Brian Cowen (Laois-Offaly, Fianna Fail)

Deputy Kenny raised a good point. There would be political discussions at the European Council dinner about this whole matter. It is important the confidentiality of much of these discussions would remain so as to allow people to be open and frank about prospective issues, developing trends and the assessments from the Commission and European Central Bank. The Euro Group, under the presidency of Jean-Claude Juncker, prime minister of Luxembourg, is actively pursuing investigations into other possible measures. The problem is if a signal is sent to the markets that existing measures are inadequate with more to come, a feeding frenzy that can never be filled results. As Deputy Kenny will be aware, there are many views taken in these markets.

The issues driving this problem are the debt levels and prospective sustainable economic growth rates in European economies. In turn, the interest rates charged for international money on wholesale markets makes it difficult for a more optimistic approach to be taken by those who assess and determine interest rates in the currency markets. The determination by EU governments, therefore, to co-ordinate and consolidate on this matter, and the demonstration and implementation of such actions, is an important factor in building confidence in the seriousness of sorting these problems out in the general European economy and economies within it.

That is the issue that affected Ireland. With the Greek crisis, there was a shift in sentiment as to the level of interest rate required from capital markets for sovereign debt. Subsequently, there was a slight rise in rates in the autumn. The publication format of the global declaration sent a signal to the markets that made them jumpier. The interest rate premium for Ireland, subsequently, went from 7% to 8.5% in three days. That is when we had to decide to pull out of the markets for funding the sovereign debt.

The IMF-EU option, accordingly, became the best option for Ireland, simply because money was cheaper from that source. Countries are funded by sovereign debt markets; if not, their only other source is the IMF. The EU has now taken up a competence in this area too. The joint EU-IMF fund now provides the funding stability for Ireland for the next several years that will give us the time and space to implement the economic policies that are necessary to reduce the budgetary deficit.

The national debt was reduced substantially in the good times to a ratio of only 12% of GDP, if the National Pensions Reserve Fund is included. It, however, increased to a ratio of approximately 115% but is going back down. In the 1980s, Ireland had a debt to GDP ratio of 133%. That gives an indication as to what must be done. The absolute priority for this country in the coming years is to implement the fiscal plan in place. While it might be a matter for debate when the election comes up, in my opinion there is no other show in town. There may be discussions around the edge of the plan. However, we must show a determination to reduce our deficits. We will spend €18 billion more than we will bring in this year. The figure in this regard will be reduced during the lifetime of the plan in order that we can return to a position where there will be a degree of equilibrium in the public finances. In other words, there must be a greater correlation between the amount we spend and the amount we take in.

There is an easy way to explain what is required. The plan is to return spending levels, which are currently at 2010 levels, to 2007 levels. In addition, taxation is currently at 2003 levels and these must be brought up to 2005 or 2006 levels. This will create the 3% buffer that is regarded as being sustainable. In many cases, one's capital programme is of the order of 2% to 3% and borrowing for capital, with an adequate and appropriate return, is financially feasible. However, one cannot continue to borrow for day-to-day purposes on an ongoing basis, particularly as this increases one's level of debt in circumstances where one lacks the capacity to eventually repay one's loans.

Part of the problem we faced was that people in the debt markets and individuals in certain institutions who should have known better were suggesting - this was echoed to a certain extent in the article in The Irish Times on Saturday last - that Ireland would be in default. Ireland did not enter the EU-IMF mechanism in a default position or in a position similar to that occupied by Greece earlier in 2010. We had pre-funding in place for the period up to June or July of this year. There was an opportunity for us to lay down parameters that would enable us to engage in the discussions which took place in a way which led to the emergence of a four year plan, 95% of which was drafted by the Irish Government and its officials.

That is an important point to make because it highlights our determination and sovereign will, as a country, to face up to our responsibility to deal with this issue while also acknowledging that we lack the capacity to deal simultaneously with a banking crisis and an economic crisis of the magnitude of those currently being experienced. It also highlights the fact that we can find a way through our current difficulties in a way that will maintain stability and social cohesion. I accept this will be a challenge but it is possible with the right policies, which balance the need to foster enterprise, job creation and growth with the imperative to maintain - while taking account of our current circumstances - public services at a certain level and in an efficient and effective way.

The question posed by Deputy Kenny is good. It is true that we cannot renegotiate our deals unilaterally. It is in the European context that this will happen. The developments that will take place in the context of policy initiatives will increase the range of mechanisms available to us to deal with what I regard as the basic issue relating to the interest rate problem in debt markets, namely, the size of sovereign debt itself.

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