Joan Burton (Dublin West, Labour)

When I worked as an accountant, there were a number of simple rules in respect of accounting and the concept of whether a firm, company or perhaps a country is a going concern, that is, can expect to continue in ordinary business for the foreseeable future. The test of being a going concern in accounting is whether one can meet one's debts as they fall due for payment. The difficulty for Ireland in the current situation is that were we simply facing the issue of the fiscal deficit, although we would be obliged to effect reforms and probably some cutbacks, we undoubtedly could meet our debts as they fell due, on foot of understanding arrangements with our creditors and supports from appropriate support sources.

I will outline what has sunk Ireland in respect of being solvent because in business, unless one is able to meet one's debts as they fall due one is insolvent. If one has access to funding from other sources, such as a friendly bank, one's great-aunt or someone who will lend one money for the business, one is only technically insolvent. However, what has sunk Ireland is that in addition to Irish obligations arising from the fiscal deficit, on the night of the blanket bank guarantee the State decided to take on all the debts of the banks unilaterally and unconditionally. This was not limited simply to depositors, as recommended by the Labour Party to the Minister for Finance two or three weeks before the blanket guarantee. I am sure what I wrote to the Minister resides somewhere within the archives of the Department of Finance. Consequently, the banking debt is joined to the State debt. When people consider Ireland, they see a small country with an open economy and a relatively small population when compared with the United Kingdom or many other European countries. They ask, as they might of a firm, whether this small country can meet this extraordinary level of debt comprising both the ordinary fiscal State debt and the debts the country has taken on in respect of the bank guarantee. Unfortunately, the answer consistently is that although they like Ireland, which has done some great things, they do not consider it can meet those extraordinary levels of debt because of the banks.

This is the difficulty and is the reason for a decision made by the European Commission, perhaps two or three weeks ago but probably as early as the end of August when the Governor of the Central Bank was writing increasing numbers of cheques for Irish banks that no longer had collateral. Someone within the European Central Bank, which already was into the Irish banks for €90 billion in advances at a rate of approximately 1.5%, said stop. Since then, the Government has been struggling to escape the fate into which it delivered Ireland on the night of the blanket bank guarantee. One can put all the fine and fancy words or reports that one wishes on the blanket bank guarantee. There of course were advantages to Fianna Fáil in the manner in which the bank guarantee was implemented. It was a surprise move and the Government had first-mover advantage, as no one had ever done this before within the European Union. Many other countries were angry, perplexed and enraged, as were the Germans in particular. Members should recall this was after the episode involving DEPFA Bank and Hypo Bank, which were located in and linked to the IFSC, even though we managed to avoid taking responsibility for them.

Ireland used up a great deal of credit by stating this was the cheapest bank bailout in the world and that it had stolen a move on everyone else within the European Union. For instance, the Hungarians were distraught because they faced their own problems. Similarly, the Brits were distraught because they had their own issues, as were many other member states. Consequently, while the Government now states that Europe went along with the blanket bank guarantee, perhaps it did but people did so because it was a first mover and they were left with very little option. Moreover, I refer to the pressure from Fianna Fáil within the Dáil and the bullying with regard to the national interest. Fine Gael buckled under the bullying and Sinn Féin buckled under the demands of Fianna Fáil. Sinn Féin, Fianna Fáil and Fine Gael all voted for the guarantee. That was not a good judgment call for two reasons. Not only did the blanket bank guarantee include subordinated debt, which was extraordinary, but it also included a lot of senior debt.

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