Brian Cowen (Laois-Offaly, Fianna Fail)

I am making my contribution now and will listen attentively later to what Deputy Gilmore has to say. I do not believe it is in the interests of this country that we conduct political debate at that level on issues of such urgent public importance. There is a lot more in us and far more substantive critiques to be made than simply heading for the cheapest jibe or the biggest headline that can be got by way of what I regard as the tabloidisation of a very serious matter, a matter which we can discuss here and have a decent debate on and on which people can offer different views. It will not serve this or future Governments or this country now or in the future to conduct our affairs in that way. There are plenty of points that can be made and plenty of issues that can be raised, but I do not think that is the way in which we have to conduct ourselves. I do not care whether people agree with me on that point, but I wish to put that on the record.

We do not appear to have the capacity to deal with these matters in a calm and measured way, as people are entitled to expect at a time when we are trying to build confidence, avoid flights of deposits or people going into a different currency area and trying to ensure we can convey to the people outside and at home a sense of direction in terms of where the country is going, how we can deal with this situation and find the time and space to plan our way through what is a difficult crisis for whoever is in Government at this time. It is true that we have great difficulties and that families are worried but, thankfully, some 1.8 million people in this country are in work. Those people cannot be told they are living in a country described as an economic corpse. That does a great disservice to people who are trying to keep businesses going and provide employment. We all know there are many people sitting down with the owners of small and medium-sized enterprises discussing having to work one day less a week so as to prevent two or three colleagues being made redundant. There is much solidarity up and down the country. All I am saying is, let us have a debate but let us have a debate that recognises where the real economy is, what the funding problems are and what are the real alternatives and choices for this country in the face of what we are confronting.

I reiterate the point I made earlier, namely, what alternative is being put forward by the Opposition? What constructive alternative is being put forward to address our funding issues in relation to the economy, State finances and banking in the months and years ahead? Three issues arise, namely, whether one obtains funds at a more affordable price, whether one takes them at an unaffordable and prohibitive price or whether one decides to ensure one's revenues and spending are brought into line more quickly, in respect of which one is prepared to enforce deeper cuts, higher taxes, put more enterprises at risk and not use the adjustment period in a sensible, responsible and rational manner. Those are the choices. The same issues face any Government led by me or anyone else in the next quarter, year or the next three or four years, namely, how are we to fund this State's requirements beyond July of next year? The only way to do this is on the basis of the financial package set out and the basis of the calculation for the interest on which and the creditworthiness of this country being set out as outlined by me in Leaders' Questions.

We have a draw-down facility of €85 billion, consisting of €12.5 billion from the National Pensions Reserve Fund and €5 billion cash reserves. It has been mentioned in the critique that this is an unfortunate aspect of the agreement. How strong a position would we be in if we did not have our own domestic cash resources to contribute to such a package? Do people expect that we would have lower interest rates or that we would have to borrow less money, that in relation to money we have built up, which are not earning the type of interest which it would cost us to borrow on the market, that we should borrow more money while holding onto it? Clearly, that does not make sense in terms of the funding requirements of the State. Do people expect in the international arena that we will have access to funds from the IMF and EU while allowing our own cash reserves to be left unattended as a means of contributing to reducing our borrowing and funding costs? It is not realistic to put forward such a proposition. There is no Government of any composition that would be able to come forward and say that the €85 billion should be all borrowing and that we should not use €17.5 billion of our own resources towards ensuring we deal with these problems and put our economy back on a sounder footing. That is the contention that is being made. For some reason, it is being suggested that we had a weaker hand because we did that. We had a stronger hand because we did it. Had we conducted the policies suggested by other parties - they are on the record and I will not refer them now - over the past ten years in relation to that fund we would not have had these reserves in place. They would have contributed to the spend of the country and would not be available to us now. Those are the facts.

Another issue raised is that of senior bondholders, in respect of which the default argument has been put forward. I have only two points to make in this regard, the first of which is a more general point. Do people suggest that the default option is a consequence-free option, namely, that there are no consequences for this country should that be decided? As part of a wider currency area which goes beyond our own jurisdiction, do people suggest we have a unilateral ability to make that decision without consequences? If it is the view, as it was of other institutions such as the Central Bank and Commission, that it was not option upon which they were prepared to provide financial support for the country, are people on the Opposition benches saying they would have pressed that button anyway and would have forfeited the opportunity of getting the funding that is required? Perhaps the Opposition would like to outline what the consequences of that might be.

We are saying that, in the absence of agreement with our partners, this is an option that could not be effected. That is the situation To suggest otherwise is to suggest that it would be free of consequences. As has been said, in the considered view of the bank and others, it would affect the stability of the European banking system generally at a time of great dislocation in the markets, and add greater turbulence to them. It refers to 5% of the total debt, the unguaranteed senior bondholders. We have already been involved in, as a matter of policy, discounts in relation to junior bank bondholding debt for Anglo Irish Bank and others. This can have wider application in current circumstances as well.

All of those issues can be considered but to state at the end of the day that it is the solution to the problem is to fail to recognise what the consequences of those actions would be and what power Government would have unilaterally. Let us be clear about what is Labour Party policy. As I understand it, it is that we should never have had a guarantee and should have let the economy implode in 2008. Deputy Gilmore moved and said we should not have an asset management agency either and, therefore, the assets would not be segregated. He then said the bondholders should be burned and one senior Labour Party member said over the past 48 hours this should include senior bondholders. If that is his policy, he should state it and state what the consequences are in his considered opinion, state why he considers that to be a better policy and state why everyone in the European Union and the eurozone disagrees with him but he is right anyway. Everyone else is saying the policies of capitalisation, reorganisation, resolution and so on put forward have to be accelerated and more funds have to be provided to do that. That will contribute to greater stability. I cannot predict everything that will happen but all I can say is the balance of evidence is far more on the side of the Government than on the Opposition on these matters. If we never had a banking crisis, the people with whom we are dealing in the currency area make those points as well.

The Labour Party then suggested the European Central Bank should provide money at an interest rate of 1%. That is a totally unrealistic option. The ECB does not lend directly to member states. Again, that is nice populist argument that will find favour with people and leave it out there. Deputy Gilmore argues about the need for credibility. Where is the credibility in that argument when money is clearly not available to any country let alone Ireland at that interest rate? That is not the way central banks operate in the first place.

With regard to the circumstances in which all this happened, we had to make sure the parameters of the discussion were such that were we to apply, we were in a position to say, "Yes, this could be in our interest to do that". The suggestion is there were vested interests. Of course there were interests who were trying to suggest Ireland had opened negotiations when it clearly had not. When we indicated talks were going on in regard to wider currency issues, we had nothing to hide in this regard. It was only when the Minister for Finance with a mandate from the Government on the Tuesday went to the Eurogroup meeting and we agreed to short focus discussions with the IMF, the EU, and funds people in the Union and the Commission, that things moved along to the point where the following Sunday we formally applied because we believed that would be the best option available to us based on previous discussions.

There is no reference to a change in the 12.5% corporation tax rate in the agreements and the adjustments of €6 billion and €15 billion still form a central part of the correction programme but if in 2014 we have not reached the target of 3% of GDP, an additional year will be available to reach it. That is in the interest of the country and whatever Government will have the tough job of implementing what is necessary to bring this country back to financial stability, growth, jobs and investment in the future. Surely we should be able in the context of our discussions to acknowledge those as positives for whatever Governments will have to implement policies to bring about these options.

I have stated in the context of the four year plan the differences that exist in the tax and expenditure policies as best I can glean from the policy positions of the Opposition parties. The Labour Party said the ratio should be 50:50, €7.5 billion in tax and €7.5 billion in expenditure. Fine Gael says it should be 3:1 rather than 2:1 which is our position, which means 75% cuts and 25% on tax increases. I understand from Sinn Féin's submission that it wants 80% taxes and 20% cuts in the €15 billion adjustment. It would raise €12 billion in taxes and €3 billion in cuts. The Government's position, which we believe is consistent with maximising and retaining to the greatest extent possible jobs and providing for job creation in the future, as has been done in much documentation that has been issued in regard to the dynamics of the economy, is that the ratio should be approximately two thirds expenditure cuts to one third taxation increases, and we have put that forward.

With regard to the agreement, we know why we had to borrow if we are going be honest. We know what the options were and we know the details of the programme. Debt sustainability is then a big issue for the country. How do we make sure we have a sustainable debt position and that we are in a position to pay back the debt? That is outlined based on how the country performs and how the international economic environment works out but if one takes the central forecast in the plan, one will see prior to the programme being agreed the debt to GDP ratio would increase to 102% in 2013 and then fall in subsequent years. In other words, there will be a slight increase in borrowing as a percentage of what we produce as a country every year and then a reduction after 2013.

Even if one were making a sufficiently conservative and prudent assumption that the requirement of the banks is €25 billion out of the €35 billion contingency fund - I do not suggest that nor has the Governor of the Central Bank - then the debt to GDP ratio would rise to approximately 113% on the basis of the central forecast in 2013 and then reduce. The debt interest payment relative to the total tax take is 20 cent in the euro in the plan and it could rise to 23 cent in the euro at the peak point given the increase in the debt-GDP ratio as borrowing increases over coming years and then reduces. That compares with the debt interest payments we made in this economy in 1992 and 1993. We had a serious deficit and debt crisis in the mid-1980s for other reasons and we had a repayment of approximately 35% in terms of debt interest as a proportion of tax take. That gives an indication of the debt sustainability issues, which are challenging, tough and difficult, and we make no bones about that but we believe it is the right course of action.

Let us be clear. The main part of the facility is for ongoing funding of public services. If we never had a banking crisis, we would have had this difference between our revenue and expenditure and that has to be closed over the next number of years. We have to fund those reducing deficits and that is what this facility provides for us. That would not be affordable for us on the markets, which is the normal place the NTMA sources such funding on behalf of the State. If during the plan, normality returns to the markets, it will be open to future Governments to return to them and, therefore, we are not tied in to use the facility regardless of our circumstances but its availability provides us with the space and time we need to plan and provide for recovery in our economy. If we did not have that time and space, it would be most difficult for any Government to confirm both domestically and internationally that there is sufficient confidence in the funding of the State, let alone in regard to ensuring we can invest in growth.

The second part of the package relates to the banking facility. The Minister for Finance and others will go into that in detail but I make the same point about this. We need to have the markets acknowledge, understand and accept that the work being done has validity and that we are prepared to accelerate and deepen that work. The question, therefore, of capitalisation of the banks and doing what we can to reorganise them emerges. Reference is made to core and non-core activity. It is clear the priority of the Irish banking system should be to provide for Ireland's needs and if that means banks having to divest themselves of activities that benefit other economies as a result of previous expansion policies and the commercial presence individual banks had in other jurisdictions, then that will have to take second order to the primary responsibility they have, which is to serve the needs of the economy at this critical time. That is precisely what deleveraging and downsizing the banks is about, thereby making sure the exclusive focus of the banking system on the basis of further capitalisation is about providing the credit businesses need and getting themselves back to a position to be funded by the markets rather than through short-term funding available from the European Central Bank. It is true that the European Central Bank has been providing important liquidity funding for the Irish banking system since this crisis began because it is fundamental to making sure that business can continue to be conducted and that businesses can keep people in work. Had we seen an implosion in the banking system, which could have occurred and which was set out in reports far more dispassionate than any speech I can make, we would not have the numbers employed in our economy that we have today. The many difficult decisions that were taken by this Government were done exclusively in the public interest, and for no other interest, and we took those decisions based on advice given to us at the time.

Much has been said, but none of it has been withdrawn, in spite of the content of reports that can be brought to the Deputy's attention, but I do not expect to see anything withdrawn, because the Deputy might have to acknowledge that he crossed the line on a particular occasion. I am thick skinned enough to take it and I do not expect it to be retracted. It is part of the game.

According to those with whom we operate in the euro currency area, we must intensify our efforts on banking policy initiatives. For all the criticism made, the fact is that the balance of evidence is more in favour of this Government than the Opposition in respect of how we try to get a viable banking system up and running. The Deputy stated that one of the Labour Party initiatives is to set up a strategic investment bank and take €2 billion out of the National Pensions Reserve Fund. That will not be sufficient to fund the bank. I presume he will be looking for deposits. Deposits in the Irish banking system are where they are.

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