Peter Mathews (Dublin South, Fine Gael) | Oireachtas source

In respect of the Euro Area Loan Facility (Amendment) Bill 2013, the paperwork has followed the negotiating outcome that happened before the year-end. The paperwork is, as can be expected, complex, cumbersome and requires lots of member states to put their pen to it. The euro crisis appears to have abated and while it is in remission, the root causes have not been addressed. In the noise, the clear voices are forgotten. In the blizzard, the outline of the impending scale of what could be an unmitigated disaster for everyone is not seen. On previous occasions, I have mentioned a couple of books for Members to read. I wonder whether anyone has read them. The most recent was John Mauldin's work, Endgame, which discusses the debt super cycle and what happens when financial markets create derivatives and other financial products that cause the entire system to be structurally unsound. That is the position at present.

Play has been made of the reduced bond yields on the other side. This has happened because a wall of cash has been created across the system, not just in Europe, and has gone to the financial system where the players are moving mountains of money in different directions.

With those mountains of money there have been increases in equity stock market prices; that is illogical as the equity behind the industries relates to shrinking markets and volatility in end product and services purchasing. With the equity market prices, commodity market prices have also risen. Bond yields have fallen in a way reminiscent of property prices falling when there was too much credit and cash in this country advancing prices.

The leaders of Europe have examined the stress or strain points in the countries that have bailout arrangements. As Deputy Tom Fleming has just stated, Greece is bordering a black hole. This Bill relates to what was agreed in autumn last year, which is not enough. We may approve this Bill because we are going in the "right direction". I have heard that phrase often with regard to our national and international economies. We may be going in the right direction but we should try to go from gear one to gear three or four; that would approach the right scale for solving this problem. That would be okay. Nevertheless, as they stand, the measures are not enough. I will not advocate voting against the Bill but everybody, including those aligned with the Government, should accept this Bill only if there is an amendment to indicate it is being accepted under protest because it is not enough and has not addressed the problem.

In 1918, after World War I, the burdensome payment of reparations was imposed on Germany, which was seen as the cause of the war. Those reparations were strong-armed by France, in particular, on Germany. The insistence lasted for many years, until well into the 1920s, when the failure of the German currency to make those reparations devolved into hyperinflation. France insisted that if the debt could not be paid in fiat currency backed by gold or anything else, troop trains would be sent to Germany to take steel and coal.

That sort of strong-arm behaviour is happening in a different guise today and has been evident over the past two and a half or three years. My colleague, Deputy Mitchell, stated that Ireland was a little unfortunate because we were early movers in addressing the financial collapse. We were not early movers but rather early victims, and we remain victims. The cost was a banking collapse, fuelled by unregulated and unmitigated walls of credit coming to this country, following illusory growth that was ultimately a bubble. The financial people managed to get out, having taken income, with all their capital, leaving the poison of the debt on this country.

Financial people will try to convince us that the system requires the recognition of those debts as being valid, with our economy struggling honestly and well to recover and doing everything, both in the public and private sector, to bring in efficiencies, reduce costs and find export markets. They will argue that the system is being forced to take the losses that should have been shared by the people responsible for the investments made to create that bubble.

It is not good enough to argue that we had abatement or reductions in interest rates in 2011 amounting to €9 billion, as that is not enough. The principle is wrong. We should be doing whatever it takes to get the honest attention of the power brokers in our community because the EU is the most historically wonderful creation in the history of mankind. We were able to create a community or family of 27 nations and it should not be lost on any of us or our leaders that such a sense of community and family is important and valuable, as there is mutual responsibility, accountability and respect.

Nevertheless, we are being horsed around. There is the idea that robust negotiations are taking place and action is being taken but there is no clear and expressed recognition of the principal and quantity of write-down of debt arising from losses in our banking system, fuelled by our colleagues in the financial world in Europe. If there is no honest recognition of the principal amount and scale of relief, the process is a waste of time. Two years later we are still talking about negotiations.

I was laughed at in 2011 when I argued that the 3% margin on the rescue loans of the original bailout package was morally wrong and that it should have been a zero interest rate. That was a loan package mainly to address the imbalance of revenues and expenditure in the Government arising from the collapse of a property market bubble. Greece went into its first free fall and because it would not have been tenable for the EU and European Central Bank to leave Ireland exposed on a 3% margin while Greece was being dealt with at 1.5%, the rates came down. That was the only reason it happened, and Mr. Dan O'Brien mentioned today that the loan deal on Monday came about because Portugal is tanking.

We should face the issue and all look to the same honest analysis, based on correct facts. We should in unison - not even harmony - look to Europe and say that this debt on the IBRC account is wrong. Last week at a meeting of the committee dealing with finance, I stated to the Governor of the Central Bank, Professor Honohan, that he should not tinker with extending the debt and reducing interest rates. The only acceptable alternative to a write-down is an extension in perpetuity at zero interest, which is technically a write-off. If people want to fool themselves with financial engineering, let the process be called what they want but it should be nothing more or less than a write-off. I am prepared to go on behalf of the people of this country or on my own to Frankfurt and tell this as the truth. They should not mess around with us.

This is a ticking time-bomb, as it is coming down the tracks to Portugal and Spain. The euro problem is in remission and it is being tackled with an inadequate antibiotic, to use an analogy. Such treatment is inappropriate and somehow manages to keep the temperature down for a little bit but it will not excise the problem.

It is a symptom of the failure by the authorities to accept the problem is bigger than has been admitted is the decision to extend Basel III arrangements from 2015 to 2019. Solving this problem requires that we deal with the scale of the potential losses on bank balance sheets and their off balance sheet exposures, some of which are massive in the case of the large institutions. This will require the creation of a fund for provisions and potential losses that should be mutual, probably in perpetuity, should offer a very low interest rate and should be of a scale of approximately €3 trillion. A single supervisory mechanism should be advanced in a manner that ensures it is accountable to the democratic parliaments of Europe. The process for doing so has commenced. This mechanism should be a sentinel over the supervisory central bank mechanism, as proposed in the recently published book, Guardians of Finance.

Last Wednesday's meeting between the Joint Committee on Finance, Public Expenditure and Reform and Governor of the Central Bank was instructive. We have started to recognise that we have a major mortgage problem. The banks have constrained themselves by not being honest about the provisions they need to make against loan losses, nor have they dealt with the restructuring of their client loans, namely, the household and business loans that are strangling the economy. If the banks had sufficient capital, they would restructure these loans and the release of this tension and strain on households and businesses would create the correct level of consumer demand to revive the economy. That they need more capital is a view that is consistent with that of one of the ratings agencies. The only way the banks can get capital is through creditor capitalisation, which the way they should have got it the first time around. Who are the creditors of our banks? They are the Central Bank of Ireland and European Central Bank, in other words, two elements of the euro system. However, instead of securing the funding from creditor capitalisation, we raided the after tax savings of the individuals of this country and took approximately €20 billion to pour into the banks. This was a mistake and it is one of the reasons for insisting on a writedown or extension in perpetuity and at zero interest of the IBRC and Irish Nationwide promissory note liability. Such a decision would enable the emergency liquidity assistance, ELA, to be written off.

The survivor banks also need capitalisation, albeit not in the way the financial engineers of the ECB and euro system would like it to be done. A radical departure is needed to ensure fairness and justice. This will require bold, brave decisions to be taken with the big picture in mind. What is being done in Europe is inadequate and does not meet requirements as it involves tinkering with symptoms rather than addressing the root cause of the problem, the explosion in credit and financial instruments such as derivatives to the point that they spun out of control.

Unfortunately, today marks the start of the Davos summit, at which leaders of financial institutions, countries and intelligence institutions such as universities - in layman's language, the most powerful, the richest and ostensibly the most intelligent people in the world - gather to congratulate each other on how rich, powerful and intelligent they are and tell us how they think the world should be run. The way they have been running the world for the past ten years has resulted in a growing divide between the powerful and well resourced, that is, the wealthy of this world, and the poor and unemployed. We learned today, for example, that the number of people who are unemployed in Europe now exceeds 20 million, which is a staggering figure.

I will make another book recommendation for every Deputy and Senator. Written in 2004, Confessions of an Economic Hitmanby John Perkins is an instructive book which explains and illuminates the arrival of a corporatocracy that replaced the empires of old when mercantilism was conducted through the power of commonwealth entities. Corporatocracy has, like an ivy, wound itself around governments and their civil services to the point that it has ensnared nations in debts that are not repayable. This country has been ensnared in this type of vice grip of debt.

One year ago I recommended a paper on the effects of debt on economies, which noted that when the three elements of debt - private household, non-financial corporate and sovereign debt - reach a combined level that approaches or exceeds 300% of GDP, an economy's potential for growth is suffocated. Depending on how one measures these three headings, Ireland's combined debt has reached a level of approximately 450% of GDP. When such facts and figures were presented truthfully and honestly to a Bundestag committee in January 2012 Deputy Donnelly and I saw its members visibly startle. They had not thought along these lines and were not aware that the transfer of €65 billion of losses from a private banking system onto a country with a population of 4.5 million and gross national income of approximately €140 billion would equate to transferring losses of €1.3 trillion from the German banking system onto German citizens. Their eyes opened and jaws dropped when they heard this analysis. That is the scale of the problem.

Doing the grunt work with Lever Arch files and simultaneous translation in 16 or 17 languages at bleary-eyed meetings lasting into the early morning or discussing this issue in empty parliamentary chambers both here and abroad does not amount to a real discussion. When do we have an opportunity to make presentations to the representatives of the country? In what forum is this possible? The absence of such a forum is the reason the message is not getting through and the diagnosis has not been correct. A microcosm of the failure to arrive at the correct diagnosis of the scale of the problem was the unwillingness shown by our establishment in 2008, by which I mean the accounting and law firms, business consultancies, politicians and Department of Finance, to face up to the scale of the €100 billion in losses coming down the tracks. This took place after the party, when the music had stopped and we have been tinkering with all sorts of other distractions ever since.

Let us get to the nub of the issue. This legislation, the Euro Area Loan Facility (Amendment) Bill 2013, provides, in legalese, the mechanisms of the loan that was agreed for Greece. This is not enough. Greece is only one part of the jigsaw of countries that are either in a programme or about to enter one. As I noted, some six weeks ago, the US Securities and Exchange Commission discovered that former high level employees of Deutsche Bank may have engaged in a €12 billion accounting fraud. This is only one bank's balance sheet. Let us get tough.

If this Bill is to trundle through, every Deputy should say that it does so under protest. Let us table an amendment to that effect so that we put the spotlights onto the absolute justification of a proper, honest deal for us without any messing. It could be announced this week and let the bureaucrats follow with the paperwork.

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