Martin Mansergh (Tipperary South, Fianna Fail)

I thank Deputies for their contributions on this important motion. It is a Government motion, not a Fianna Fáil one. The Government comprises more than Fianna Fáil members. There will be many other opportunities in the near future to talk about wider issues concerning both the past and future. We are debating the extension of an existing scheme, not a new one.

More than ever before, this is a time for realism and an objective assessment of the situation. As stated by the Taoiseach earlier today on the Order of Business, the necessity for the bank guarantee arrangements was compelling. As the Minister for Finance stated at the time the scheme was extended at end-year on 29 September 2008, had that guarantee not been introduced we would scarcely have an economy today, never mind a banking system.

Some reference was made to the misgivings of the former head of the NTMA, Dr. Somers. As he has admitted himself, however, he did not pass that on, or certainly not at a political level. Some of the criticisms suggest that the Government should have taken in the whole situation and all the future consequences on or before the end of September 2008. The Government was not able to foresee all that has developed since, but at all times it has acted in good faith. The entire banking system faced collapse at that time and funding for our banking system has all but dried up. In other words, there was a liquidity issue at least in the short term and the banks faced closure within days. This is starkly illustrated in the report by the Governor of the Central Bank, Professor Honohan. In the first chapter of the report, referring to the discussions that took place on the night of 29 September 2008 - he was not governor of the Central Bank at that time - Professor Honohan stated

It is hard to argue with the view that an extensive guarantee needed to be put in place since all participants rightly felt that they faced the likely collapse of the Irish banking system within days in the absence of decisive, immediate action. Given the hysterical state of global financial markets in those weeks, failure to avoid this outcome would have resulted in immediate and lasting damage to the economy and society and there would have been additional lost income and employment surely amounting, if it could be quantified, to tens of billions of euros.

Unfortunately, some commentators have chosen to ignore Professor Honohan's conclusion entirely. They have obscured and confused it in the public's mind by relying on criticisms the Governor made to the scope of the guarantee - for example, the inclusion of dated subordinated debt. The Minister for Finance has responded to and addressed these points on many occasions. Even in today's conditions, we see the treatment of subordinated bondholders is still capable of causing some turbulence, as I think one speaker accepted by implication.

There have been blanket guarantees in the past, notably in Sweden, which is often regarded as a template for dealing with a banking crisis. That country provided a blanket guarantee in the 1990s. It could be argued that we were exceptionally vulnerable in the situation that had developed. A comprehensive guarantee of bank liabilities was an established part of the standard tool-kit for responding to systemic banking crises internationally, and it continues to be so today. As I have said, other countries such as Sweden in the 1990s and Denmark in the current crisis, have introduced extensive guarantees of bank liabilities. The UK authorities provided a broad guarantee to existing senior bondholders in Northern Rock. Guarantees are a facet of the response of EU member states to the ongoing financial crisis. Ireland has not been alone in providing a guarantee to underpin the funding position of its banking system. We were the first to introduce a guarantee but we were quickly followed by other EU member states. Recent figures from the European Commission suggests that since the onset of the crisis in 2008, under state aid rules the Commission authorised some €3.6 trillion in guarantees. In total, some 21 guarantee schemes were approved by the Commission and 12 of them remain in force today. The latest figures indicating some €147 billion of liabilities are guaranteed under the eligible liabilities guarantee scheme, which equates to 4% of the amount authorised by the Commission. Member states implementing guarantee schemes include Austria, Germany, Netherlands, Portugal and Poland. Commissioner Almunia, the Vice-President of the European Commission who is responsible for competition policy, indicated in a speech earlier this month that his current idea is to extend the European Union's financial crisis regime, which will include national guarantee arrangements, until the end of 2011.

We must understand the distinction between what was necessary to stabilise the situation and what is sufficient. The steps taken from September 2008 were certainly necessary. To date, that has not been sufficient to provide normalisation of the banking system, far from it. However, it does not follow that because of the lack of sufficiency, all or many of the earlier measures were not necessary.

Along with the eurozone as a whole, Ireland remains in stormy financial waters. The prolongation of the eligible liabilities guarantee scheme is a key element of the Government's response to the broader systemic challenges facing the banking system. I reiterate the State's commitment to safeguard the interests of depositors in Irish banks. The objective is shared by the eurogroup and supported by the European Commission, the ECB and all authorities with an interest in continuing to maintain the stability of the Irish banking system. In that regard the European Central Bank continues to meet the liquidity requirements of the banking system. This scheme guarantees the security of all deposits in the participating institutions, along with that of other bank liabilities guaranteed under it. The scheme complements the protection afforded to all deposits up to €100,000 under the permanent deposit guarantee scheme, which has no expiry date. As the Taoiseach stated yesterday, the protection of depositors remains one of the overarching priorities of the Government in responding to the difficulties in the Irish banking system.

In response to Deputy Brian Hayes, the urgency of approving the eligible liabilities guarantee scheme and providing certainty about its extension should be evident to all. Failure by the House to approve the scheme would exacerbate uncertainty regarding the future funding of Ireland's banking system. At this time of market turbulence, a decision now on the extension of the eligible liabilities guarantee scheme is not only necessary, but also a responsible action for the State to take to underpin the funding position of the institutions. Delay would only fuel uncertainty and weaken the banking system. In addition to the eurogroup statement, I draw attention to the European Commission state aid approval and endorsement of the guarantee by the ECB on financial stability grounds.

Deputy Brian Hayes, Deputy Burton and possibly others raised the question of a bank resolution regime. The Minister for Finance recently indicated in the House that he was examining options for the introduction of a legislative regime to deal in a systematic way with distressed financial institutions to ensure the State has a range of tools to address problem institutions effectively in the interests of maintaining financial stability, minimising reliance on public money and ensuring continuity of key banking activities. In view of the central role performed by central banks in resolution frameworks for financial institutions, the Department is consulting with the Central Bank to develop the necessary legislative proposals. The Minister expects this process will lead to the introduction of an appropriate legislative framework for bank restructuring in line with what the House wishes to see.

Several Deputies raised the involvement of outside parties. The Irish Government has expressed its determination to work with its EU colleagues and specifically to work with the ECB, the Commission and the IMF to address these market turbulences, to see where there are credit risks to Ireland in the market and how they can be addressed. Talks will begin at official level in Dublin this week, with a delegation from the IMF, the European Commission and the European Central Bank on the possible use of EU and IMF funding to deal with the banking crisis. I welcome the statement by the British Chancellor of the Exchequer. In 90 years of independence I do not believe there has been such a statement made of the degree to which the British economy depends on the Irish market.

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