Dáil debates

Wednesday, 19 January 2011

Bretton Woods Agreements (Amendment) Bill 2011: Second Stage

 

4:00 pm

Photo of Joan BurtonJoan Burton (Dublin West, Labour)

The Minister of State has introduced a technical Bill before the House to provide for limited reform to the IMF Bretton Woods structures. It is interesting that these minor reforms, which are welcome, were agreed in April 2008, probably around the time Deputy Cowen, as incoming Taoiseach, was having his ill-fated dinner in Heritage House with the directors and chiefs of Anglo Irish Bank. Time moves on. It is ironic that we find ourselves here today the night after the same person, now Taoiseach of the country, survived a confidence vote. There is an importance consequence for this country from last night's events by which I am most disturbed. I refer to the announcement by the Taoiseach this morning that he is taking unto himself the role of Minister for Foreign Affairs. It is a mistake not to have a Minister for Foreign Affairs of this country but instead to have that office incorporated into the office of Taoiseach, a Prime Minister and party leader who must also lead his Government into a general election in circumstances where the leading members of that party are either retiring or Ministers are at odds with him. Both the Minister for Foreign Affairs and the Minister for Finance are clearly at odds with him. Now we have no Minister for Foreign Affairs. I suggest to Fianna Fáil Members that they might stop for a moment talking about Fianna Fáil's interest and think about the national interest and the job we have to rebuild our reputation and presence in international institutions, such as the IMF or in Europe and if it is in the country's best interest that we appear to have to wait for approximately another two months for a general election. We should discuss whether it is in the country's best interests to have the Prime Minister - the Taoiseach - who is busy enough both with national but particularly as we saw last night with party affairs also carrying the burden of the Minister for Foreign Affairs. This is particularly important when we have delicate negotiations to undertake to rebuild our reputation from the hubris of the Celtic tiger days when Charlie McCreevy used to step out of meetings in Europe and elsewhere and chide people who might have been critical of the Irish economic miracle or even questioning in a friendly kind of way. We have to rebuild those relationships because one of the most important jobs that will face the incoming Government is to try to reopen and renegotiate what has been agreed by the Government.

The legislation before us today goes back to 2008. In September 2008, the Government, supported by Fine Gael and Sinn Féin, tied the fate of our country to the fate of our broken banks with the introduction of a blanket guarantee of the banks' debts - a free lunch for existing senior and subordinated bondholders who had nowhere to run. What was a banking crisis soon became a sovereign debt crisis as Ireland was shut out from borrowing on the international markets at reasonable rates. It became clear that we would need external assistance to finance our deficit over the medium term and to manage the fallout from the banking crisis. In our time of need, we sought help from our international partners. That is one of the purposes of the IMF. We got help but at a very steep price. Bailing this country out of a debt crisis cannot be achieved by piling on ever more expensive debt. The EU-IMF deal carries a very high rate of interest which includes 3% or 300 basis points, which is in effect a penalty.

We should bear in mind that the German and the French banks which lent to reckless, out-of-control, unregulated Irish banks took a risk but the structure of the bailout is that they will be repaid in full. The first thing on the to-do list of the incoming Government after the election in a couple of months time is to reopen the EU-IMF deal to secure less onerous, but more achievable terms. If our friends in Germany think about this; what we need is not a Versailles deal, we need a Marshall plan approach so that we get a deal which will enable this country to recover and to repay our obligations, and the obligations the Government has unwisely added to the debt of the State. In the election, the Labour Party will seek a mandate from the people to reopen the deal so as to give Ireland as strong a negotiating position as possible.

It is clear that the Government, distracted by internecine conflict within Fianna Fáil, and with the Greens who unhelpfully announced a couple of months ago that they were leaving Government but then decided to postpone that particular event, took its eye off the ball in its dealings with the IMF and the European Union. Rather than lead the negotiations himself, the Minister for Finance, Deputy Brian Lenihan, handed authority over to his civil servants. Although he was not a negotiator the Minister seems to have been hovering somewhere up and down the halls of the Department of Finance perhaps popping into the rooms where the negotiations took place and getting advice from the various other institutions, but he was the one who signed the memorandum of understanding on the dotted line. He will never be able to shirk his responsibility for allowing a hopelessly inadequate deal to be negotiated for Ireland in his name and the name of the Taoiseach, Deputy Brian Cowen, and the name of Fianna Fáil.

We are to make penalty payments of up to 300 basis points, or 3%, on all moneys drawn down under the agreement. Before we entered into this deal the structure of such deals was that this country should have been able to secure an interest rate of somewhere between 2.5% and 3%. That is on the record of all of the institutions who were party to the negotiations. Despite initial insistence, the Taoiseach, the Minister for Finance, Deputy Brian Lenihan, and all the others claimed that the conditions of the deal were set in stone. I saw the Minister, Deputy Brian Lenihan, at the ECOFIN meeting on television glibly suggest in recent days, that hey presto, because he has matters to pursue within Fianna Fáil that the interest rate could after all be subject to re-examination, discussion or renegotiation. In the cold light of day, his statement at the doors of the ECOFIN meeting the other evening, as seen on television, constituted a recognition and acknowledgement by him that he had done a bad deal for this country. Whether the task falls to the Minister, Deputy Brian Lenihan, or to his successor, negotiating down the interest rate will be a delicate and difficult matter, but one of the utmost importance to the interests of every citizen of this country. If the penalty payment margin were to be halved, for example, to 150 basis points, that would bring down our annual interest payments by €1 billion in cash terms by 2014. Some of the people opposite have got too used to throwing billions around but €1 billion in the context of our stretched budgetary situation is not to be lightly cast aside.

Another major area for discussion must be the extent of burden sharing between taxpayers and bank bondholders. Chancellor Merkel made the common sense observation that investors who take a risk should not be given complete cover by sovereign governments. She obviously intended that remark to refer in a negotiated structural way to the future. Essentially, the content of her remark makes sense. We must do everything within our power to mend the damaged perceptions of this country abroad. That is why it is a mistake for this country to be without a dedicated Minister for Foreign Affairs for two months. The Minister of State, Deputy Mansergh, is a distinguished former official of the Department of Foreign Affairs. He is aware of the burden on a Minister for Foreign Affairs and that it is important that this country keeps a presence abroad.

We are a proud nation facing challenging times, but they are challenges we will overcome to thrive again. Those advantages we have of language, culture, education, our people and our presence in the eurozone and within the European Union have not in any way decreased our attractiveness to foreign direct investment. I hope that by next week the Taoiseach will have reconsidered this position. The IMF was conceived in the aftermath of a devastating world war and the great depression. The Bretton Woods system was established as a new economic world order. John M. Keynes was the principal negotiator on behalf of the United Kingdom, one of the victors in the war. He was upset and depressed and died shortly afterwards because he believed American cold war developing interests won out in the deal.

Representations have come from the Debt and Development Coalition. The IMF needs reform and this is a small reform but it is not sufficient. In recent years under the leadership of Dominique Strauss-Kahn the IMF seems to have learned that the disasters it delivered to countries in Latin America and Africa during the 1970s and 1980s amounted to an awful mistake.

I worked in Tanzania in the 1980s and I was honorary secretary of the Irish Anti-Apartheid Movement in the late 1970s. I have had extensive contacts with African countries. In some ways, the negotiators did to Fianna Fáil and this country what the IMF did back then. In those days, men used to have gold biros in the top pocket of their suits. One could see them sitting by nice swimming pools when their hard day's work was done. Essentially, when the IMF went into a country, it said what some in the ECB wanted to say to Ireland and Fianna Fáil, which bent the knee during the negotiations. The ECB said: "You have to give up all that you have. Are you willing to give up all that you have?" In the case of the Third World countries, it used to say: "Are you willing to give up free primary education and free rural health treatment?" They simply put red pens through those budgets. The IMF has reformed and realised that this approach was a catastrophe for democratic institutions in those countries . The IMF took out free primary education in Tanzania. If there were five children in a family and four were boys, who did not get education fees paid for primary school education? It was the girls who lost out significantly. However, the IMF has learned.

The deal concluded between Ireland, the European Union institutions and the IMF was the first of its kind after the Greek deal. Those in the European Union must begin to think about developing a model that includes eurobonds and a financial transactions tax for the vast amount of worldwide speculative transactions. Such measures would help to float the Irish economy such that we could repay our debt and return to growth and social solidarity in this country. In addition, such measures would help to fund investments in water, education and health services in the developing world. While I have no difficulty with the Bill, there remains a significant challenge for the IMF to improve and bring its approach up to date.

Some of the most stringent critics of the Irish bailout and what happened to Ireland include such people as Joseph Stiglitz and Simon Johnson, both former senior economists at the IMF. Having seen what took place and having lived through and experienced the worst days of the IMF arriving in Tanzania as I did, they know that austerity and too much suffering, to quote Yeats, "can make a stone of the heart". In debating this legislation there is an opportunity to reflect on how at the end of the recent negotiations, the IMF was almost more friendly to Ireland than the ECB and the EU institutions, of which we are sovereign members.

There are siren voices in the House and elsewhere who suggest we should leave the European Union. However, since our debts are denominated in euro, if we left we would have to recreate a currency and we would immediately be subject to a massive devaluation. One effect would be that mortgage holders would find themselves in the position of people in Hungary in recent years. All of a sudden, their mortgage debt, which was already a significant burden, was a vast extra burden because it was denominated in a foreign currency.

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