Enda Kenny (Mayo, Fine Gael)
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There are a number of very pressing issues with which the House should deal. Yesterday Allied Irish Banks issued an interim management statement ahead of the annual general meeting tomorrow. The developments alluded to in the statement are extremely disturbing. The bank now expects its bad debt charges for 2009 will be of the order of €4.5 billion. Loans that are vulnerable, on watch or impaired have increased in the first quarter of the year by €9 billion up to €24.3 billion. Mortgage arrears are rising and now stand at 2% of the total book.

The banking sector is deteriorating day by day. Just two months after the detailed analysis of its loan book, Allied Irish Banks is now stating its outlook is even worse than the worst case scenario it envisaged. It stated last year it did not have any problems at all, but we now find ourselves in extreme uncertainty and danger. If this is mishandled or got wrong by the Government, it will have the potential to sink the economy entirely. On the basis of well accepted assumptions internationally, the IMF estimated that, on the basis of the Government's policies, the cost to the taxpayer of bailing out banks could be as high as €24 billion, which sum would not be available for schools, hospitals, education, policing or the next generation. This would obviously be a disaster of unprecedented proportions. The response of the Government has been dictated to date by the needs of the bank, without great regard to taxpayers or their customers.

Consider the decision to save Anglo Irish Bank last September, at which time we were not told the full truth that there had been a massive run on the bank. A decision was made to recapitalise it when it was obvious to all that its business model was broken and that it had lost the trust of regulators, depositors and the public. The decision to invest €7.5 billion in Allied Irish Banks and Bank of Ireland which allowed for the nursing of dodgy developer-related debts without any credible commitments to extend credit to the hard pressed and struggling small and medium enterprise sector and the latest decision, on foot of a short report, to buy €90 billion worth of unsellable toxic property debt from the banks, to be managed by the State, were made, although virtually every single economist not on the Government's payroll had said this was the wrong direction in which to go. Who or what is dictating policy? Is it the banks or the public interest? For whom or what has the Government more respect? Is it the banks, the international bond markets that funded the banks or the taxpayer?

Brian Cowen (Laois-Offaly, Fianna Fail)
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I will comment responsibly in reply to some of what the Deputy has had to say. I make it clear to him, as we have always done, that it is the public interest and no other factor which motivates the Government in this matter. Any suggestion to the contrary is just fanciful on the Deputy's part. The Opposition contends continually during the course of the election campaign that this is about bailing out banks. It is important to point out that it is not about bailing out banks but about trying to help those who depend on the banking system, including Irish businesses and individuals who require credit to conduct their affairs. Thus, we need a working banking system. The European Commission has approved the recapitalisation in the proposal we put to it in accordance with the EU guidelines that have been set out. The issue of trying to ensure funding for our banking system is based on the need to put our public finances in order and to ensure we provide the right policies in our general banking system, and that is what we have been doing. I reject the suggestion by Deputy Kenny that there is some way of dealing with the issue of impaired assets without actually identifying them and putting them somewhere else. The uncertainty created in the market due to the size of these impaired assets is hindering the normalisation of credit availability in the Irish banking system. Far from not introducing proposals and making decisions, the Government is determined to do whatever is necessary to assist. The setting up of the National Asset Management Agency is a similar model to that used in other parts of the world where there have been banking crises in the past.

Enda Kenny (Mayo, Fine Gael)
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I have never attempted to impugn the Taoiseach's integrity, but his understanding of the public interest is in question here. He is right in stating that such systems have been used in other places. I assume he has studied, for example, what happened in France in the mid-1990s when a similar agency was set up to acquire €28 billion of toxic assets and €18 billion in capital was lost as a consequence. If we make a similar calculation for Ireland, we could be talking about a loss of €33 billion if we continue with the NAMA project the Government appears intent on carrying out.

In the context of the public interest, I ask the Taoiseach, as head of Government, to stop and think about the interest of the Irish taxpayer before he goes too far down this road. Based on the figures, which have been assessed at €90 billion, we could well be exposing the taxpayer of the next generation to a further €70 billion in debt, and we may well find at the end of the process that there is little to recover. In recognising what the problem is, it is possible to deal with it without creating another problem in the form of NAMA. Why will the Government not consider what Deputy Bruton has been proposing on behalf of Fine Gael for quite some time? We should invest in clean banks with no toxic assets which would be considered by international markets and other financial agencies with a degree of trust. In this way we could avoid exposing the taxpayer to a potentially catastrophic and devastating economic future.

The Government is going down a very dangerous road in proceeding with the recommendation on NAMA. The figure of €90 billion that has been arrived at for all loans given by guaranteed banks to developers may well expose the taxpayer and future taxpayers to an additional national debt of €70 billion. That would be unforgivable. For the sake of the public interest - which is what we are all focused on, although the Taoiseach may have a different version of it from me - is it not possible for the Taoiseach to stop and think before he goes down this road? We should invest whatever resources the State has in clean banks that will attract further finance and allow credit to flow to businesses, which, as he has agreed, are the economic lifeblood of our country and important for our future. This is a critical decision for the Government to make, and the recommendation of Fine Gael is that the State should invest its resources in clean banks rather than allow this potential catastrophe to face the already beleaguered Irish taxpayer.

Brian Cowen (Laois-Offaly, Fianna Fail)
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As I have said to Deputy Kenny already, the purpose of transferring the banks' impaired assets to NAMA is to allow the banks to strengthen their balance sheets and reduce the uncertainty regarding the level of bad debt held by them. This should in due course allow banks to provide credit to the economy on a commercial basis, which is necessary as there is currently no functioning market for those assets. In the absence of market-generated values, a valuation method will be put in place to establish the appropriate values of the assets transferred to NAMA. The Deputy has been bandying about figures for book value, although of course there would be major discounts on valuations taken by banks and by those who own the debts.

Enda Kenny (Mayo, Fine Gael)
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Twenty billion euro worth.

Brian Cowen (Laois-Offaly, Fianna Fail)
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It is important that we ensure we put in place the correct methodology for valuing the assets to be transferred. It is a key priority for Government to ensure we have a robust and consistent approach to valuation. The European Commission has provided guidance to member states on the treatment of impaired assets, including a detailed set of requirements for the valuation of such assets and, as set out in this guidance, the valuation of the assets transferred to NAMA will be certified by an independent expert and validated by the supervisory authority. The commission will have an expert valuation panel involving the European Central Bank to assess the valuation methods of all member states. We are working within the guidelines set out by the Commission with regard to impaired assets. A recognition-----

Paul Connaughton Snr (Galway East, Fine Gael)
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The Taoiseach should not blame the Commission.

Brian Cowen (Laois-Offaly, Fianna Fail)
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I am simply explaining that the model being used by the Government is in line with guidelines that have been outlined - the toolkit, as it was described by the German Chancellor, Angela Merkel - in respect of the initiatives Governments need to take to ensure a greater degree of market certainty, to identify the level of impaired assets and to park those assets so the banks can have access to funding and credit on wholesale markets and thereby provide the finance people need in our domestic economy. That is the purpose of our method of dealing with this issue, which is in line with the guidelines set out by the EU.

Jim O'Keeffe (Cork South West, Fine Gael)
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The figures do not add up.

Dermot Ahern (Louth, Fianna Fail)
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Fine Gael's figures are "hey presto" economics.

Eamon Gilmore (Dún Laoghaire, Labour)
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How the Government deals with the banks will determine the future of the Irish economy and of this country. It is clear the attempts made to date have not succeeded. Business is not getting the credit it needs. Good businesses which would have a future if they could survive the recession cannot now get credit to act as a bridge in this difficult period, to protect the jobs of their workers and to stay in business, even after a succession of attempts by Government to ameliorate the situation. It is clear that the unqualified guarantee of the banks has not succeeded. Recapitalisation is now at €8.5 billion, which includes an extra €1.5 billion for the bank that announced yesterday it has a significantly higher level of bad debt than it had forecast two months ago. The book value of all the toxic assets is €90 billion, but even conservative estimates are putting the cost at anything between €24 billion and €30 billion. No matter where one pitches it, it is an astonishing level of debt to be building up not just for today's taxpayers but for our children and, possibly, our grandchildren to pay back in decades to come.

There is an alternative, which is contained in the motion the Labour Party has proposed for debate in Private Members' business tonight. It is that the banks be temporarily nationalised, cleaned up and put back in order.

Thomas Byrne (Meath East, Fianna Fail)
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What does the Deputy mean by "cleaned up"?

Eamon Gilmore (Dún Laoghaire, Labour)
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A national investment bank and a banking commission should be established to oversee this, and the banks should be returned to the market when they are in good shape and the economy is recovering.

Thomas Byrne (Meath East, Fianna Fail)
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There are no details. It is all bluff.

Eamon Gilmore (Dún Laoghaire, Labour)
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As one commentator put it, the debate taking place this week is the most important debate, declarations of war aside, in which the Members of Dáil Éireann will ever participate. We have two choices. We can go down the route suggested by the Government, with the guarantee, recapitalisation and then the buying up of the toxic assets and bad debts by an agency announced five weeks ago that is yet to be established and for which no legislation has been introduced, and about the status and size of which we still know very little.

There is, however, a choice facing the House and the Government - the Government way or the way contained in the Labour Party motion. Will the Taoiseach not accept that, given all that has happened, and that the steps taken to date to deal with the banking crisis have not succeeded, he should now bow to the inevitable and agree to the proposal the Labour Party is putting tonight, that the banks be taken into public ownership for the period necessary to clean them up and get them back to order?

Frank Fahey (Galway West, Fianna Fail)
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How would the Labour Party clean them up?

John Cregan (Limerick West, Fianna Fail)
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Tell us how the Labour Party would clean them up.

Emmet Stagg (Kildare North, Labour)
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We would get rid of the Fianna Fáil cronies, that is the first thing we would do.

Eamon Gilmore (Dún Laoghaire, Labour)
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The Taoiseach is so lucky to have such advice available to him. It is an awful wonder given the quantum of brain power and financial advice he has on the benches behind him that he has made such a mess of the banking issue to date.

Brian Cowen (Laois-Offaly, Fianna Fail)
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The motion put forward by the Labour Party offers no solution to the banks' bad debt problem. It focuses entirely on the ownership and governance of banks; there is no proposal on how to clean up banks' balance sheets. Banks with damaged balance sheets, whether they are private, partly State-owned or fully nationalised, will not lend to the real economy. Moreover, bank nationalisation does not improve the access of banks to funding but would likely make external funding more challenging.

International experience shows that the cost to the taxpayer of banking crises rises quickly over time unless bad loans are dealt with and developers with troubled projects and the bankers who funded them are likely to gamble in that respect. In the case of a nationalised bank they are gambling with taxpayers' money. That is why a standard tool for dealing with bad loans is to establish an asset management company to separate out the questions of the developers and the bankers. The asset management company acts in the interest of taxpayers. This approach has been used successfully in resolving banking crises in the United States and Sweden in the early 1990s and in several eastern countries during the Asian financial crisis in the late 1990s.

Deputy Gilmore seeks to quote an eminent economist in this area but one of the top banking economists in the country, Professor Honohan, told the Joint Oireachtas Committee on Finance and the Public Service on 6 May that under State ownership banks might be under pressure to provide finance to failing firms that have no prospect of repayment. He went on to say it would be a catastrophe for the public finances if, on top of what has been done by the banks and the regulator in regard to the property bubble, a large new wave of unrecoverable loans was made. He also said that one cannot ignore the extensive international evidence showing that Government-owned banking systems serve their economies poorly, tending to result in higher interest rate spreads, less private credit and the credit there is going to larger firms.

Greater state ownership has long been associated with more crises. The only country to engage in wholesale nationalisation of its banks in the current crisis is Iceland. Is that what is being suggested - that we should follow that model?

Eamon Gilmore (Dún Laoghaire, Labour)
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The only other country that has anything remotely close to such a difficulty is Ireland. All of the international commentators, including the IMF, are telling us that the cost to the Irish taxpayer, to the public and to future generations of dealing with the banking crisis will be greater here than it will be anywhere else. We have a crisis. What the Government is doing is not working, it is costing more and more. The money we should be committing to building our schools, hospitals and infrastructure, providing broadband and doing those things a growing economy will need in the future will now be committed to sorting out the banks.

First of all they got €8.5 billion upfront for recapitalisation and God knows now how many billion the Government will spend buying up the bad debts. If the Government overestimates the amount it pays, and it has mentioned discounting them, we will pick up the tab. If it underestimates it, the banks must deal with it, meaning they will come back looking for more money from the State. Either way the public must pay for it.

The Taoiseach can quote one economist who supports his position. There are 20 economists, from a range of opinion, not all of whom would support the Labour Party by any stretch of the imagination, who are all saying that the sensible thing to do now, the most cost-effective way to deal with the banks in the interests of the public is to nationalise them for a period and to bring them into public ownership so they can be restored to good order before putting them back on the market.

This is not an ideological decision or a position taken in the past. It is a more sensible and cost-effective way of dealing with the problem than what the Government is doing, pumping money it does not have, money that must be raised from future generations of taxpayers, into the banks in a blind attempt to get them out of the hole they are in and, in the meantime, the banks are not functioning as they should in a good economy; they are not providing the credit, lending and good facilities ordinary businesses need to keep going with the result that businesses are going to the wall and jobs are being lost.

I agree with Deputy Kenny. This is about more than the expression of political positions, this is about the public interest and in the public interest I appeal to the Taoiseach not to stick with the position he has taken until now on the banks. I believe that he will eventually come to the position advocated now by the Labour Party and the sooner he comes to that position, the better it will be for the country, for business, for banks and for economic recovery.

Brian Cowen (Laois-Offaly, Fianna Fail)
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I have been seeking not to assume any more risk than the State must assume at any given time. The Deputy's proposal does not deal with the funding or bad debts issues. It deals with ownership.

The question is what is best to do in this situation. There is a continual effort to portray Government investment as bail outs for the banks. We are in the business of trying to help those who depend on banks, we need a workable banking system. I know the traction and resonance candidates can get on the doorsteps when suggesting this is about bailing out banks. This is about trying to bail out the Irish economy, trying to save the Irish economy by having a proper banking system.

Certain decisions had to be made to do that in terms of the scale and magnitude of the challenge that faced us. When we introduced the bank deposit guarantee, it stopped banks collapsing because people could safely leave their deposits in place. Other countries followed but the Labour Party opposed it in this House.

Eamon Gilmore (Dún Laoghaire, Labour)
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We did not. The Taoiseach is wrong, he is mixing up two different things.

Brian Cowen (Laois-Offaly, Fianna Fail)
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I listened in silence to the Deputy. Independent board members were appointed that will oversee the transition from the structures of the past to a new approach. The recapitalisation is occurring in a way similar to the approach in most countries. Money is being invested in bank recapitalisation and I remind Deputy Gilmore there will be an 8% return on that investment.

Joan Burton (Dublin West, Labour)
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That is the biggest fairy tale of all.

Brian Cowen (Laois-Offaly, Fianna Fail)
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The suggestion that we are handing over money without seeking a return on that investment is not correct but is something the Labour Party continues to portray day in and day out because it thinks it gains votes, even if it is misinformed. It is all about the Labour Party trying to get votes.

Eamon Gilmore (Dún Laoghaire, Labour)
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It certainly is not.

Brian Cowen (Laois-Offaly, Fianna Fail)
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That is exactly what it is about, let us not cod one another. We know what is going on.

On the question of money being invested in bank recapitalisation, that is the purpose of the recapitalisation proposal. The national asset management agency was established to remove uncertainty from the system-----

Eamon Gilmore (Dún Laoghaire, Labour)
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It has not been established yet.

Joan Burton (Dublin West, Labour)
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It has not been set up.

Brian Cowen (Laois-Offaly, Fianna Fail)
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-----through a new approach to dealing with bad or non-performing loans for development land and investment property. The Labour Party proposal does not address that issue and does not wish to address it because it does not suit it ideologically in the context of the coming weeks.

The Deputy is suggesting to this House that the nationalisation of the banks will solve the problem. That is not the situation, the risk to the taxpayer will be increased. We have always said that is a matter of last resort. There is reason we should continue to have market-driven values within the banking system-----

Michael D Higgins (Galway West, Labour)
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Market-driven values?

Brian Cowen (Laois-Offaly, Fianna Fail)
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-----so that people can see that we can get access to funding in international markets. That is the position. Everyone who is informed in this area knows that is the situation-----

Michael D Higgins (Galway West, Labour)
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They do not.

Brian Cowen (Laois-Offaly, Fianna Fail)
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-----but the Deputy's party continues to peddle the notion of a board bail-out in the public domain in some attempt to suggest that the Labour Party is on its own in terms of protecting the public interest.

Joe Costello (Dublin Central, Labour)
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This is a ploy by the Taoiseach.

Brian Cowen (Laois-Offaly, Fianna Fail)
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We are seeking to protect the public interest, to do so in a responsible way not in a way that suggests-----

Brian Cowen (Laois-Offaly, Fianna Fail)
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The Deputy's party has been suggesting that it has the solution to the problem on the basis of a motion that does not address the funding issue or the bad debt problem.

Jim O'Keeffe (Cork South West, Fine Gael)
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It seems to be a formula for bankruptcy.