Pearse Doherty (Donegal South West, Sinn Fein)

Go raibh maith agat, a Chathaoirligh. Tá tú iontach flaithiúil. Sílim nach mbeidh mé ag glacadh an ama uilig ar an Chéim seo den Bhille. Sin ráite, tá sé íontach tábhachtach go mbeadh deis againn an Bille a scansáil agus a phlé amach go maith nuair atáimid ar Chéim an Choiste. Mar a tharla le cuid des na Billí a tháinig os ár gcomhair go dtí seo, go háirithe an Bille Airgeadais (Uimh. 3), nuair atá an Dáil ag tabhairt tacaíocht do Bhille, ní cheart go mbeimid ag labhairt agus ag labhairt. Is ar Chéim an Choiste a mbíonn am de dhíth orainn le plé a dhéanamh ar Bhille.

I welcome the opportunity to discuss the Central Bank and Credit Institutions Bill 2011 because it is extremely important and will require the careful consideration of the House. If it is to become a useful tool in dealing with future banking crises it is important that all sides of the House have the time and opportunity to deal in a meaningful way with the Bill and to try to shape it, particularly on Committee Stage. I want to emphasise this point. The lesson learned from legislation that has gone through the House so far is that where there is broad agreement there is no need for open-ended debate and Deputies on this side of the House will not abuse the system. However, where time is needed to deal with the detail of legislation, particularly on Committee Stage when we get into the nuts and bolts of what is contained in a Bill, it is important that time is set aside. I am sure the Government will assist us in this.

Last December, Fianna Fáil rushed through in a heavy-handed way the Credit Institutions (Stabilisation) Bill. One of the reasons Fine Gael and the Labour Party joined Sinn Féin in opposing that Bill was because the Government refused to allow adequate time for discussing and amending the Bill. I hope the Government affords us the opportunity to deal with the amendments that will be tabled. I am aware the Government also proposes to table amendments. It is important that we shape the Bill and have the time required to do so as the Government parties demanded when they were in opposition.

Sinn Féin supports the introduction of special resolution regime legislation. We called for it in the previous Dáil and we welcome that the basis for it has been proposed in the Bill. The financial and banking crisis of recent years has exposed the inadequacies of commercial law in providing the necessary tools for dealing with insolvent banks. There is a clear need for strong powers to be invested in the Minister for Finance and the Governor of the Central Bank with adequate oversight by the Oireachtas to enable the State to wind down failing financial institutions in a way that protects ordinary depositors and taxpayers.

While it is probably too early to say there is a model of best practice in the design and implementation of such special resolution regimes, there is growing international consensus on the basic requirements. However, having the right tools is only half the job as we all know. Governments must have the political will to step in and use these tools not only to ensure the stability and effective functioning of the financial system but also to protect the broader public interest. This is important because unless this Bill is used in the proper way and unless the political will exists to do so it will be meaningless.

Prior to considering the ability of the Bill to meet the challenge of future banking crises, it is important to deal with the more urgent issues of how to free the State and taxpayers from the enormous liabilities imposed by the previous Government's disastrous banking policy, a policy which is now being followed religiously by the new Government. Recently, I took the opportunity to re-read some of the transcripts of last December's Dáil debate on the Credit Institutions (Stabilisation) Bill. I wanted to refresh my memory about what was stated at the time about that legislation, which was rushed through the Dáil, particularly by Members of the Labour Party and Fine Gael. Some of the comments are very interesting.

Deputy Leo Varadkar was particularly critical of the failure of the Bill to include "any provision for the restructuring of the debts of senior bondholders, particularly those who are not under the guarantee". He rightly described the failure as the big lacuna in the Bill. Deputy Joan Burton made a similar point in her remarks, when she described the Bill as too little too late because "it does nothing to address the treatment of liabilities other than subordinated bondholders. It fails to address the issue of senior bondholders now out of the guarantee". The criticisms of Deputies Varadkar and Burton were on the money. The Credit Institutions (Stabilisation) Bill should have provided the Government with the legal tools necessary to impose significant burden sharing on senior guaranteed and unguaranteed bonds.

Having made such trenchant criticisms of the Bill last December, many of us expected that as both Deputies now sit at the Cabinet table, Fine Gael and the Labour Party would have ensured the revised Central Bank and Credit Institutions Bill now before the House would fully and adequately address this major issue and that burden sharing would be on the agenda. However, when we examine the content of the Bill - and I acknowledge it is Fianna Fáil legislation - we see it fails to deal in any way with the issue of senior bondholders in covered and uncovered institutions.

Worse than this, it takes a backward step from its emergency predecessor of last December by submerging even the now uncontentious junior bondholders into the general category of creditors. Worse still, the Bill leaves the matter of how best to deal with bondholders at the discretion of the liquidators appointed by the Governor of the Central Bank. This is despite the fact that best practice suggests that a special resolution regime should clearly outline how best to deal with creditors. As it stands, the Bill leaves this crucial area of decision-making to the liquidator.

The previous speaker spoke about the announcements made by the Government. With regard to unguaranteed debt in Anglo Irish Bank, on which the Government and Fianna Fáil solely focus, since the start of the year €1 billion of unguaranteed debt has been paid out by the taxpayer. Under the watchful eye of Fianna Fáil and the Green Party €800 million was paid out, and under the watchful eye of Fine Gael and the Labour Party almost €250 million has been paid out, in unguaranteed unsecured debt in Anglo Irish Bank. This is appalling when on a daily basis we hear and speak about the cuts affecting real people who have real needs, such as parents who must pay an extra €50 to get their children to school in the morning; the discontinuation of ambulance services for cancer or dialysis patients; or the closure of accident and emergency units in hospitals along the west coast of Ireland and other places. Consider these cuts along with the magnitude of cuts in social welfare. Public representatives deal with the fallout of this on a daily basis. However, it is those who have had cuts imposed on them who must bear the heavy burden. Social welfare cuts totalling €800 million were imposed in last year's budget. In such circumstances, it does not make sense that the Government and previous Administration paid out €1 billion in unguaranteed debt in Anglo Irish Bank.

Three weeks ago, I stated in the House that the first step the Minister must take is to act on the issue of unsecured and unguaranteed senior bonds. His announcement in recent days that he intends to seek burden sharing by unsecured and unguaranteed bondholders in Anglo Irish Bank and Irish Nationwide Building Society was a small but welcome step. It is rare that I welcome a Government decision when speaking to the cameras on the plinth. I did so, however, on the day of the Minister's statement because it was a welcome step. Since then, however, we have since the unwinding of his statement, which seems to have been related to the Government's first 100 days in power. The Minister appears to have listened to the International Monetary Fund on his visit to the United States given that the IMF was highly critical of the previous Government for buckling on the issue of imposing burden sharing on bondholders in Anglo Irish Bank. The fund seems to have got into the Minister's ear because he had the guts to announce that he planned to impose losses on holders of unsecured and unguaranteed bonds. Within days, however, both he and the Taoiseach unpicked his statement and the Government reverted to the position set out in the Fine Gael Party general election manifesto that burden sharing would only take place with the consent of the European Central Bank. That position is simply not good enough. The Government must take the necessary first step by telling our European partners that it will move with or without their approval. While it is important to seek their approval for burden sharing, we must also protect the interests of those who, as a result of the huge burden the State is carrying, will not receive health and education services, are having social welfare payments cut or are on low incomes which are covered by the joint labour committees.

A further €13 billion of unguaranteed and unsecured bonds is held by the other four covered institutions. The holders of these bonds must be included in burden sharing. I listened to the Minister's statement in the United States in which he referred to the justification for burning bondholders in Anglo Irish Bank. The same justification applies to bondholders in the other four institutions whose bonds were not covered by the State guarantee and are not backed by securities. Despite this, the Irish taxpayer will pay money into the banks next month to cover them. That position is not sustainable. It is socially provocative to act in this manner and the move should not proceed on the watch of any Government. The full €16 billion of unguaranteed, unsecured bonds should be subject to rigorous burden sharing with a view to reducing the liabilities of the State. This is not a case of getting at investors but of standing up for Irish interests and trying to reduce the debt liability of the State. The investors in question invested in banks in the hope of making a quick buck. Unfortunately for them, their investment did not work out. There is no social, economic or ethical argument to support taxpayers footing the bill for speculative debts. In addition to €16 billion of unguaranteed, unsecured debt, the covered institutions hold €20 billion of unguaranteed, secured bonds. These, too, should be subject to burden sharing and the Bill should provide a legal framework for doing so.

We have heard much about the State guarantee, particularly from the Labour Party both in opposition and government. The simple facts are that the State guarantee covers less than one third of the bonds in the covered institutions. In other words, the State did not give its word, whether correctly or incorrectly, that it would repay more than two thirds of the bonds in the covered institutions. The Labour Party wants to go further than the guarantee because not only does it propose to repay the €20 billion in guaranteed bonds but it also wants to throw into the pot the additional €40 billion in unguaranteed bonds consisting of secured and unsecured bonds. That approach must be abandoned. The guarantee is not crippling the State because it is still possible to impose burden sharing on holders of unguaranteed senior bonds. The memorandum of understanding does not include a condition specifying that the bonds be paid in full, nor do any legal obstacles stand in the way of burden sharing. Two Government Ministers, Deputies Burton and Varadkar, were among the most outspoken proponents of burden sharing while in opposition. Now that they are in government, they should call for the introduction of burden sharing.

The single most valuable function of an effective special resolution regime would be to provide the Government with the necessary tools to extract itself and the taxpayer from the liabilities in question in a manner that protects ordinary citizens, taxpayers and depositors. Unfortunately, it appears from both the text of the Bill and comments made by the Minister and Taoiseach in recent days that the Government intends to honour almost all of the debts of senior bondholders, irrespective of whether they are covered by the guarantee. I understand the Government intends to introduce substantial amendments on Committee Stage and it is possible that its amendments will address the issue of senior bondholders. Assuming, however, that it is not the Government's intention to address this important issue, I signal my intention to table the necessary amendments to ensure that, notwithstanding the Government's intentions, future Administrations will at least have available to them the tools necessary to abandon the disastrous policy of wasting tens of billions of taxpayers' euro in honouring private senior debts and bonds, including those not covered by the blanket guarantee. I say this in the knowledge that if the Government lasts its full course, it will have paid out all the bonds.

As is evident from recent events in Greece, there is an urgency about this issue which we cannot underestimate. Our debt to GDP ratio has surpassed 100% and our contingent liabilities have reached €193 billion, a staggering 125% of GDP. Increasingly, independent economists share Sinn Féin's view that the State will not be in a position to return to the markets in 2013 when the EU-IMF bailout funds run out. This scenario is all the more likely to materialise if unemployment continues to increase, as it has done in recent weeks, and growth projections are not realised. In such circumstances, Ireland will, in only a few years, be in exactly the same position Greece finds itself in today as it seeks a second bailout. While none of us, regardless of our political affiliations, wants such a scenario to materialise, it is likely, even if the Minister for Finance is unable to agree because he must be careful of market sentiment.

The recovery plan agreed between the Government and its external partners, as they are known, namely, the European Union and International Monetary Fund, is based on GNP growth of 0.3% this year and 2% in 2012. The Central Statistics Office recently published statistics for the first quarter of 2011 which show a decline in GNP of 4.3%. While questions of accuracy arise with regard to quarterly GNP figures, we must be alarmed by the magnitude of the difference between the Government's annual projection of 0.6% GNP growth and a quarterly decline of 4.3% recorded in the first three months of the year. In raising this issue I am not engaging in scaremongering, an accusation previously levelled at me by the Minister, but stating my belief that we must get our heads together and consider other scenarios because we are blindly walking towards an unstructured default. While other options and positions are available, unfortunately the Government is not availing of them. The only way to avoid the disastrous scenario of default is to reduce the level of debt and scale of liabilities bearing down on the State and taxpayers.

Imposing losses on senior bondholders and exiting the blanket guarantee are prerequisites for economic recovery. Unfortunately, if the Central Bank and Credit Institutions (Resolution) (No. 2) Bill is anything to go by, the Government is not seriously considering either option.

Despite all the pre-election rhetoric about burning senior bondholders and seeking an exit strategy from the blanket guarantee, it appears to be wedded to implementing the same failed banking policies of its predecessors.

I am also concerned about the provisions in the Bill relating to State funding for the credit institutions resolution fund. The creation of such a fund is clearly necessary, and I support the Bill's intention to make it a legal requirement for the banks to contribute to that fund. However, there is no reason that the taxpayer, having already put €46 billion into the banks with the commitment of a further €24 billion, not to mention the money sewn up in the National Asset Management Agency, NAMA, should even contemplate contributions to a resolution fund, the purpose of which is to pay creditors in the event of a bank collapse. No blank cheques should be issued by this Government or Parliament to such a fund in the future. The Minister acknowledged that we may recoup the money. It is not the word "may" that should be in the legislation, but "shall". There is no way that parliamentarians should sign up for further blank cheques to this fund.

The Bill effectively gives the Minister for Finance a blank cheque for the use of taxpayers' money for a fund whose costs are as yet unknown. We know only too well what happens when blank cheques are issued and left in the hands of Ministers whose banking policy is not dictated by the interests of the citizens or taxpayers of the State but by the interests of the ECB. Sinn Féin will not be a party to the issuing of blank cheques by this Government. All such costs in the future must be borne by the banks and their creditors in a manner consistent with protecting the public interest.

In light of the scale of the economic crisis facing not just this State but the EU in general, I will conclude by outlining the three key steps which Sinn Féin believes are necessary if a resolution to our collective debt crisis is to be achieved. These steps are not exhaustive but I believe they must be pursued by the Minister. First, we must secure a reduction in the level of debt and exposure to liabilities by the State and its taxpayers. The Central Bank and Credit Institutions (Resolution) (No. 2) Bill, if appropriately amended, could provide the Government with a valuable tool in achieving this objective. However, it will also require the political will to impose burden sharing on senior bondholders across all categories.

Second, we must change the terms of the debate on the interest rate reduction being sought on the EU portion of the austerity programme. It is simply not acceptable for the European Union to benefit financially from the loan extended to a partner member state which is in economic difficulty. That is the basis on which we should be involved in this discussion. Based on the current interest rate, our so-called partners in Europe are set to profit by approximately €10 billion as a result of the 3% mark-up on the interest rate. They are some partners. They will make a profit of €10 billion from the European portion of the loan to a country that is in deep financial trouble and is bailing out European banks across Europe. The Minister must stop politely begging for a 0.6% reduction in the interest rate on future borrowings but deal with the real issue, which is why our partners in Europe are profiting from a misfortune which they played a part in creating.

Third, it is time for the Government to acknowledge the ECB's contribution to Ireland's and Europe's debt crisis through its failure to adequately regulate European inter-bank lending at the height of the crisis. That is not an attempt to absolve Irish bankers or politicians for domestic failures, but it is an important part of the overall picture. The ECB must also shoulder its share of the burden and the Government must put negotiated loss sharing on the table with the ECB. Our debt level has already reached an unsustainable level and we are heading towards an unstructured default. If this is to be avoided, the Government must act to reduce the debt burden on the taxpayer, end the punitive interest rate on the loan and seek loss sharing with the ECB. Only then will our economy and society be freed of the debt burden imposed by the Fianna Fáil Government and be in a position to start the process of investing in social and economic recovery.

I look forward to teasing out the details of this Bill on Committee Stage. I hope we will have the time required to do so.

See this speech in context