Michael Noonan (Limerick East, Fine Gael)

The deal is interesting, with some €85 billion available, €50 billion of which is for financing the day-to-day needs of Departments as described by the Minister in his introductory remarks. The profile of the three budgets to come does not add up to €50 billion but I presume there is an element of refinancing contained in the €50 billion sum as it is rolled over and refinanced. Some €35 billion is for the banks, with €10 billion going into AIB and Bank of Ireland up front and the contingency sum of €25 billion in case further black holes emerge. The Minister owes the House his view on this. Members were assured by the Minister, on the authority of the new regulator and the new Governor of the Central Bank, that AIB and Bank of Ireland were adequately capitalised. We were told tier 1 ratios were up to 8%, ahead of European norms. We had a series of European stress tests that said this was sufficient for the ongoing lending of the banks. Now the policy is to overcapitalise the banks in accordance with the old criteria. The €5 billion for each bank will amount to a tier 1 ratio of 12%, which is far beyond what we thought was necessary when we received assurances from the Minister in early autumn. Will the Minister explain what is going on?

Members in this House are aware of the flow of deposits out of the banks and we know the ECB has provided an enormous amount of money from the Irish banking system, at 1%, to maintain liquidity. However, the case has not been made by the Minister to explain why the banks must be recapitalised to the tune of 12%. It is unclear what the contingency money is for. Even though the ECB is much criticised, it continues to be committed to providing liquidity necessary for the Irish banking system at 1%, to see us through this crisis. The €35 billion in contingency money is not for liquidity purposes. The €35 billion in reserve is for further recapitalisation. What are the circumstances the Minister envisages that will require further recapitalisation above 12%, when this is at the upper end of the recapitalisation of any bank in Europe at this point? I have been talking to people on the regulatory side and they are not aware of any potential black hole. Is it all a magic trick where confidence evaporated from the Irish banking system and the money in contingency will never be used?

There is a view that the amount required for the banks is in excess of €35 billion, a view recited by independent economists. Perhaps the Minister might clarify if the €85 billion is a unified pool of money that can be used at the Government's discretion on the fiscal side or on the banking side and that it is not really divided into €35 billion and €50 billion but the sums are interchangeable if much more is needed on one side rather than the other. The interest rate is also inexplicable. Greece borrowed at 5.2%, while Ireland is working out at 5.8%. On this side of the House, it is impossible to get a straight answer to a simple question of how was this interest rate is built up. Is it calculated on the basis of the full €85 billion, including the €17.5 billion from the Irish pension funds and all resources? If it is, what interest is implied in this amount? Is it a notional 1% or a higher rate? If it is 1%, does that not suggest the money coming from elsewhere is at a much higher rate than 5.8%? I understand when everything is taken into account, including the transfer of a basket of currencies into euro, that the IMF money works out at approximately 5.5%. We cannot get an answer to the question of what interest rate is being charged on the two European funds. Is it variable, and is it really close to 7%, which one calculation would suggest? That is a composite rate of interest on a fund which is being drawn from four different sources. I want to know what is the interest rate on the European component and to what degree the Minister's negotiation with his colleagues in Europe was effective? Is it, as many people say, a punitive interest rate to teach the Irish a lesson or is it a market interest rate on funds that they will have to acquire on the open market?

What kind of resistance did the Minister put up to the use of the Irish pension fund? The fund was introduced by a predecessor of the Minister, Charlie McCreevy, at a time when the State was running surpluses. We had long debates on the matter in this House. The fund was always presented on the basis that a pension crisis would emerge around 2025 and that 20 years later there would be an unsupportable pension burden and that we needed to put money away to fund future pensions. It would not only be used to fund public service pensions but pensions payable to persons based on their PRSI payments. People were counting on that. Those who were hard working, who were fearful for their jobs, saw the fund as their safety net. They said that whatever happened in the economy an enormous pool of money was underpinning their future pensions. The fund gave the country a great sense of security. Of all the things that happened in the past week, the grab of the pension fund money to bail out an inept Government has been the biggest psychological blow to the people because that is on what they were building their hopes. They may have been wrong in the way they perceived the pension fund and that it would save their pensions in the future but the fact of the matter is that is what they thought about it, that is what they felt about it. It was very bad negotiation to pull the rug from under so many hard-working people in this country and to give the pension fund to the banks.

The banks are not very popular in this country. We are in the third year since the Minister introduced the infamous guarantee in the last days of September 2008. No file has yet gone to the Director of Public Prosecutions. I forget how many times I have said that in this House. The two investigations are ongoing. The previous time I asked a parliamentary question for written answer, approximately seven weeks ago, the Minister told me that of the 65 directors who were in the covered institutions at the time of the crisis in September 2008, some 32 are still in position. When companies go bust the norm is that the first thing one does is to take out the management team and put in a new one. As I said previously, I am not ascribing personal blame to the directors or the bank executives who were in place when the crisis occurred, but it happened on their watch.

There is such a thing as moral hazard. It starts with the individual management and board of directors and then it goes to the institutions. It is a principle of moral hazard in the context of liberal capitalism that if one behaves recklessly, one gets punished. One gets punished because one deserves to get punished and it is an example to everyone else in the system that if people behave recklessly they will be punished also. The principle of moral hazard applies not only to those who invested as shareholders and lost all their shares, as happened in Anglo Irish Bank. It also applies to those who borrowed recklessly, which has happened right across the banking system. It further applies to those who lend recklessly. The only part of moral hazard that seems not to be understood in this country is that those who lent recklessly can walk free and the taxpayers have their liabilities transferred to them. There is no work-out of the situation where the concept of moral hazard applies to the bondholders who lent recklessly and who fuelled the problem in this country by setting the country awash with cheap money.

I know that issue came up in negotiations and that there were different views among the representatives of the agencies at the other side of the table but at the end of the day the view of the European Central Bank prevailed that senior bondholders were untouchable. My view and that of my party is that if there had to be a work-out with senior bondholders it could only be done under the umbrella of the European Union. That was not the situation two years ago. Anglo Irish Bank could have been wound down. The State had no involvement in it whatsoever. It was a developer's bank. It was privately owned and underpinned by private shareholders. The State had nothing to do with it until the Minister nationalised it. Then bank debt became State debt and now there is a problem. Anglo Irish Bank is no longer a licensed bank. It is moving to a situation where it is no longer part of the Irish banking system.

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