Stephen Donnelly (Wicklow, Independent)

As the Tánaiste is very well aware, over the next three days this country will pay €1.1 billion to bondholders in the former Anglo Irish Bank and Irish Nationwide Building Society. As he is no doubt aware also, those bonds were originally issued by those institutions in 2007, therefore, the people who bought those bonds in 2007 knew that they were taking a risk. If they did their due diligence they will have seen that those institutions were heavily exposed to a property bubble. The IMF warned at the time of an abrupt unwinding of the housing boom.

If the people who purchased this €1.1 billion from Anglo Irish Bank and Irish Nationwide did their homework they will have known that they were buying inherently risky financial products and that they were getting higher profits on them than had they bought bonds from the Irish sovereign, the American sovereign or the German sovereign because there is an implicit risk. Since then, a group of those original bondholders will have sold them on and they will have been bought at massive discounts by speculators. For the next few days, therefore, the Irish people will pay hundreds of millions of euro in profits to speculators and professional investors who know that sometimes the value of their investments go down as well as up. I imagine most people in the Government, and perhaps all Government Deputies, would agree that it is grotesque for us, the Irish people, to be paying €1.1 billion to people to whom we owe no money while at the same time cutting services to disabled children throughout the country.

I have no doubt that the Government would prefer not to be paying this money, certainly if we are to believe some of the pre-election statements on the issue by the Tánaiste, the Taoiseach, the Minister for Finance and many others. However, what the payment this week says to me, and this is one of the last outstanding payments on Anglo Irish Bank, is that the strategy this Government has pursued has failed. The strategy the previous Government pursued also failed. It has bankrupt the country and left us in a very precarious position.

In terms of that strategy, what I have heard, as a member of Dáil Éireann, is a Government state repeatedly that the debt is sustainable and that we can and will pay our way. I constantly hear a quasi-moral statement that we will pay our debts, that we always pay our debts and that Ireland is a country that pays its way in the world, ignoring the fact that we are paying other people's debts at the same time. I see a Government which has repeatedly acceded to demands from foreign powers that we pay all of these bondholders and whose strategy appears to be based around waiting and seeing what other countries, seeing if we can get a bit of it as well and hoping that moves us into a more sustainable economic position.

On our strategy, the Nobel laureate Professor Stiglitz recently stated:

Iceland did the right thing by making sure its payment systems continued to function while creditors, not the taxpayers, shouldered the losses of the bank. Ireland's done all the wrong things, on the other hand. That's probably the worst model.

Why are we getting the worst model? Why are we doing everything wrong? Why are we getting the worst deal? Why did we not get a write-down similar to that given to the Greeks? Why are we not being looked at in favourable terms as is the case with the Spanish? Why is it that we in Ireland seem to get the worst deal from everybody?

I put it to the Tánaiste that there are two serious reasons for that. The first is that we are not acting like we cannot pay these debts, and the second is that we are not saying we cannot pay these debts. In terms of how we are acting, on the floor of the House this morning increments were brought up with the Taoiseach and I understood him to say that the Government would honour the Croke Park agreement. That means that this year the Government will pay €180 million in non-performance related automatic pay rises. A total of 47 of the people getting those automatic pay rises are at assistant secretary level and earning €127,000.

The other way we are acting is that we are not saying that we cannot pay. Again, on the floor of the House this morning the Taoiseach stated that a default would be a disaster and a catastrophe. He went on to state, "This country has always paid its way". Of course we are not getting any write-down and are being forced to pay the bondholders. How can we credibly say to the European Central Bank and the European powers that we do not have the €1.1 billion when they can say that we have given our own employees €1 billion worth of pay rises in the past four years? They will say that we can afford it. We are acting and speaking in a way that we are able to afford this debt and that we have some moral obligation to pay this debt.

I ask the Tánaiste to consider changing the strategy in two ways. First, we have got to behave like a country that cannot afford to pay these bondholders. We must start acting like a country that will not be able to service a debt that is about to be 120% of our GDP. It will not happen.

Second, I ask the Tánaiste and the Government to recognise that others in our position achieve write-downs. Iceland achieved an €85 billion write-down in its banking debt and as we know, its economy is picking up nicely and it has half our unemployment rate. We know that Germany got write-downs in 1932, 1939 and 1948. The list goes on.

There is a paper by well known economists Rynhart and Rogoff on the history of default in which they conclude that default is the rule rather than the exception, and that is default on sovereign debt. We are not even talking about that. We are talking about default on private debt or non-payment of private debt.

There is some good news to help our strategy. The IMF put it on record recently that the ECB has incorrectly forced this country, under very serious threat, to pay off these bondholders and that it should not have done it. There is a growing acceptance here, in Europe and across the world that the State should not have to bear the burden of the banking sector, particularly when it does to a state what it is doing to us.

I suggest that now is the time to change tack. A concerted diplomatic offensive in Europe and with our allies in the United States and in other parts of the world would help, and it must include a change in the conversation whereby we would say that we cannot pay this debt, we never owed it, and we do not pay other people's debts. We should remind those on the other side of the table who are telling us we have to pay all this banking debt of all of the debt write-downs they have had in the past 50 or 60 years before we get up on our high horses and start moralising. I ask the Tánaiste to consider those suggestions and start changing the conversation to get this debt under control.

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