Stephen Donnelly (Wicklow, Independent)

I would like to share my time with Deputies Higgins, Boyd Barrett, Catherine Murphy, Wallace and Pringle.

This is a very sad day for Ireland. The €46 billion that has already been put into the banks, coupled with this €24 billion, gives us a figure of €70 billion, which, conservatively, would eradicate poverty in Ireland forever but, unfortunately, we are putting this money into banks instead.

I say to the Taoiseach that I really hope it works. I am concerned, however, that the proposed approach is not radical enough. The logic is that more money, plus a merger of AIB and EBS, plus some deleveraging, will restore market confidence, get money flowing and lead to a healthy banking system. I hope it works but it is difficult to see how the stress tests will be accepted by the markets. The previous stress tests have eroded market confidence considerably as they were widely perceived to be a political exercise and far off the mark. Similarly, we now know that several of the worst case conditions used for the modelling for the stress tests have already been met, which is a matter for concern.

It is also difficult to see how the proposed restructuring will fix the problem as it does not address the underlying structural issues. They are that the banks have the same managers; they are operating in the same stressed market; they have huge liabilities which this proposed restructuring will not change; they have a diminishing asset base which this will not change; we now have huge moral hazard because the bankers know they can do practically anything and we, the people of Ireland, will bail them out; and we have a diminished ability on the part of the Irish people to continue to bail them out because of our increasing national debt.

I offer two policy approaches to the Taoiseach. The first is to consider a large scale debt for equity swap with the bondholders. This would have several advantages. First, it would clear up the balance sheets of the banks, which would allow them begin lending again, which is the whole point of this exercise. Second, it would ensure that the people who invested in the banks, that is, the bondholders, took responsibility for their own investments and they would now own the banks in which they had invested. Third, it would bring new financial sector expertise and discipline to bear on the Irish banks, which should improve their performance, which the Minister referenced as one of the things he would try to do through the new governance structures.

The second policy approach I suggest is that it is all right for banks to fail. We live in a market economy and in that system businesses which behave recklessly or which are unlucky, which is the case for many failed businesses throughout the country which cannot get capital from the banking system, are allowed to fail. The same principle is meant to apply to the banks. Banks are not above the markets. They are not sacred. They are simply businesses which buy and sell money and if they behave as they did, they should be allowed to fail.

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