and that is the problem because ordinary citizens are suffering for these failings.

An Irish bailout costing at least €100 billion has not been sufficient to save the banking sector and now the threat of an EU bailout looms. Barclays Capital said that any aid package intended to stabilise the situation in Ireland would require at least €85 billion. EU governments are only likely to grant emergency funds in exchange for conditions set and enforced by the European Commission and the IMF.

Such a bailout, as was seen in Greece, will force greater, harsher budgetary measures on Ireland and will diminish our economic sovereignty. Like the Greek bailout, this will come at a crippling cost not for bankers, developers or politicians, but for ordinary people struggling to survive. Even then, it is highly unlikely that it will benefit the economy. Just look at Greece now. On Monday, it said it would miss a target to reduce its government deficit to 8.1% of gross domestic product this year, which was set after Greece took a bailout from eurozone countries and the International Monetary Fund. Instead, Greece now says the deficit is likely to be 9.4% this year and that government debt will total 144% of GDP at the end of 2010.

The current situation concerning bond yields feels eerily similar to what happened months ago in Greece. In Ireland, however, banking troubles lie at the root of what many in Europe are now calling a solvency crisis, reflecting long-term concern over Ireland's ability to repay its debts, as opposed to the lack of short-term funds that forced the Greek rescue last spring.

Ireland is beyond fiscal plans as long as there remains a bottomless pit of losses in the banking sector. The credibility of the Government's banking strategy is shot. The lender of last resort is closing its doors to Irish banks and it is clear that the Government's failed banking strategy is leading Ireland down the path of EU/IMF intervention. They will arrive tomorrow.

As I said earlier, the dire state of the Irish banking system and its inability to recover is making an EU bailout a reality. We are being told that any bailout would be for the banks, but the State is tied to the banking sector. This bailout will be dressed up as a bank rescue and so the mess continues.

I appreciate that some of the contributions in this debate are designed around the general banking system, as opposed to the specifics of the guarantee scheme. I think that is inevitable, however, given the state we are in.

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