Michael McGrath (Cork South Central, Fianna Fail) | Oireachtas source

I thank the Minister for his opening statement. I am glad to have the opportunity to make a contribution to this debate on the state of the Irish economy. At present, as we can all agree, we are certainly continuing to live in turbulent economic times and it is opportune for us, as the national Parliament, to fully debate the issues that currently face us.

What people at home really want to know is when all of this is going to end. It was back in July 2008 that the first phase of the budget cuts was announced by the late Brian Lenihan, a package of €1 billion. That is more than four years ago and, according to the plans that have been set out, there will be at least another €8.6 billion over the next three budgets. We need to give people a realistic assessment of where the economy is at and to be honest with them about the challenges that remain. People are very anxious to know when the period of tax increases and budget cuts will come to an end, when they will see the economy growing again and when their standard of living will begin to improve.

While there are many economic matters of concern at present, I would like to touch on a number of items today and I will return to other issues in the next few weeks. Fianna Fáil is in the process of preparing its budget submission and we hope to have it completed in a few weeks, well in advance of the budget in the first week of December. In the course of our work, we are receiving the assistance of the Department of Finance in costing various proposals, which I acknowledge. I will return to the budget later in my contribution.

There is little doubt the issue gathering most attention at present is the question of a deal on bank debt, and I sat through some of the debate earlier on the outcome of the European Council summit. Achieving a deal on the bank debt is important, not just for the public finances or in regard to the issue of debt sustainability, but in regard to generating confidence in the economy and among Irish people that we may have turned a corner. They will not believe that until they see the evidence in their daily lives.

The 29 June summit of EU leaders agreed a statement which had potentially huge implications for the efforts by the Government to reduce the borrowings created by fixing the banks. The Eurogroup statement was quite stark when it stated, "It is imperative to break the vicious circle between banks and sovereigns." The inclusion of the additional sentence relating to Ireland, that the "Eurogroup will examine the situation of the Irish financial sector with the view to further improving the sustainability of the well-performing adjustment programme" was, in itself, undoubtedly good news as it meant a deal on the cost of fixing the banks would cut Ireland's national debt.

Fianna Fáil wants Ireland to get a deal that reduces the borrowings associated with the recapitalisation of the banks. Contrary to suggestions coming from some Government sources, we are not hoping the talks fail or that the Government gets only very minor concessions. We want the talks to succeed and we believe this can make a significant contribution to underpinning Ireland's economic recovery.

We are fully aware of the precarious state of the public finances and the fragility of the Government debt to GDP ratio. In the past week, two Ministers, including the Minister of State, Deputy Brian Hayes, have said that Ireland's debt is "unsustainable". I am unsure if this is the official Government position because the Department of Finance seems to have a different view. In May 2012 the Department produced a document entitled "The Irish Economy in Perspective", which gave the official view that Ireland's debt was "sustainable". It might be more helpful for the Government to express a consistent view on the subject rather than attacking the Opposition for fulfilling its constitutional duty to hold the Government to account.

Last week's summit was vague in the extreme in terms of concrete follow-up from the June statement. While Ireland was mentioned explicitly in June, this vanished from the latest statement, although I accept the negotiations on the bank debt are continuing. The summit left many questions unanswered. The details of bank supervision were left for Finance Ministers to work out, which gave rise to justifiable concerns that arguments would arise with non-euro members of the EU concerned about the terms of the ECB's supervisory powers. The practicality of how banks could be recapitalised directly and how to deal with legacy assets was not agreed. Worse still, the EU leaders' statement was quickly overtaken by comments from Angela Merkel ruling out back-dated recapitalisation of banks by the ESM in regard to Spain. Given past commitments to treat similar cases equally, the Chancellor's comments were widely interpreted as ruling out the possibility of the ESM taking equity stakes in Irish banks.

What has happened since Friday has been insightful. The communique from the Taoiseach and Chancellor Merkel on Sunday recognised the unique circumstances behind Ireland's banking and sovereign debt crisis and reaffirmed the commitment from the 29 June statement to examine the sustainability of the Irish programme. The communique also referred to Ireland as a special case and, while in many respects that was a statement of the obvious, it is good that the Chancellor put her name to that statement recognising that Ireland's circumstances are unique. It is an altogether different question as to whether being a special case means we will get special treatment because the June summit makes it clear that similar cases will all have to be treated equally.

According to the Taoiseach, Ireland is "unique" because it had "the European position imposed on it", which resulted in the sovereign having to take on the debts of all the banks. He seems to be accepting that Ireland had, as a result of the policies of the ECB, no choice but to recapitalise the banks and not impose losses on senior bondholders, and that remains the position of the ECB to this day. This is a significant admission by the Taoiseach and is an acceptance that we have both a moral as well as a practical argument for a reduction in the bank debt.

It is easy to lose sight of the facts in the debate about the bank debt. We have to remember that the Irish banks are already recapitalised. They do not need new capital from the ESM; it is the Irish State that needs the money. In simple terms, the Government should clarify if the State is looking to sell its stake in the banks to the ESM. Will the Government insist that this be done at the price at which they were taken onto the books of the Irish State and not at their current market value? As we know, the National Pensions Reserve Fund currently puts a value of €9 billion on the living banks. The Government must also examine the wider implications of what it would mean for the Irish economy to have the banks in the hands of the ESM, particularly in terms of loss of strategic control. Of course, as of now, we are free to put the banks on the market and to sell our stakes in the banks. The question is, if the ESM is to buy out our stakes in the Irish banks, what the price will be. It would need to be very significantly in excess of the market value for it to be the right course of action.

This begs the question as to whether the ESM wants to be in the business of owning and running banks, which is the not the primary purpose the ESM was established to fulfil. It is a question we need to have answered. Is it the intention of the European authorities that the ESM would, for example, own a stake in banks or be involved in the operational control of banks, and is that in the interests of the Irish State? It all comes down to the price which would be paid for those equity stakes.

To turn to the issue of the promissory note, one interpretation of Sunday night's communique would be that it will be in regard to the promissory note that we will see movement in the first instance, and there is an immediate deadline coming up in March on that question. It is often misunderstood that the funding cost of the promissory note is actually quite low as the Irish Central Bank effectively borrows the money it lends to IBRC from the European Central Bank at a very low interest rate. Of course, the cost potentially rises each year as we make the capital payment because we have to borrow that money in the open market at the prevailing rate. We should demand, in the absence of a specific write-down, which is the ideal outcome and one that should be sought, an extended period of time to pay the debt at a low interest rate. This could be in the form of what is known as a zero coupon bullet bond over a 40 year period.

If the German Chancellor and French President are true to their word, they would facilitate such an arrangement for Ireland. It would be an acknowledgement that Ireland has not just a practical case for relief on the bank debt but also a moral case, as the Taoiseach has acknowledged that "the European position was imposed on us" as a country. As I said earlier, Fianna Fáil wants to see Ireland succeed in its debt negotiations but we will not be passive bystanders and it is our intention to actively hold the Government to account in the Oireachtas for both its strategy and tactics in this regard.

I would like to turn to the general state of the economy. A number of key reports and economic statistics have been delivered in the past few weeks which give us a good insight into the reality of economic life in Ireland, not the sanitised version we get from Government press releases.

Taken together, they indicate that the economy can be described, as the ESRI described it some weeks ago, as "bouncing along the bottom". The Government is in denial about the true state of the economy and the underlying position of the public finances. The mantra is repeated that we are meeting all our targets under the programme when, in fact, we are continuing to miss a number of important targets, in particular concerning the Personal Insolvency Bill and tackling sheltered sectors such as the legal and medical professions. A confused message is being delivered to our EU partners who are understandably questioning why we need a reduction in our bank debt if the economy is performing as well as we claim it is.

For some time there has been clear evidence of a two-speed economy. In fact, there is evidence that the economy is moving in opposite directions. The domestic economy continues to shrink, while foreign direct investment driven exports have performed well, although they are now also showing some signs of slowing. Since entering office the Government has undertaken the jobs initiative and introduced a "jobs-friendly" budget and the Action Plan for Jobs. However, in the last 12 months the number at work has fallen by 1.8%, or 33,400 people, to stand at 1,787,900. A total of 1,200 jobs are being lost each week in 2012.

The stability programme update, SPU, in April indicated that compared to 2011 the Government was projecting lower growth rates, lower GDP, lower job creation levels, higher unemployment, lower real wage growth and higher public debt. We should be grateful for the sober assessments of the IMF, the ESRI and others which are not swayed by the Government PR machine. The IMF report tells us there are still significant risks to Ireland's economic outlook. GDP will grow by just 1.4% in 2013, down from 1.9%. It goes on to state, "Banks are still not supplying the needs of households and SMEs". The ESRI report is stark in its assessment. It states there is still "little appreciation" of just how bad the country's finances are and that further cuts in the health, education and welfare sectors are "inevitable". I also refer to the report of the Irish Fiscal Advisory Council. The council made a number of salient points in its report, including that there was a 40% chance that the debt-to-GDP ratio would fail to stabilise by 2015. It refers to the need for all adjustment margins to be kept under close review, including tax rates, public sector pay rates and pensions, and welfare rates. It also recommended an additional adjustment in budget 2014 and budget 2015. There has been a general downward trend in growth forecasts in recent times. The stockbroking firm, Goodbody, recently downgraded its growth forecast for 2012 to 0.3% and 1.3% in 2013. In September the IMF forecast that GDP would expand by 0.4% this year and 1.4% in 2013.

I wish to briefly refer to mortgage arrears. I welcome the statement made last week by Ms Fiona Muldoon at the Irish Banking Federation conference. It was great to hear a public servant speak so openly, frankly and honestly about the approach taken by the banks on mortgage arrears. I will not read what I intended to say because I wish to cover other points.

In the lead-up to December's budget, there are important questions that must be answered by the Government, the Opposition and wider society. For example, can we afford to continue to pay increments to well paid public servants, while vulnerable elderly people have their home help hours cut? Even if we can afford it, can we justify it? Is it fair that new entrants to the public service will be paid so much less than their colleagues who joined before them? Have we got the balance right between tax increases and spending reductions in the proposed adjustment of €3.5 billion? What will the budget choices we make say about our values as a country? Is the burden being fairly shared among those who have the ability to pay? Have we really made work attractive and tackled the undoubted welfare traps in the system? Should we protect the capital budget to a greater extent and not impose a further cut of €500 million?

Above all else, the people want to see a fair budget. I accept that one will never achieve consensus on what is fair. According to the ESRI, last year's budget was the first that was not progressive since the round of cutbacks commenced in 2008. Ireland's domestic economy is a story of many sectors; agriculture, the food sector, multinationals and indigenous firms involved in exports are doing well, but the sectors that rely on consumer spend - the retail sector, pubs, restaurants and hotels - are struggling. As an economy, our cost base has come down considerably, but it must reduce further. For individuals, this means the cost of medicines, the cost of visiting a GP, the cost of insurance and utility bills must be reduced. We must deal with the sheltered sectors that are protected. For businesses, it means tackling the cost base in the semi-State sector, rates, rents and trying to assist foreign-owned retail chains. Many such companies located in this country are reviewing operations.

Last night I contributed to the Private Members' debate on the proposed introduction of a statutory sick pay scheme. In respect of the budget, I urge the Minister to try not to do harm to those who are willing to take a risk and invest in job creation. The recovery will be led by the private sector. The public sector will shed at least another 10,000 jobs in the coming years, while the private sector will create jobs. The Minister must not do any harm in the budget to what the private sector is seeking to achieve.

See this speech in context