Dáil debates
Wednesday, 28 April 2010
Private Members' Business
Strategic Investment Bank: Motion (Resumed).
Kieran O'Donnell (Limerick East, Fine Gael)
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I am sharing my time with Deputy Neville. Credit is not flowing to the SME sector and the real economy. The Central Bank has indicated that private sector credit contracted by €12 billion in the 12 months to February 2010. The three Mazars reports have consistently revealed a contraction in the credit supply to the SME sector. Performing SME loans have contracted by 25%, which reveals that the banks are squeezing viable small businesses.
The Labour Party proposes the establishment of a strategic investment bank which would provide credit to the real economy. Fine Gael has consistently put forward the parallel approach of a national recovery bank alongside the NewERA strategy to provide vital broadband, energy and water infrastructure. The Government has yet to receive from the two main banks their plans on how to supply €3 billion to the real economy. On today's Question Time, the Minister for Finance stated that he expects this money to be provided primarily towards working capital. We need to implement a mechanism that ensures credit goes to the SME sector. The credit review office established under Mr. John Trethowen must not allow inordinate delays in getting credit. A jobs strategy is also urgently needed to accompany the flow of credit from banks.
The jobs, banking and fiscal crises that we face are interlinked. The markets' response to Greece sends the message that liquidity issues may be resolved for eurozone countries but questions of solvency continue to arise. In the past week, the Irish bonds spread rose by 100 basis points. Today, the yield was 5.5% and the spread with German bonds was 240 basis points. The Minister needs to give an unequivocal statement on how he intends to maintain fiscal rectitude in 2011. Greek bonds were downgraded yesterday and Spanish bonds followed suit today. We need certainty in this area.
I ask the Minister to outline to the House how he will ensure credit flows to the SME sector in return for the €3 billion that has been provided to AIB and Bank of Ireland, in respect of which plans will not be available until 21 May. I would also like to learn the jobs strategy he will put in place to deal with the recession on a positive note. The ESRI and other commentators have stated that more than half of our general government deficit is the result of unemployment but the Government has left that key component out of the equation.
Dan Neville (Limerick West, Fine Gael)
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I welcome the opportunity to contribute to this debate on the Labour Party's proposals to deal with the economic crisis. Jobs are among the most important social aspects of this crisis. There has been extensive debate on the economic implications but the social repercussions for those who are unemployed must also be addressed. Reference was made to the statistic that 438,000 people are unemployed but when one speaks to someone who has become unemployed, one understands the emotional and relationship crises that arise and the way that depression can take hold. Every individual has his or her own problems. I speak from experience because I became unemployed in 1988 and spent the following two years visiting my local Garda station and post office. I had a young family and a mortgage and found it extremely difficult to survive. It is only a small exaggeration to compare the experience to the death of a close relative.
The Government has to restore confidence to the economy by showing leadership. People will not move on until positivity is restored. While it is unacceptable that we have an employment rate of 15%, this means that 85% of people are employed. The latter are the key to restoring confidence in the economy. We have to change the message that viable businesses cannot get support if we are to restore that confidence, however. In the near future, we will need electrical contractors, plumbers and other skilled workers but they are going out of business or emigrating. The Labour Party motion contributes to the goal of getting credit flowing again.
We know from research on the period between 1929 and 1940 that suicide levels increase during economic downturns. In the first half of last year, suicides increased by 35%. That is an important aspect of the economic crisis. We have identified the need to increase the social welfare budget and disagree with individual reductions. We must provide the budget to give those who are unemployed some form of financial support to live from day to day. However, there are other needs presenting that must be recognised in the same way, given the whole area of distress caused by unemployment and its financial implications. Much distress is caused by the threat or the fact of losing one's home, and this creates tensions and difficulties within families, within marriage and for cohabiting couples, and we know there is an increase in divorce during times of crisis.
These problems exist but are not recognised. We like debating economics but, while we must debate the economic implications of what is happening and how we are to get out of this situation, we must also recognise there is another aspect that is hurting many people.
Timmy Dooley (Clare, Fianna Fail)
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I wish to share time with the Minister of State, Deputy Billy Kelleher, Deputies Thomas Byrne, Darragh O'Brien and Michael McGrath and the Minister, Deputy Eamon Ryan.
Timmy Dooley (Clare, Fianna Fail)
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I welcome the opportunity to contribute to the debate. Yet again, we are discussing an Opposition proposal that purports to somehow resolve our current economic recession and our fractured banking system. This proposal is unique in that it purports to resolve both but, yet again, it is a case of smoke and mirrors.
The Labour Party sets out the problem. We all know we are going through one of the most difficult recessions since the 1930s, we know there is a very significant increase in unemployment and we know its magnitude, we know the threat of emigration, we know the infrastructural deficit in our society and we certainly know the impact of the inability of small and medium enterprises to access credit, working capital and funds to keep their businesses going and to continue to employ people - we are all clearly aware of that difficulty. However, the Labour Party proposes some kind of strategic investment bank which, while it sounds great, is big on name but light on detail.
One can set up all the quangos one likes to solve a problem but one cannot do so in a dislocated way. This has to be part of the wider economic situation. Until such time as we bring a resolution to the problems that exist within the economy, setting up another institution or quango will add nothing. It has to be part of a holistic approach to managing our way through the problems.
It is not just as simple as producing this investment bank. If one wants to invest in infrastructure, the economy or jobs, one needs money to do that. We know that money comes from the markets - it does not grow on trees any more, to the surprise of some of our senior bankers who seemed to act as if it did. To be able to draw money from the markets, there must be confidence. In particular, there must be confidence in the ability of the Government to pay back the moneys that are lent to it, and there has to be a return for the investor. In the real world, therefore, this so-called monopoly money that was floating around for years no longer exists. The Labour Party proposal suggests there is monopoly money out there that will fund this bank and somehow resolve the problems without first dealing with the resolution of the crisis we face.
The Government has put in place policies which are focused on controlling public spending. A plan is in place to balance the books or at least to bring us within 3% of the borrowing requirement set out in the Stability and Growth Pact. Following this plan gives confidence to the markets and allows us to borrow at reasonable rates to fund the deficit and, more importantly, to fund the capital spending requirements of the State.
We have set about resolving the banking situation. NAMA is working well. It is about cleaning up the balance sheet.
Timmy Dooley (Clare, Fianna Fail)
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Deputy Burton might disagree but, with respect, she spent weeks in this House bleating about the fact we were going to overpay for the assets that NAMA would ultimately acquire.
Joan Burton (Dublin West, Labour)
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The Deputy is talking about-----
Brendan Howlin (Wexford, Labour)
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Allow Deputy Dooley to continue without interruption.
Timmy Dooley (Clare, Fianna Fail)
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We did not overpay and Deputy Burton now accepts we did not, yet she claims this causes another problem.
Joan Burton (Dublin West, Labour)
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No wonder they destroyed the economy.
Timmy Dooley (Clare, Fianna Fail)
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We have invested further taxpayers' money in the banks but that is the right thing to do. One cannot just ignore the banks and the economic situation and create some kind of a magic institution that will resolve the problem. The recapitalisation works towards this and will make the banks fit for purpose.
The Government has placed onerous lending requirements on the two main banks, with a requirement to lend €3 billion for each of the next two years to assist companies in getting access to credit. It has set up the credit review process which brings transparency for the constituents of all Members who have explained to us that they have not been able to access credit. The review process that is in place sets about resolving that difficulty. Seed capital is required from the two big banks to work on Enterprise Ireland projects and we have continued to invest a very considerable amount in capital spending on public projects, whether in regard to the western rail corridor, the connection between Gort and Tuam, which Deputy Higgins will welcome, and other projects in that area. We have seen investment in our schools and investment of €560 million this year as part of the building programme in creating, retaining or sustaining 4,400 jobs in rural communities throughout the country. These are all part of a co-ordinated approach, not one individualised solution such as the Labour Party has put forward. That sounds good but, unfortunately, it is not connected to reality.
Billy Kelleher (Cork North Central, Fianna Fail)
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I welcome the opportunity to contribute on this motion. While we welcome any opportunity that gives the Government and Opposition Members an opportunity to speak on the very serious challenges facing this country and its people, it is important we outline the difficult decisions that have been made and their results, as well as the hopes and aspirations that people have in the context of addressing the budget deficit, addressing the balance sheets of the impaired banks and making sure we have a credit flow to the broader economy which will bear fruit and will see a turn in Ireland's fortunes.
The proposal by the Labour Party with regard to the establishment of a strategic investment bank gives us an opportunity to highlight what the Government has done, where we have come from and what we are trying to achieve in ensuring that credit flows to small and medium size businesses. It is vital we repair the competitiveness of the economy and that we try to turn this corner and get back to what we are good at as a nation, namely, being innovative and entrepreneurial and developing the whole area of exports.
If we are to address the huge challenges that face the country, it is important we acknowledge where we have come from. I do not accept we can blandly state that the economy was driven to despair and distraction in recent years given it has expanded hugely in the past ten or 12 years. At one stage, we had an employment level of more than 2 million people and there has been huge investment in infrastructure across all aspects, including roads, rail, water, sewerage, broadband, hospitals and education, including at third level. Every aspect of the economy has increased its capacity and capability to deliver better services. In addition, there was a huge increase in exports in recent years.
To suggest the only problems facing Ireland are internal simply does not address the fundamental issue, which is that there is a world recession. Ireland is an open trading economy and we, more than any other country, are vulnerable to the whims of the international economy. To suggest the property bubble inflation was the ill and that by addressing it, we will solve all our problems is simply not a credible argument. We must restore competitiveness. This is very painful for many people in this country and while it means a redressing and re-balancing of our living standards and our expectations, it also means there will be wage deflation in certain parts of the economy more than others. This is simply something that has to be achieved, and anybody who denies it is simply not being honest with themselves, is delusional, does not understand the basics of economics or is just being disingenuous and populist.
The motion highlights a number of aspects which the Government is trying to address. I accept there is a difficulty due to a lack of credit flowing to small and medium size businesses. However, the strategic investment bank as proposed by the Labour Party, would have been of critical importance if it had been in government when the bank guarantee was introduced, simply because the Labour Party would not have brought forward a guarantee. We would not even have a banking system that is potentially viable or capable of being salvaged, as is the case now and as a result of the brave decisions of the Government at the time when the country was facing the abyss. We do not have to go too far even within the eurozone to see the difficulties being faced by some countries which are unable to access credit because their credit worthiness is so downgraded and they are unable to borrow.
This Government has achieved much. It increased employment to historically high levels and decreased unemployment to historically low levels. It invested significantly in infrastructure, reduced the national debt and invested in the National Pensions Reserve Fund, something which the Labour Party wanted to pillage on many occasions for other populist ideas at the time. Most international commentators have acknowledged that Ireland has achieved a lot in the short time we have faced this crisis and as a result of the decisions made by the Government. However, we are far from out of the woods and we must be conscious that everybody in this House, on all sides, has an obligation to at least be responsible in his or her comments. They must, at least, acknowledge that the very difficult decisions being taken by the Irish people will be of benefit and hopefully will get us to the other side of this recession intact and as a sovereign State with a credit worthiness befitting the Irish people.
Thomas Byrne (Meath East, Fianna Fail)
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The Labour Party motion states that the strategic investment bank will be "broadly modelled" on the German KfW bank and ICC and ACC banks. Those are the key words in the motion. As usual, it has brought a motion to the House written on the back of an envelope, so to speak, having looked up a few references.
KfW bank does good work in Germany but it is, generally speaking, a second tier bank as it does not operate in the retail markets. It operates with the benefit of a government guarantee, the same guarantee the Labour Party so adamantly and vehemently opposed. This guarantee is the means by which KfW finances other banks which operate on a commercial footing by providing them with competitive financing for investment in the market and in business. This is how the KfW bank operates. The one subsidiary of the KfW bank operating at the retail level had to be removed from the state guarantee. It operates independently because it is a commercial operation. This was a decision forced upon it by the European Union. I do not mean to denigrate the KfW bank which is a good bank and a safe bank but it is a second tier bank as it generally operates at a wholesale level. The Labour Party would probably need to do more research. At one point it was called Germany's dumbest bank, because it transferred a large sum of money to Lehman Brothers on the day it collapsed. This is not to take away from its overall good reputation.
The Labour Party refers to the strategic investment bank as having full operational independence from the Government. Does this mean that pay rates and pay scales in the bank will be a matter for that bank and not for the Government or the Labour Party? The Labour Party in all of its dealings with regard to the banks has not advocated the principle of full operational independence. In fact, far from it, it wants to interfere in every decision made by the banks. Every time a bank makes a decision, the Labour Party will criticise the Minister for Finance as if the Minister is responsible for those decisions made by bank boards and executives. The Labour Party motion advocates a new principle of full operational independence for banks. This is an interesting principle which is new for the Labour Party but it is welcome because the banks should be given full operational independence in so far as we are allowing them to have it. This Government has not given the banks full operational independence. The pay scales of the chief executives are subject to review and there are memoranda of understanding as to how the banks operate, including Anglo Irish Bank which is now a State bank. The Minister for Finance has a strong role in the operation of those banks. We are giving new powers to the strategic infrastructure bank which go way beyond what is given to the private banks and to some of the State banks.
The Labour Party proposes capitalisation such as equity investment from the National Pensions Reserve Fund to be given to the private banks such as Bank of Ireland and AIB. When the Government proposed capitalising those banks, as was advised by all reputable commentary, the Labour Party adamantly opposed that capitalisation. The capitalisation we have provided has generally not been by means of equity investment although there have been some conversions, rather it has been by preference shares with a fixed rate of return. The Labour Party is now supporting capitalisation on a riskier basis than what has been allowed by the Government for AIB and Bank of Ireland and which the Labour Party opposed.
The Labour Party proposes the strategic infrastructure Act would originate funding for infrastructure projects it deems to be appropriate. This would mean telling a bank it - rather than the Dáil - could decide which infrastructure projects would go ahead. The Labour Party is promising voters infrastructure projects - when they are not objecting to them - but it will say that a semi-State body, a bank, will decide whether this project gets the go-ahead.
The Labour Party proposal is half-baked, written on the back of an envelope. Deputy Burton usually reacts when I speak but she has not reacted tonight. I rest my case.
Darragh O'Brien (Dublin North, Fianna Fail)
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I am pleased to be given an opportunity to speak in support of the Government amendment to the Private Member' motion tabled by the Labour Party. This Government has remained focused over the past 18 months to two years on securing the future of the Irish economy. We have been doing this while this country has faced an unprecedented global financial crisis which is affecting all major economies. Some of the decisions we have had to take have not been popular, however, they have been taken in the interest of our country. Unlike others here in the House, we have not shirked our responsibility to the Irish people. We have taken the hard decisions and we have done the heavy lifting, so to speak, on our own. We had to stabilise the banking system, not for the good of the banks as has been argued by the Labour Party many times, but for the good of the economy as a whole. We did this to maintain the existing jobs, to create new opportunities for people who have recently lost their jobs and for our young people. No bank has been given a free lunch, so to speak. All have to pay for the State guarantee provided to them. They have to pay guaranteed returns to the National Pensions Reserve Fund for the recapitalisation and the NAMA transfers. This week's private sector investment in Bank of Ireland is a significant vote of confidence in the bank, in the wider Irish economy and in the Government banking strategy. This strategy is working. Our challenge now is to ensure that working capital flows back to our business sector and particularly to the small and medium-sized businesses. This is the reason we have insisted that AIB and Bank of Ireland provide €3 billion each in loans. This will be closely monitored on a statutory basis by Mr. Trethowan's credit review committee. This is crucial and badly needed. It is only then that people on the street will clearly see the need for the NAMA project.
We have introduced a new robust regulatory system. We have stabilised the public finances. By doing this we have had to take very unpopular decisions and have inflicted financial pain on citizens.
The Labour Party stance of playing to the gallery at every opportunity will get this country nowhere. It agreed we needed to make savings of €4 billion but disagreed at every stage with any measure put forward by the Government. It agreed we needed to tackle the issues in the banking sector but voted against every Government initiative, including the State deposit guarantee that protects people's savings, pensions and credit union deposits.
Its finance spokesperson, Deputy Burton's many reckless comments have done untold damage to the reputation of this country. Its leader had the audacity to accuse the Taoiseach of economic treason and would not withdraw those remarks. Deputy Gilmore has at no stage supported any constructive Government initiative and he has failed to put forward constructive policies. The Labour Party has told blatant mistruths to the Irish people. It is pushing a populist agenda in the interests of political gain. It has never shown any interest in assisting with making the decisions that need to be made.
Jan O'Sullivan (Limerick East, Labour)
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What about tonight's constructive proposals ?
Darragh O'Brien (Dublin North, Fianna Fail)
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That one page motion is probably the only proposal of any significance produced by the Labour Party. It has opposed everything proposed by the Government, such as strategies which have international agreement. The country is on the right path to recovery. We have stabilised our public finances without the support of the Labour Party. We are tackling our banking situation without the support of the Labour Party. We are gaining international support for our measures, without the support of the Labour Party. We are supporting jobs through employment subsidy schemes and creating new opportunities, without the support of the Labour Party. In time, this Government will be seen to have done the right thing, not for political gain, like the Labour Party, but for the good of our fellow citizens.
Michael McGrath (Cork South Central, Fianna Fail)
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This debate is timely, particularly against the backdrop of significant volatility on the international markets arising from the uncertainty of the Greek financial crisis. Greece today will pay over 11% on its bonds while Spanish bonds were downgraded by a credit ratings agency. The head of the IMF said the fate of the single currency is at stake because of the cracks in the solidarity of the eurozone system.
No one knows where this crisis will lead. Ireland needs to learn the lessons from Greece and the other eurozone countries in serious financial trouble. It underlines once again the overriding requirement for the Government to ensure the public finances are brought to order by 2014, as agreed with the European Commission, and a working banking system is in place which will meet the needs of the economy, particularly for small and medium-sized enterprises, the backbone of this economy.
All parties are agreed on the central role the adequate flow of credit plays in the economy. Many of the initiatives and measures undertaken by the Government in the past several months are designed to ensure the adequate flow of credit for businesses.
The Minister of State, Deputy Darragh O'Brien referred to the €12 billion lending requirement that Bank of Ireland and AIB must comply with for this and next year under the NAMA legislation. By 12 May 2010, both banks will have to submit detailed proposals, broken down by sector and region, on how they will achieve these lending targets.
This will have to be rigorously monitored because the banks have shown form in the past in their ability to reclassify loans from one category to another. The Minister for Finance has said that if he is not satisfied with the evidence of their lending, he will use the power under the NAMA legislation to issue a statutory instrument to ensure credit flows into the economy.
The banks are rebuilding their balance sheets by restricting the availability of credit to businesses while competing aggressively for depositors. There is a concern that they will react to the recent banking crisis, which we are not out of yet, by being overly cautious and too conservative in lending practices. All Members know of cases where banks at loan reviews have doubled, even trebled, the interest applied to the loan.
Our economic recovery is inextricably linked to the flow of credit which we must ensure. In that regard I welcome the establishment of the credit review office. I would like to see its decisions binding rather than the banks merely explaining why they will not implement them. However, it is a step in the right direction.
The progress made by Bank of Ireland in raising private capital so that it can meet the capital requirements laid out by the Financial Regulator must also be welcomed. AIB will submit its detailed capital plan by the end of April. We need for these banks to be strong with genuine competition in the banking sector.
In the interests of public accountability, once the restructuring plan for Anglo Irish Bank has been finalised, the full file should be published. It is important to show the costs of the different options of winding the bank down gradually, immediately or keeping it as a going concern. This information should be available for all to scrutinise, particularly when we are anticipating an injection of up to €22 billion into the bank. I look forward to discussing this with the bank's chairman, Mike Aynsley, when he attends the Oireachtas finance committee.
Eamon Ryan (Dublin South, Green Party)
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The banking issue needs to be debated to allow us to check and revise policy. A year and a half ago, my first instinct, when I sensed the scale of the banking problem facing us, was that we should nationalise all the banks. When I informed the Minister for Finance of this he listened but in the end said "No".
In hindsight it was the right decision not to nationalise all the banks at once. A year ago it was clear to me we would end up with the sort of scale of State involvement in the banking sector that we have now, particularly with our larger banks, Bank of Ireland and AIB.
It was better not to nationalise all the banks because such an approach ran the risk of being a more expensive approach. By international comparison, the better approach was to find out the nature of the problem, the assets that needed to be managed and then to deal with the capital approach.
I would have had no difficulty, however, if we had to fully nationalise Bank of Ireland. It did not happen in the end and international markets gave the signal the other day that it will be able to work itself out of its situation. I hope the State will be able to make a significant profit if the bank returns to profitability.
In last Sunday's The Sunday Business Post, Deputy Richard Bruton argued that to deal with the biggest banking problem, Anglo Irish Bank, the loans should be forgotten while the bondholders should be allowed take the loss. I will admit that was my first instinct too. I would love the bondholders to take the loss rather than the taxpayer.
However, when one examines the details one has to question such an approach. Roughly €15 billion is held in bonds in that bank. Some €2 billion of it is short term with a turnover of one week. It is more akin to a deposit rather than a medium or long-term bond. However, the bank's annual accounts showed that of the other €13 billion of bonds, some €7 billion of them were issued since the bank guarantee in September 2008 and will come to an end by this September. Deputy Richard Bruton's argument that these bondholders would take on the debts if the bank were let go is not, therefore, correct.
I understand several other bondholders in the bank are in a similar position. The proposal of letting the bondholders take the hit after the guarantee expires will not work because the bondholders will not be there. Legal advice also points out they cannot be treated differently to other depositors such as the European Central Bank. After examining the maths of going after the bondholders, I have realised it is not a practical or realisable solution.
I welcome these type of debates, and further debates, because they allow us consider the options not in a party political fighting manner but in a genuine way. When we examine the figures and the reality of the position, however, much as I would like to pursue such an approach, I do not see it as realistic or possible. That is the reason I welcome the debate tonight.
Michael D Higgins (Galway West, Labour)
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With the permission of the House, I propose to share time with Deputies Joe Costello, Seán Sherlock and Jan O'Sullivan on a division of ten, seven, seven and six minutes.
Michael D Higgins (Galway West, Labour)
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I am sorry Deputy Michael McGrath has left the Chamber because I thought his contribution was a reasonable one from the Government's point of view. I hope he will not think I am condescending if I say it was fairly well informed in terms of its economics.
I want to set out a number of points. Deputy McGrath's speech contrasted with what one could only call hectoring, abusive speeches directed at the Labour Party. For a start I will deal with one fact, which is that the proposal before the House comes from the Labour Party's earlier document, Investing in our Future. That document was available for anyone to read. It suggests that the real economy is where the Government must take action, and quickly, and that within the real economy unemployment is the biggest problem. In the ten minutes available to me I do not have the time to go into detail on that but if one looks at the cost of unemployment as it rises past 14%, one will see immediately that the deficit of 40% to 50% is accounted for by the cost of unemployment.
I suggest that the Government's policies are turning a recession into a depression. It is basic economics, given recent economic history, that if the economy is deflated to the extent that is now happening, both in terms of Government action combined with a massive increase in savings, the net effect of shrinking the economy in that way will drive the unemployment rate even higher.
As I said, I can only make a few truncated statements about that but what the Government seems to be suggesting, even in the little handbooks it prepares for its backbenchers, is that we are repairing and recapitalising the banks and that we will increase competitiveness, achieve growth and so forth. In the Finnish economy, which went through a similar crisis to ours, there was a return to growth in single figures but the unemployment rate did not drop for a full five years.
I want to state clearly our position on this issue. I suggest the Government has not dealt with the real economy and the social disaster that are the unemployment figures within it. Those who are affected by the disaster of unemployment not just in the loss of a job, but the exclusion and the misery we have heard about from many other speakers, cannot wait five years.
The other part of it which is very important is the bland way in which the return of immigration is being accepted. A total of 100,000 people over two years have emigrated. Those people have come through an educational system, and have been described by the European Union as among the most flexible, highly talented workforce in Europe, and they are to be exported. I could point to other examples. One either engages with the employment creation problem or one does not.
I attended the conference in Farmleigh at which many presentations were made on innovation and research and development. In the Tasc document published recently, Dr. Tom O'Connor points out that we have 10,000 PhD graduates working in Ireland. We have approximately 350 incubator units working in third level institutions and of those 13 have spun out tradeable companies but they were almost immediately bought up by foreign multinationals. In other words, having subsidised the research and development, instead of getting the hundreds of thousands of jobs we allow the taxpayers' investment in research and development and innovation to be consumed by the sheer power of money.
I note our debate has been welcomed by some but people have come out with mantras such as "the response of the markets". I have stated, and written it elsewhere, that one of the findings of the last crisis, and the more general one in global economics, is that there is no such thing as market rationality. Speaker after speaker on the Government side spoke about messages from the markets. This is like the fourth secret of Fatima. It is about the same status. There is no market rationality.
References were made to Greece. What a pity no one will speak about the sheer speculative, criminal activity of Goldman Sachs not only in regard to the Greek currency, but to all of the housing bubbles in the United States which, to the credit of the United States, it has the capacity to face and examine.
I will outline what is involved here for people watching. They have heard about whatever is left in the National Pensions Reserve Fund, and someone was dismissive of the Labour Party's proposals to use such funds for infrastructural expenditure. The reality is that we must take out our €2 billion now and put into a strategic investment bank that will provide infrastructure.
There was a time when schools, clinics and roads could be built at the most competitive price in decades. We have unemployed engineers and architects who account for one in three males involved in the construction industry, yet the Government contracts its capital expenditure. In fact, capital spending will go from 5% of GNP in 2010 to 3.1% in 2016. At a time when we should be reflating the economy by getting good value in social infrastructure and creating jobs, thereby reducing the cost of unemployment, the Government is doing the opposite. It is filling the gap with phrases about making the banks fit for purpose.
I ask one question of the public watching this debate. After €22 billion going into the black hole that is Anglo Irish Bank, do they see Anglo coming out in the future and lending one red cent to anyone who will ever work in Ireland? The answer is "it will not". Everybody knows that, yet at 8.30 p.m. tonight we will vote on using €2 billion from the National Pensions Reserve Fund that would fund infrastructure and capitalise the spin-out companies coming from research and development. It would have been available for the refit in terms of related technology. People are saying we must repeat the Fianna Fáil Party line that we are repairing the banks - by putting €22 billion into a bog hole. That is the test, and people can reasonably compare our proposals in regard to addressing the unemployment core of the real economy, including liquidity and credit to small and medium-sized enterprises, which is important.
One might say, would AIB not do this or would Bank of Ireland not be able to do this when it has taken so much of the State's money? That is simply not the case because the legacy of this is that between 1998 and 2007 bank lending increased by 500%. A total of 67% of that was in property and 14% in institutional lending. What was left for the real economy? They have no record of lending to the real economy. Why should we trust them now and say there has been such a change in culture that they will give up their aul sins and start lending to the real economy. There is not a shred of evidence for that.
The Members should not just believe me on this issue. Deputy Gilmore, the leader of the Labour Party, in moving our motion last night, quoted the Governor of the Central Bank who stated:
I think it's fair to say – and what data we have seem to bear this out – that banks in Ireland reacted to their own difficulties and to the downturn by greatly reducing their risk appetite. Some of this was a necessary adjustment, but the result has been limited availability of credit for start-up firms and SMEs. Indeed, I have the impression that, during the years of property-based lending, the banks have lost their edge in small business lending.
This is the alternative to our motion. The result of what the banks did at that time was to make it impossible for people to put a roof over their heads because, for example, the ratio of the average gross salary to lending had increased to approximately eight or nine to one at a time when most European comparisons state that one has unaffordable housing when that ratio is 3:1. The choice tonight is to address in the short term the unemployment problem directly and immediately by way of the Labour Party proposal of a strategic investment bank or accept that the banks have all converted now and that if we wait long enough they will repair themselves. Such nonsense.
Joe Costello (Dublin Central, Labour)
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I compliment Deputy Burton on tabling this important motion which deals with the establishment of a strategic investment bank, an important policy item for the Labour Party and, I believe, the country.
The Minister, Deputy Ryan, appeared in his remarks to be depending largely on the Bank of Ireland getting the country out of the mess it is in. The words proposed to be inserted following the deletion of all words after "Dáil Éireann" are outrageous and seek to commend the Government on its actions to stabilise the financial system and note that its policy has already delivered a cleaner, well capitalised and better funded Bank of Ireland which is now in a position to provide credit to support economic recovery and renew job creation. If the Minister believes that, he is in cloud cuckoo land. All of the banks, including Bank of Ireland, are under-capitalised. It may be the best of a bad lot but that is all it is. If the Minister believes the engine of the Irish economy can be restarted by one bank, which remains in a considerable degree of trouble, he has another thing coming.
The reality of the situation is absolutely stark for this country. Unemployment has in the past two years almost trebled from just under 5% to almost 14%. The Live Register stands at 436,000, with 32% youth unemployment. Are we to allow this generation stagnate or emigrate? Some 40,000 people emigrated last year. The ESRI has stated that up to 60,000 people will emigrate this year. This means that 100,000 people will have emigrated from Ireland in the space of two years, which is akin to the 1950s when emigration was at its worst and the lifeblood of this country was being drained away owing to a lack of employment.
The current crisis came about because of irresponsible banking and regulation and, most of all, irresponsible Government. All have contributed to the current crisis we are in. The problem is that the only response from Government to get us out of this mess is to bail out the banks. That is its only coherent response. The mantra for the past two years has been, stabilise the banks, capitalise the banks, give the banks a guarantee and all will be hunky dory. The solution is that we give all of this to the private banking sector which was involved in bringing our economy to its knees.
We cannot allow the country to slip back into stagnation as happened in the past. Our first priority must be to get the wheels of our economy turning again, to stop the haemorrhaging of jobs and to find new ways of creating employment. The Labour Party has outlined its policy in terms of a stimulus package which would intervene to retain existing jobs, provide training, education and upskilling for those who might lose their jobs and to provide incentives and resources for the creation of new sustainable jobs. Central to job retention and creation is a reliable steady credit flow. This is where the Labour Party proposal comes in. The private banking system cannot provide this. Not alone cannot it not do so now but it did not do so in the past. There is no indication it is capable of doing so. The banks have been reckless, greedy and irresponsible. The citizen in the street and corporate Ireland require that steady flow of credit which is not available anywhere.
The banks splurged in the past and do not now have money to spend and are too impaired to provide what is needed. We can no longer allow the private banking sector to have total control of the purse strings that will determine the future of our economy. We must provide ourselves with a sufficient flow of capital to our economy, including to our citizens and small and medium-sized enterprises that are crying out for an injection of funds and cannot got them, causing huge problems. The small and medium enterprise sector generates 64% of all employment. More than one million in this country are employed in that sector. Some 50% of the entire working population of this country are in the small and medium enterprise sector. The Government has not been funding them. It has not been putting pressure on the banks which remain under-capitalised to do so. Also, the banks are not drawing down money available to them from the European Investment Bank.
Brendan Howlin (Wexford, Labour)
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The Deputy has one minute remaining.
Joe Costello (Dublin Central, Labour)
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The banks could use this money to generate new activity in the SME sector. I do not believe we have a choice in this matter. We must look to the ICC and ACC models which for many years provided a good flow of capital to the agricultural and corporate sector in this country. The Labour Party previously considered the establishment of a third banking sector. The proposal before us is the equivalent of this. The Government must assert once and for all that it will be responsible for controlling the supply of money in this country. The only way to do this is to have an independent bank that is capitalised - the strategic investment bank would be capitalised from the pension reserve - the primary function of which will be to ensure the engine of the economy is supplied with a steady flow of funding. This has not been done by the private banking sector which acted recklessly. For the future, we must ensure that this does not happen again.
Seán Sherlock (Cork East, Labour)
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The Minister for Finance, Deputy Lenihan, in response to a Parliamentary Question today in regard to the Mazars review of lending to small and medium enterprises stated:
The third Mazars report on lending to small and medium-sized enterprises, which covers the period from October to December 2009, showed that credit applications in number and value terms rose slightly in the last quarter of 2009 over the previous quarter, which is encouraging. The level of applications for credit appear to be stabilising and Mazars also reported a small improvement in the overall credit approval rate.
However, the reduction in the stock of credit, as repayments exceed new credit, and in credit quality reported by the banks remains a concern for the Government. To address this concern, I announced earlier this month that AIB and Bank of Ireland are to make available a minimum of €3 billion each for new or increased credit facilities, including working capital targeted at small and medium-sized enterprises, in the real economy in each of the next two years.
The small and medium enterprise group appeared before the Joint Committee on Economic and Regulatory Affairs yesterday. Its members constitute more than 98% of all business entities in Ireland and number more than 240,000 in terms of the number of businesses they represent and employ just under one million people. In response to questions on the Mazars report, Mr. Fielding, the representative, stated that, with regard to access to credit, the Mazars report published last week has been hijacked by the banks.
In the first two Mazars reports there was major input from the Department of Finance, the Department of Enterprise, Trade and Employment and small business. We did not even know the third report was coming out and it was launched at a joint press conference by Mazars and the Irish Banking Federation with no Department of Finance, Department of Enterprise, Trade and Employment or small to medium enterprises. It was very disappointing from our point of view. In further deliberations on the difficulties facing small businesses we spoke about the employment subsidy scheme.
Mr. Fielding went on to state that last summer the Tánaiste introduced the employment subsidy scheme. Initially, it was for exporters only but it was extended to all companies. I direct the following comment to the Minister, Deputy Ryan. However, Mr. Fielding went on to state that in the small print one saw it was extended to all companies except those employing fewer than ten people, immediately excluding 90% of all businesses. Therefore, Government policy on employment relates to firms employing ten or more employees. It gives an unfair advantage to those employing 11 as against a firm employing nine people. The Government does not have bottomless pockets but one would think more could be done when one sees the amount of money being invested in the banks. These are the words of the person who represents 98% of businesses in the country. These are his views in respect of funding and the role of banks in this society at the moment.
There is a vacuum at present. It is the view of ISME that there remains a significant lending deficit which undermines competitiveness, constrains productivity, threatens recovery and puts at risk the ability of SMEs to gain access to working capital and growth capital. That is what this motion is about.
The banking crisis has seriously impaired the capacity of Irish banks to lend to the SME sector. I refer to the answer I received to my question on the Mazars report. The Minister stated that a letter was sent to both Bank of Ireland and AIB on 7 April of this year requiring them to prepare an SME lending plan, broken down by sector and geography for submission to the Department by 12 May. What does this tell us about the Government's response to lending in the SME sector in the first instance and the banks response since the guarantee was put in place in September 2008 in respect of lending in the SME sector? It is non-existent; it is not happening. The evidence of a letter on 7 April this year does not inspire confidence into the process being undertaken in respect of the systemic banks and other banks at present. The Minister also stated both banks were expected to make credit available.
Brendan Howlin (Wexford, Labour)
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The Deputy has one minute remaining.
Seán Sherlock (Cork East, Labour)
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Both banks were expected to make credit available immediately and were not to wait until plans were submitted. The bottom line is we have a viable plan here, one which will facilitate lending to the SME sector. We can do this post haste, which is what needs to be done to effect growth in this economy again.
Jan O'Sullivan (Limerick East, Labour)
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This proposal from the Labour Party is very practical and responds to real needs in the Irish economy and among small businesses throughout the country. Deputy Seán Sherlock has provided very clear evidence of the difficulties of small businesses. Last night, Deputy Penrose quoted from research carried out by ISME on the real difficulties facing small businesses throughout the country and the lack of funding for infrastructural projects, which are of such importance.
I refer to some of the points made by Fianna Fáil speakers tonight. Some comments were constructive and invited constructive debate. This motion is put forward in the spirit of a constructive proposal. However, as Deputy Michael D. Higgins stated, other Fianna Fáil Deputies used various types of sloganeering to hide behind the fact that its policy has basically failed and has not delivered the money small businesses need to create and maintain jobs in the economy. They suggested we were playing to the gallery or being populist and used such terms. What we are actually doing is responding to the people who talk to us every day of the week. One may wish to label that as populist or playing to the gallery but it amounts to responding to people outside this Chamber who do not hide behind the slogans that have been put forward by the Fianna Fáil backbench speakers.
Anyone who referred to the banks' ability to respond to these needs spoke in the future tense about aspirations. They suggested that, somehow or other, the banks that are being recapitalised and that have had billions of euro of taxpayers' money put into them will at some stage in the future hopefully come good. "Hopefully" was a word used, I understand, by Deputy Timmy Dooley. However, we cannot live on hope.
We must provide real answers and funding for businesses which exist but which are in trouble. The banks are so preoccupied with retrenching their reserves and putting right their balance sheets that they do not have the will to address the needs of small business. We need a clearly focussed bank the interest of which is publically driven and the purpose of which is clear. Naturally, there must be credible risk management in all lending but what is crucial about our proposal is the ethos and raison d'être of what this bank would be about. There will always be some risk with lending to business. However, that risk must be informed by a Government policy of giving impetus to new growth and sustainable jobs.
The current banks, even those we own or partly own, do not have the capacity to focus on the two crucial areas which require money, namely, infrastructural projects and small and medium sized businesses. These are the two areas requiring help and the Labour Party proposal is focused on this reality.
I refer to my own constituency and the family businesses there that are inter-generational. These are the businesses to which Deputy Seán Sherlock referred and which in some cases have less than ten employees and therefore cannot benefit from many of the Government schemes. They are also the businesses that the commercial banks have been told to invest in by Government. Deputy McGrath acknowledged the banks will have to be hounded to invest that money. I cannot envisage the commercial banks undertaking the painstaking work required to support small businesses to get them out of the difficult times in which they find themselves. The bank we propose will have as one of its clear objectives the requirement to address the needs of those small business of which we are all aware in our constituencies. Many of these are businesses that have been in place for generations and which are in difficult times at the moment but which could trade their way out of difficulty if only they could get the credit they need.
I refer to some other proposals. For example, a group of tradesmen came to me with a very good, viable proposal in respect of refurbishing houses to make them more energy efficient. However, they simply cannot get the necessary seed capital. These are the businesses the Labour Party proposal for a strategic investment bank seeks to address. Our party leader, Deputy Gilmore stated last night that it is focussed on getting people back to work.
Jan O'Sullivan (Limerick East, Labour)
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This is what we must do, but not mañana or at some hopeful time in the future. Government parties hope investment will be forthcoming from the existing banks and that it will go into small businesses. We are aware, as is ISME and everyone who represents small business that this is not happening and it will not happen with the current commercial banks because that is not their focus or concern.
The only way to bring the country and its people back to sustainable growth, jobs and confidence in the future is if we have a strategic investment bank such as that proposed by the Labour Party, the absolute focus of which will be on providing capital funding to get businesses up and running and to keep the businesses currently struggling afloat and in order. The proposal will help to build schools, hospitals, roads and houses which are so urgently needed.
Brian Lenihan Jnr (Dublin West, Fianna Fail)
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I am pleased to have the opportunity to respond to this debate. Before I do so, I refer to Deputy Kenny's wildly inaccurate claim this morning that Irish banks were exposed to some €7 billion of Greek debt. For the record, the total exposure of the covered banks to Greek sovereign debt is negligible, less than €40 million. It really is not in the interests of this economy - nor does it reflect very well on this House - that grossly inaccurate and perhaps mischievous figures of this nature are thrown around at a time of elevated stress in the international markets.
This week, the first of our banks emerged from the banking crisis. Bank of Ireland's plans to attract money from private investors to meet the stringent capital requirements set out by the Financial Regulator represent concrete evidence of the growing international confidence in Bank of Ireland and our economy. Our policies are delivering a cleaned up, well capitalised and better funded bank. It is in a position to provide the vital credit that, as Deputy Jan O'Sullivan has said, is needed to support economic recovery and job creation. This arrangement will also provide a handsome return to the taxpayer. The State will obtain €540 million from its previous investment in the bank - the warrants that were taken out last year, together with further administrative payments - and will own approximately €1.8 billion of preference shares, which will yield approximately €180 million in cash to the Exchequer each year, at a coupon cleared by Brussels in excess of 10%. The State will own up to 36.5% of this valuable bank, a stake it can sell in the future to the benefit of our pensioners.
This outcome is a vindication of the Government's banking strategy, which involved the pursuit of an institution-by-institution solution. The policy of blanket nationalisation, which was advocated by some parties, would have deprived Bank of Ireland of the considerable private sector funds it is now raising, leaving the taxpayer to foot the entire Bill. The Fine Gael proposal to split the bank into a good bank and a bad bank, and to default on certain bonds after next September, would have destroyed this 200 year old institution. It would also have meant that the institution would not be functioning now. If one takes the most optimistic assumptions about the Fine Gael proposal, it would not begin to function until after the conclusion of the guarantee next September. As a result of this week's announcement, a bank with a long tradition in this country will be in a position to provide credit to Irish businesses and households as the economic recovery begins to gather pace. Within the next few weeks, the bank will produce its plan to meet the lending targets I have set out. This plan will be monitored by Mr. John Trethowan, who is also leading the credit review process under which small and medium sized companies, sole traders and farmers who have been refused credit, or have had credit withdrawn, can apply for an independent review of the banks' decisions.
The interesting proposal before us tonight involves the establishment of a strategic investment bank. According to the Labour Party leader, it is modelled on the German investment bank, KfW, which was set up for the purposes of the reconstruction of Germany after the Second World War. It is proposed that the bank will be capitalised by the National Pensions Reserve Fund and that its critical role will be in funding infrastructural projects. Public spending on infrastructure is important in boosting the competitiveness of the economy. The Government has maintained capital spending at more than 5% of GNP, despite our fiscal difficulties. There has been some reprioritisation in light of the changed economic circumstances. The question that arises is whether we need a State bank to invest in infrastructure. We do not need some type of "funny money" arrangement to disguise the true extent of Government investment in the economy. The Government already has a mechanism available through which infrastructural investment for a return can be channelled in the National Pensions Reserve Fund. The fund has provided funds to major infrastructural projects - Terminal 2 in Dublin Airport is a notable example - and is committed to further investment in public projects that will give a good return on its investment. Potential investment opportunities for the fund are expected to arise later this year. This well-established mechanism is backed by the commercial experience of the National Treasury Management Agency. I have no great confidence that the State bank model would do a better job. On the contrary, there is considerable evidence, including a study by Professor Honohan, who is the current Governor of the Central Bank, that State banks with the best will in the world do not maintain a commercial focus and that political pressures on Governments tend to interfere in the lending decisions of such banks.
Michael D Higgins (Galway West, Labour)
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That is a selective quote.
Brian Lenihan Jnr (Dublin West, Fianna Fail)
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I am aware that the Labour Party leader quoted Professor Honohan's comment that the banks have reacted to their difficulties by reducing their appetite to take risk. Professor Honohan has also said that our banks lost their edge in small business lending some time ago. I agree completely. I made that point in my banking announcement before Easter. The way to tackle this problem is to restore the banks to health and to set targets that will be monitored. A credit review process has been established. I am not persuaded that a State bank can help in this process. A State bank would have to compete with the Exchequer to raise money on the international markets and with our existing banking system for funds to lend. In this global crisis, all countries have sought to repair their existing banks and to reform regulation, in the interests of rectifying the delinquent behaviour that got them into this crisis. That seems a far sounder basis on which to proceed. The Government's banking strategy is working. It will provide a financial system that will serve the needs of our recovering economy. That is the best way to create and protect jobs.
Joan Burton (Dublin West, Labour)
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I thank those who have contributed to the debate on the Labour Party's proposed strategic investment bank. We are not accepting the Sinn Féin amendment. In a recent article in Rolling Stone, the American writer, Matt Taibbi, compared an American bank to a "great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money". He was talking about Goldman Sachs, but it seems to me that he could have been talking about Fianna Fáil's own Anglo Irish Bank or, on a minor scale, about Irish Nationwide. In a way, that is from where the need for a strategic investment bank comes. It is something Fianna Fáil does not really understand. I noted the half-praise from the Minister and other Fianna Fáil speakers, which may reflect Fianna Fáil's distant history. The Labour Party has proposed the establishment of a strategic investment bank to address two critical market failures. I remind the Minister, who is a capitalist, that in capitalism it is permitted to use state initiatives to address clear market failures. Capitalists agree on that. Socialists accept it as a given, of course, because we do not hold the market as a God in the way Fianna Fáil does nowadays. The two market failures to which I refer are the shortage of financing for small and medium sized enterprises and the critical shortage of investment in infrastructure for the future.
Having listened to a number of Fianna Fáil contributors this evening and last night, it is clear some of them have never heard of Seán Lemass. They certainly do not have any knowledge of some of the initiatives he took, particularly during the Second World War, when market failure was a critical feature of native Irish capital. A series of initiatives was taken by Fianna Fáil and other parties in government to interest such key market failures. In our proposal for a strategic investment bank, we propose an initial upfront investment of €2 billion from the National Pensions Reserve Fund into a new vehicle which would raise funds to be channelled into Ireland's small and medium sized enterprise sector and into vital infrastructure. The Minister asked, quite reasonably, why a new vehicle is necessary when the National Pensions Reserve Fund already exists. The reason is that the Minister has given an extraordinary set of responsibilities, in the context of the banking crisis, to the National Treasury Management Agency.
Brian Lenihan Jnr (Dublin West, Fianna Fail)
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And to the National Pensions Reserve Fund.
Joan Burton (Dublin West, Labour)
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As my colleague, Deputy Jan O'Sullivan, has said, we want to concentrate not only on sorting out the disastrous mess that Fianna Fáil created in the banks, but also on the future. That is why we need an institution that will focus on investment in small and medium sized enterprises, for innovation purposes and in public infrastructure. As Deputy Higgins has said, rather than pumping money into a failed banking system, we want some of the National Pensions Reserve Fund to be ring fenced for productive job creation and investment for the future. The strategic investment bank will be a commercially driven business bank and a public project financing powerhouse. It will be a key driver of green energy, microfinance and next generation broadband. This has been already tried elsewhere.
In the recent United Kingdom budget the British Chancellor for the Exchequer, Alistair Darling, proposed the establishment of a green investment bank to support investment in the eco-innovation and environmental sector. France last year launched its own strategic investment fund, which is tasked with taking long-term, minority stakes in French companies with a view to catalysing further private sector co-financing. As several of the Minister's Fianna Fáil colleagues remarked earlier, the Labour Party proposal is modelled on the highly successful German KfW Bank. It was established as part of the Marshall Plan and has played a leading role in supporting investment and development in Germany.
The Minister criticised KfW because it was established after the Second World War to help Germany out of a post-war situation. Our economy has just suffered a war from the banks. Like Germany after the war, we need to create new institutions which bring hope to our people and future development. Clement Atlee and the British Labour Party went into government after the war when their country was in ruins. They built the national health service and universal free secondary and primary education. Of course countries which face great challenges can decide to move on, but they require leadership. I am afraid the leadership that Cowen economics had given to this country is sadly lacking in any vision for the future. That is what the Labour Party proposal is about, namely, building this country up again and using our resources, energy and talents.
Over the past two years, the Labour Party has consistently called for investment in job creation to be put at the top of the agenda, but the Government cannot seem to get past bailing out Anglo Irish Bank and Irish Nationwide. Fianna Fáil's ad hoc response to the crisis in Irish banking has been characterised by a string of broken promises. We were told that the bank guarantee would be the cheapest bank rescue in the world. This has turned out to be a disastrously bad call and has led to a seemingly endless series of bailouts and creeping nationalisation.
So far, we have seen no upside in the real economy. The credit famine continues. People continue to lose their jobs in record numbers and go on the unemployment rolls or emigrate. That is reality of where we are living in Ireland now. They have seen their hard-earned pension pots go up in smoke. Businesses are going to the wall because of lack of credit and a lack of demand from hard-pressed consumers. Most of all, we are blighted by soaring youth unemployment, in particular young men losing their jobs in the construction sector.
In just two short years, unemployment among those aged under 25 has more than doubled, from 28,700 to 66,800, two-thirds of whom are young men. This cohort makes up one in five people on the dole. When the world renowned economist, Professor Danny Blanchflower, spoke at the Dublin economic workshop some months ago, he talked about the devastating long-term effects that persistent youth unemployment can cause in society and for the economy. I know the Minister is an opera buff, but if he ever watched soaps-----
Joan Burton (Dublin West, Labour)
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The Minister told me he was. It must be classical music. I apologise. I was having a David McWilliams moment.
Brian Lenihan Jnr (Dublin West, Fianna Fail)
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It happens to us all.
Joan Burton (Dublin West, Labour)
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If one watches any popular television series based on areas where young people are unemployed, such as "The Wire" in Baltimore or "Boys from the Black Stuff" one can see the effect of long-term male unemployment. It scars young men, not just for a few years but for decades. Professor Blanchflower is a world authority on this and was a member of the Bank of England monetary committee. He is a respected international economist and that is what he said when he came to Dublin. We cannot afford to have all these young men semi-permanently unemployed with nothing to do and nothing to look forward to, except a few bob a week on the dole. That is not a career or life-enhancing path.
Cowen economics seems to be all about dishing out pain to individuals and families. Fianna Fáil has destroyed the economy. The Labour Party's strategic investment bank will help to put people back to work before it is too late. Everyone knows that tough medicine is needed to close Fianna Fáil's fiscal deficit, but we also need to give people hope by investing in our future, and that is the what the Labour Party's strategic investment bank is all about.
In order to keep my sanity with the deluge of bad news which Fianna Fáil brings every other week to this Chamber and the country about the banks, I make a positive point of going to visit multinationals companies and innovative Irish companies and spend time with time discussing what actually works. I had an opportunity recently to talk to companies like IBM and Microsoft and attended Craig Barrett's lecture in Dublin on innovation and employment growth in Ireland. All of these companies have one thing in common, namely, they are not credit starved because they can borrow on the international credit markets. They are not dependent on our frozen Irish banks.
That is why Paul Krugman, writing in March, discussed how Ireland should not become an example for the United States. I know the little Fianna Fáil book has many quotes from people who say it is wonderful, but Paul Krugman and Simon Jenkins, the former senior economist for the World Bank, have pointed out that the difficulty with Ireland's remedies is that while they may rescue the banks they are driving the rest of country down. That is what the Labour Party motion is trying to address tonight.
Craig Barrett, in his lecture in the Mansion House a number of months ago, spoke about the talents and skills of young Irish people, in particular well qualified engineers in IT and science. In the United States and India such people are those who establish start-ups, in terms of new business and innovation. Our strategic investment bank would not simply concentrate on public investment in needed infrastructure, but would also concentrate on the gap which people like Craig Barrett, who know a thing or two about this, have identified as a key gap we have compared to other economies which have a lot of bright young people, such as India which is devoted to education.
While such countries are providing for start-ups we, because of what is happening with the banks and the Government's obsession with them, do not have the money to devote to that. The Labour Party proposal is to provide key funds for innovative start-ups to put us back in the game, not just via multinationals but via Irish small and medium enterprises. Over the past 20 years we have built up, mainly through our third level colleges, considerable experience in how to do that. but we need funding and capital for such start-ups.
At the Microsoft presentation, which the Taoiseach attended, the key message which many of the young innovators, scientists, engineer and IT people conveyed to me was that they can build the jobs if they can get the capital. All I can say is that if Fianna Fáil, as long as it is in government, some of the Labour Party's ideas there might be a chance it could return some hope to the country. Instead, to return to what Matt Taibbi, an American writer said, the Government seems to be concentrating exclusively on the great vampire squid that is sucking the lifeblood out of this economy, that is, the failed banks such as Irish Nationwide and Anglo Irish Bank. The Government should move away from that and give hope to our young people. If they cannot do it, they should move over, have a general election and we will do it for them.
Brian Lenihan Jnr (Dublin West, Fianna Fail)
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I move amendment No. 2:
To delete all words after "Dáil Éireann" and substitute the following:
"commends the Government for its actions to stabilise the financial system and notes that its policies have already delivered a cleaner, well-capitalised and better funded Bank of Ireland that is now in a position to provide credit to support economic recovery and new job creation;
commends the Government for its actions to restore the public finances, develop infrastructure and ensure credit for viable business, thereby laying the foundation for Ireland's emergence from crisis and protecting jobs and living standards for the future and commends it for continuing to invest, with due regard to the economic and budgetary challenges facing Ireland, in those infrastructure priorities that will assist economic recovery;
commends the Government for the actions taken to help viable businesses to obtain the credit they need including:
— the recently introduced requirement for €3 billion lending plans for each of the next two years for each of the two largest banks;
— the setting up of the credit review process;
— the requirement that the two largest banks provide €20 million each for seed capital to Enterprise Ireland supported projects;
— the requirement that the two banks each set up a €100 million fund for environmental, clean energy and innovation projects;
— the introduction of a new statutory code of conduct for SME lending;
— the requirement that the banks commit to working with Enterprise Ireland and the Irish Banking Federation (IBF) to develop sectoral expertise in the modern growth sectors;
— the requirement that they explore with Enterprise Ireland and the IBF how best to develop the range of banking services that Irish SMEs trading internationally will need; and
— the requirement to develop expertise and credit products in areas where cashflow rather than assets is the basis for lending;
notes that the National Pensions Reserve Fund already has powers to make strategic investment, where this would yield an appropriate return. Spend on the capital programme amounts to almost 5% of GNP, €6.43 billion in 2010;
notes the very substantial investment in infrastructure to date, particularly:
— the Major Inter-Urban routes, which are nearing completion;
— the major enhancement of public transport, regarding both national rail services and commuter services;
— the major investment in water services, which has improved the quality of water;
— the very significant investment in schools; and
— the very substantial development of social infrastructure, including housing and health;
notes the substantial investment in job creation including:
— continued provision of substantial funding to Science Foundation Ireland and other enterprise related elements of Science, Technology and Innovation (STI), including €274 million in 2010 alone;
— continued high level of capital investment through the enterprise development agencies to help facilitate a return to enterprise led-growth driven by a vibrant exporting sector;
— prioritised investments that will help to develop the national skills base, put in place critical infrastructure for a return to growth and help to make Ireland an attractive place in which to do business; and
notes that unemployment has begun to stabilise since the start of the year."—