Kieran O'Donnell (Limerick East, Fine Gael)
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This is a stark day for the Irish economy. The Minister said NAMA was to deal with development loans but the purpose of NAMA was to free up credit for the SME sector. There is no logical reason to transfer the remaining development loans from Anglo Irish Bank to NAMA.

What is the expected cost to the taxpayer via the National Pensions Reserve Fund for the recapitalisation of AIB? The bank is included in the special purpose vehicle for NAMA. What are the implications for that investment with AIB nationalised? Will it contravene state aid rules?

The Minister mentioned the introduction of a special resolution regime. Will that happen before Anglo Irish Bank is broken up? The Minister referred to mutually beneficial discussions between the senior bondholders in the recovery bank in Anglo Irish Bank and the bank itself.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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In any bank.

Kieran O'Donnell (Limerick East, Fine Gael)
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In any bank but particularly in Anglo Irish Bank. The resolution regime should be in place prior to that happening.

The sheer scale of investment in the bank is horrific for ordinary taxpayers. There will be a possible €53 billion, with at least €46 billion invested in the banks by the taxpayer. Three of those banks are nationalised - AIB, Anglo Irish Bank and the Irish Nationwide Building Society. The investment amounts to 25% of GDP, while the general Government deficit will be 32% of GDP. The level of investment in the banks and NAMA comes to nearly 100% of gross domestic product. The amounts involved are horrific.

The Minister had two years to resolve the issue of the banks. It was always the intention when the guarantee scheme was introduced to get credit flowing but that has not happened. Speaking simplistically, if credit was to flow to the economy, it would be a strategy for growth. At the moment businesses do not have working capital, meaning they cannot function, generate sales or buy stock. It is something which needs to be examined in a very serious way.

Furthermore, on the question of whether this process will get credit flowing, on the night when the guarantee scheme was put in place it was clear that Anglo Irish Bank was insolvent. We still do not know what actually happened during the discussion on the fateful night of 29 September when the heads of AIB and Bank of Ireland, on foot of discussions with Anglo Irish Bank, came to meet the Minister and the Taoiseach. We do not known why they decided to go against the advice of Merrill Lynch and why they specifically included lower tier 2 subordinated debt. We do not know those facts.

I note the Minister is good at quoting script when it is of benefit but he dismisses it when it is not. I also note-----

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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I do not go into it when it is not of benefit.

Kieran O'Donnell (Limerick East, Fine Gael)
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Absolutely. The Minister can take this as he wishes. He is a sweet talker and he has managed to sell a product. It is like selling a car. He sold a car but the parts are going off. It is like certain models of cars where the clutch goes. He has sold it.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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We all have a lot.

Kieran O'Donnell (Limerick East, Fine Gael)
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The French Finance Minister was enamoured with the Minister because he sold a pup, especially in terms of NAMA. NAMA has not done what it was supposed to do. We made a reasonable proposal and at the time the Minister argued on the basis of it. We proposed that the banks would sort out the problem themselves. There is one great flaw in NAMA, namely, it crystalises the losses and toxic loans straight away. Furthermore, the bank debt is now a contagion for the sovereign debt, so much so that the Minister is not going to the bond auction next month or the following month. There is a moratorium over Christmas.

The NTMA has said for the past number of months that it was going to the bond auction because if it did not it would reduce confidence. The Minister said today it is not going for two months.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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Why do we need to go?

Kieran O'Donnell (Limerick East, Fine Gael)
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That is not the point. This is about confidence. We are funded until the middle of next year, but it is like being in business. If one has a customer and one is not going to him or her, one can sometimes lose the customer. I have no doubt if the Minister was sitting down in the cold light of day he would prefer to be going to the bond auction next month. I have no doubt if the yield is lower the Minister will announce we are going for a bond auction, which I would welcome because we need certainty. I do not wish to be personal. Based on the policies which the Minister has implemented, the international markets are looking in great depth at the country including the €440 billion of the guarantee which they felt, on closer inspection, the State could not withstand.

The Minister initially said Anglo Irish Bank would cost €4 billion. It is now potentially €34 billion or a minimum of €30 billion.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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That is not the minimum. It is a central case scenario.

Kieran O'Donnell (Limerick East, Fine Gael)
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It will be €29.5 billion. That is based on discounts of 67% which I would say are reasonable, and if the discounts are 70% there will be a further €5 billion on top. It is reasonable and if one examines the loan book within Anglo Irish Bank which we have seen, we know some of the loans it gave out were reckless in the extreme.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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That is why we have a problem.

Kieran O'Donnell (Limerick East, Fine Gael)
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The point the Minister is missing is that he guaranteed an insolvent bank on the night of the guarantee and if he looks back over the previous year he will see that the share price collapsed in Anglo Irish Bank in March 2008. Furthermore, Mr. Michael Somers, the former CEO of the NTMA, is on record as saying he had major reservations about giving Anglo Irish Bank money in terms of deposits.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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He is also on record as saying he did not believe he should communicate this to anyone.

Kieran O'Donnell (Limerick East, Fine Gael)
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It is in the public domain. It is a reasonable point. I do not wish to get personal but the situation as it stands is that between NAMA and the banks we have had a 100% increase in our national debt for which future generations will have to pay. It is like someone buying a house or business for €200,000 and being told by the bank he or she will be given a loan for another €200,000 which it wants him or her to service as well. There are questions to be answered. We want it to go forward. There are two key ingredients missing.

The Minister is putting an extra €3 billion into AIB, which is the minimum he wants to take out of the budget this year.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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That is coming out of the pension fund.

Kieran O'Donnell (Limerick East, Fine Gael)
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No, I want to quantify for the ordinary person looking at the sheer scale of the money the Minister is putting into the banks. In terms of the real economy, business credit has dried up. If the Minister wants practical solutions, while we disagree on policy we believe the banks should have worked out their own loans and that the taxpayer should have been the last to pay. In fact, the taxpayer is the first to pay.

The Minister has held some renegotiations with subordinated debt holders through the various institutions but we will now have a situation whereby some mutually beneficial discussions will take place with senior bond holders. To date, the taxpayer has put well in excess of €30 billion into the banks which will climb to €48 billion. The international markets are now looking for certainty in terms of the four year plan the Minister is introducing. In terms of dealing with the situation at hand, how is the Minister going to get a growth strategy going whereby we can service that level of debt regardless of who is in Government?

Yesterday the Taoiseach quoted a figure of €30 billion for Anglo Irish Bank, 5% of which is €1.5 billion per year.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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If you take 5%, that is correct.

Kieran O'Donnell (Limerick East, Fine Gael)
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Yes. They are the Taoiseach's words. That is €1.5 billion which will come out of vital services across the spectrum for the citizens who are paying taxes. The problem with the banking system is that it has become about the process of NAMA, but no one considers the consequences. The haircuts are so out of control that the taxpayers have to fill a big hole in the banks and the banks are more concerned with building their balance sheets.

The Minister is wrong about Anglo Irish Bank. He referred to NAMA and said it was about development loans. NAMA was about going into institutions to take away the toxic loans in order that they could then lend. The Minister admitted earlier that Anglo Irish Bank was never going to lend, rather it was a bank that he was going to shrink down in some form. It makes no sense to transfer the balance of the remaining loans in Anglo Irish Bank into NAMA. Bank of Scotland has its NAMA. Anglo Irish Bank has its NAMA. The problem is that we have a NAMA stuck in every corner which will all be competing with each other. NAMA was supposed to bring about certainty but that has not happened.

Does the Minister believe the €48 billion of taxpayers' money which has gone into the banks has resolved the banking situation? Does he believe that, given the two year timeframe he had, that the banking system in Ireland is now functioning? Anglo Irish Bank which is a dead bank, Irish Nationwide in its current incarnation is dead, Bank of Ireland is functioning and providing better credit than AIB which I accept - we know that from people on the ground - but is not functioning the way it should and AIB is the largest institution.

There is a point which is often overlooked. A lot of people are working in the front line in the banks that are getting a very difficult time. The Minister took over AIB today. Many of its directors have been there since 2007 and before. I am not being personal about the individuals and the board of AIB. The Minister needs to make a statement that there will be a new board in AIB, along with a CEO and chair. That direction needs to be sent to the international markets. It is in all of our interests that the bond yields for Irish sovereign debt should come down. It is also in the interests of the banks. I did not get an opportunity to ask the Minister a question about the funding requirements of AIB and Bank of Ireland. In his speech earlier today, the Minister suggested they have reached their end-of-year targets, more or less:

In addition the cliff in the banks' refinancing requirements during the month of September, which had been a source of concern to the markets, has passed and the amount of term bank debt maturing over the remainder of this year and next year is quite limited.

I would like to know the exact extent of the remaining requirements.

This is a dreadful day for the ordinary person out there who is looking in. It will have major consequences for small and medium sized enterprises and business people. Will the sheer level of debt be the Minister's legacy? In 20 or 50 years time, will future generations of Opposition Deputies come into the Chamber to talk about the fact that the element of the national debt relating to the recapitalisation of the banks has just been paid off? I hope that will not be the case. We have to get the real economy moving. If we are to have growth, credit has to flow. Regardless of whether I agree with what the Minister has done, it is fair to say credit is not flowing. That has to be addressed. A number of matters, including the whole issue of the guarantee scheme, need to be considered in that context. I ask the Minister not to dismiss the proposal to establish a national recovery bank. The principle behind the proposal is correct. It is similar to the Labour Party's proposal to establish a strategic investment bank. I hope the Minister will shed light on this matter. This process should be about getting clarity, rather than bankrupting future generations. Today's announcement is a manifestation of the Government's failure on banking policy.

Thomas Byrne (Meath East, Fianna Fail)
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The authors of the Regling and Watson report suggested that the collapse in tax revenue was the main reason for the sharp increase in the fiscal deficit during the 2008-09 period. They argued that there were a number of reasons for that collapse, most particularly the massive change in the taxation structure. They pointed out that the Government, which has put its hands up in this regard, offered income tax cuts in order to achieve wage restraint. They mentioned that the Irish taxation system favoured home ownership, and depended on it, without having a corresponding property tax. They also claimed that the Government's changes in the structure of the system of taxation and expenditure inevitably contributed to the deficit we find ourselves experiencing. One would think from the arguments made by the Labour Party in recent months - indeed, the last couple of years - that it opposed such policies when they arose, but nothing could be further from the truth.

The 2007 Labour Party manifesto proposed a 2% cut in the standard rate of tax, from 20% to 18%. That directly chimes with the reference in the Regling and Watson report to the offering of income tax cuts by the Government as one of the reasons the change in the structure of taxation resulted in a bigger deficit. The Labour Party also proposed increases in personal tax credits and the home carer's allowance. In addition to the indexation of the standard rate band, it wanted to provide for an additional increase of €5,000 in the transferable band for one-income and two-income families. The Labour Party was offering all things to all men, in relation to tax cuts, at the time. The Government has put its hands up with regard to the policies we pursued. The suggestion that the Opposition was constantly telling us we were wrong is absolute nonsense.

The Labour Party, in particular, acted as a cheerleader for tax reductions and thereby set off the auction politics of the 2007 general election. It proposed a reduction in the standard rate band from 20% to 18%. It produced a leaflet that claimed "taxes are low and will stay low". Such an approach - the Government has admitted its part in it - contributed to the surge in the deficit, which is our most fundamental problem. I believe it is a bigger problem than the banking crisis. The Government will not take sole responsibility for it. The parties that are now opposing everything on the way down were egging everything up on the way up. This issue needs to be dealt with by the opponents of the Government. Those who oppose everything should reflect on what they were saying at the time. Were they saying "no, do not do this"? In fairness, some people advised the Government not to do these things. Such people, however, were certainly not the consistent naysayers on the Opposition benches.

On this morning's "Morning Ireland", the Labour Party's spokesperson on finance said she would do things differently now. She promised that the Labour Party would introduce bank resolution legislation if it were in government. She claims such legislation would change things, for example by reducing costs substantially. She ignored the fact that a bank resolution Bill is being introduced by the Government, but cannot be retrospective. Existing contract law protects senior bond holders on the same basis as deposit holders. That cannot be undone. Any other interpretation of the situation is a pretence. The Labour Party claims that its so-called solution, which it has not outlined, would result in substantial savings to the taxpayer. Not alone has it failed to outline the details of the solution it claims to have, but it has also neglected to set out the savings that would result from it. It cannot do so because it does not have an alternative to what the Government is doing, other than giving out. I have given out about what is happening because I do not like to have to do it. Other parties can protest. I would certainly love to protest about some of the sums that are being expended in the cause of the banking system. We have to be realistic. We have to appreciate that no alternative has been proposed to the Minister for Finance. He is on record as saying on a number of occasions that no alternative has been suggested to him in this regard. The Labour Party has said that if its bank resolution legislation were introduced, substantial savings could be made. The alternative it has offered is not good enough. The people will see through it and are beginning to see through it.

It is important to recognise there was a huge argument about subordinated debt, which the public may have latched onto. It was not a very strong argument. The point about subordinated debt is that it was always a small part of the guarantee. None of it was paid out during the guarantee period. In fact, it is no longer guaranteed. I know the Minister intends to apply a steep discount to the subordinated debt that is outstanding from Anglo Irish Bank and Irish Nationwide. It is not very significant, unfortunately, because it is a very small amount of money. The bigger picture is the deposits and the senior debt which, in effect, is in the same position as the deposits. The Government will protect deposit holders and deposits. I refer both to the little old lady who is saving a very small part of her pension and to the international investor who is investing in this country, with substantial amounts on deposit in Irish banks. Both kinds of people need to be honoured. That is the job of the Government and I support it.

Simon Coveney (Cork South Central, Fine Gael)
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I am glad that we have an opportunity to speak in this debate and that an extension of time was granted earlier. Today we are seeing the result of the Government's banking strategy, not only over the two years since the guarantee, which predominantly involved crisis management, but also over ten years of light-touch financial regulatory incompetence. The Minister said today that his statement brings full clarity on the costs and methods associated with recapitalising the Irish banks. He claims we are now bringing closure to this banking nightmare. I hope he is right this time, on the figures at least, and he does not have to revise them upwards again in the weeks ahead. I refer particularly to the figures in relation to AIB. Clarity on the actual monetary cost of recapitalisation is not the full story and certainly does not represent closure. We should look at the evidence and the results of the Government's banking strategy. I will begin by speaking about the public cost and the massive exposure of every family in this country. A debt of between €45 billion and €50 billion will need to be repaid with interest. The debt for Anglo Irish Bank alone is between €29.3 billion and €34.3 billion. When AIB, Bank of Ireland, Irish Nationwide, EBS and Irish Life and Permanent are included, the total cost of recapitalisation across all Irish banks will be between €45 billion and €50 billion. It may even be slightly above that. That is the equivalent of approximately €12,000 for every man, woman and child in Ireland, plus interest. One might suggest that some of the money will come from the National Pensions Reserve Fund, but I remind one that an opportunity cost is associated with the committing of that money. However, there is also an opportunity cost of committing that money. What has been crystallised today by the Minister is generational theft on a scale that is hard to comprehend. Our generation will pass on a debt that will cripple younger generations through repayment obligations and will severely limit Ireland's capacity to grow, to create wealth and jobs, and to pay for essential services already been cut on a weekly basis. That is a scandal that history will judge harshly, because it is the direct result of failed policy and practice banking.

Bond markets are now effectively closed to Irish sovereign borrowing. Confirmation of this is that we will not even attempt to raise money on international bond markets in October or November. The essence of the Minister's rationale and thinking in terms of the approach that he has taken to date on banking policy, and in particular on senior bondholders and subordinate debt at Anglo Irish Bank, has been to ensure that we as a sovereign State maintain credibility with international markets. Banking policy has been guided by the Government's determination to keep financial markets happy. However, despite the transfer by the Government of bank debt into sovereign debt that our people will now have to shoulder, we lost the confidence of bond markets weeks ago.

We are in the fortunate position, if anything about this is fortunate, of having raised sufficient capital through the NTMA to carry the country through until mid-2011. Through the NTMA, we have been prudent enough to buy some time but there is no guarantee that the bond markets will view us favourably when we are required to return to raise funds in the new year. However, this is not the full story because unfortunately banks in Ireland are not in the same position as the State in terms of borrowing ahead. They have not borrowed to carry them into next year. I understand that not only do bond markets not want to lend to the Irish State, but international markets do not want to lend to Irish banks either. Therefore, it is the ECB, which is essentially a lender of last resort, that will continue to have to fund Irish banks.

What does this mean in terms of a functioning banking system and providing liquidity in the Irish economy? It means a tighter credit squeeze on small businesses and homeowners, and a more aggressive banking approach to shore up weak balance sheets. It means banks will be even more risk averse to lending, and that is exactly what this economy does not need right now. If we are to provide any stimulus, jobs growth and support for small and large businesses we must ensure they can access capital when they need it. The consequences for SMEs of not being able to access capital and having their overdrafts turned into term loans, and the consequences for unfortunate homeowners who have variable mortgage interest rates, will be in all likelihood that they will face even higher interest rates on the repayments they make. The unfairness of that is certainly not lost on the public.

In simple terms, the Government has delivered, along with a rotten banking system, €50 billion of debt that we will hand on to taxpayers for the next ten years; no access to sovereign debt through bond markets in the short term; limited access to funds for Irish banks and the consequences of that for the economy; a hardening of bank policy in terms of lending and liquidity; and, of course, let us not forget a paralysed property market because of the consequences and lethargy of NAMA. What could and should the Government have done differently? Certainly, with regard to the bank guarantee of two years ago, it is now clear - this is supported by Patrick Honohan's report - that the State should not have guaranteed all debt in Anglo Irish Bank in full, and that it should have made a distinction between senior bondholders, subordinated debt, and deposit holders and other debt in Anglo Irish Bank. However, it chose not to do so. That mistake is now costing taxpayers in quite a significant way.

To date, the NAMA experiment is failing. Yes, it did crystallise losses and forced banks to address broken balance sheets. However, it has also created total paralysis in the property market in Ireland, which is showing no signs of abating. The Minister lays all of the blame at the feet of reckless banking and bankers. He is right to express anger at banking behaviour and I think that is shared throughout the House and certainly among the public. However, what has the Government done in response to that justified anger? It is only today that the Minister is committing to replace the remaining management and board members in AIB, something for which we and the Labour Party have been asking for the past two years.

As Deputy Seán Power asked today, where are the prosecutions? In January 2009, the Garda raided Anglo Irish bank's headquarters in Dublin and we were told that a file would be sent to the DPP shortly. When will that happen?

On the more pragmatic issue of an insistence on external recruitment into Irish banks, we have seen a lack of determination and will coming from the Minister. Due to the banking fiasco and the huge structural budgetary deficit of between €18 billion and €20 billion, the Government's options in the build up to the next budget are limited. Irrespective of whether we like it, we are being forced to run our country to please international financial markets, or to at least reassure them, because we are entirely reliant on the capital they provide for the future functioning of our State if we are to avoid losing our economic sovereignty by accessing EU emergency funds. Ireland needs to borrow approximately €55 million per day simply to meet our day-to-day expenditure and to bridge the gap between revenue and expenditure. That does not even include bank capitalisation costs.

The context for framing the next budget is a tough one. On the one hand, we must impress on markets that Ireland is implementing a credible plan over the next four to five years that can reduce the budgetary deficit and, on the other hand, we need to get stimulus into the economy because, as the Taoiseach has conceded and as we have been trying to say for many months, Ireland's problems will not be solved by cuts alone.

Now it is even more complex than that for the Government because it is not just about one budget; it is about four budgets. The Minister for Finance, Deputy Lenihan, has stated he intends to bring forward a framework to commit Ireland to a budgetary strategy for the next four years. Let me tell him that he has no mandate to do that. His Government is running out of time. Even if it runs full term it has only another 18 months to run. He has no mandate or right to commit Ireland to a budgetary strategy for the next four to five years. I hope the Government will look on those two options as the only two that should be available to it.

The idea that a Government that is in a very significant part responsible for the financial crisis that this country now faces, when we are on the brink of having to access emergency funding, and all of the strings that are attached to that where, essentially, we lose economic sovereignty, would have the arrogance to use its slim majority to drive through a budgetary package for the next four to five years when in all likelihood it will not be there for at least three of those years, is fundamentally undemocratic. I, for one, as an Opposition spokesperson, would be willing to explore, obviously, the option of putting a new Government in place, but also the other option, if the Government chooses to go down that road.

There is no credibility in putting together a four-year strategy if this Government is likely, as most people accept, to face a general election in the next six months. For the sake of the country in terms of its credibility and its capacity to borrow money and attract investment and confidence again, there is an obligation either to get consensus on the really tough job of putting a four-year budgetary strategy together with parties that are likely to form the next Government or to step aside to allow the people to decide who will get a mandate to do that job. I hope the Government will think about those options. It is bad enough that they have taken us to this position, but the idea that they would have the arrogance to assume that they have the answers for the next four years when many of them are unlikely even to be in this Chamber for three of them is in my mind a step too far and fundamentally undemocratic and without mandate.

My party has a positive contribution to make in terms of ideas on getting stimulus into this economy without resorting to borrowing and it is long past time that the Government engaged with us in a serious way to try to implement some of that thinking. The Government asked Mr. Colm McCarthy to put together a report on the value and strategic importance of State assets such as the semi-State companies and how the Government could potentially reconfigure the portfolio of such companies to make them more effective and to improve their capacity to borrow money to front-load investment in infrastructure and to try to get stimulus into the economy in a way that is unconventional or, certainly, has not been part of Government thinking for the past ten years. That report is due before Christmas, but in my view the Government does not have that much time. There is an obligation now to listen to Opposition party thinking, in particular, on the semi-State sector and existing opportunities to raise significant amounts of capital by selling non-strategic assets in order to drive investment in new strategic assets that need to be built in Ireland anyway and will be built over the next five to ten years, but to do it in a way that can front-load that investment to try to get some stimulus into the economy at a time when it is desperately needed. The priorities around those issues have been fast-forwarded because of the Government's challenges in terms of raising money for even basic expenditure into next year.

Today is a sad day for Ireland. It spells a failure of governance and leadership, and obviously, banking. Ultimately, we are responsible as legislators. The Government is responsible for how all elements of the economy operate, including banking. We are the House that should have ensured that the necessary reins were in place to prevent the kind of gambling that has turned into massive debt, which has switched from bank debt to sovereign debt in Ireland. Therefore, we have an obligation to look at politics in a way that perhaps we have not looked at it previously, in terms of partisanship in this House and the way in which political parties interact with each other. I hope the challenges that we now face, when Ireland, as I described earlier, is on the brink of losing its economic sovereignty, will ensure the honest behaviour of Government in an effort to try to build consensus around how the country should move forward so that the next Government will be able to stand over decisions being made between now and Christmas. However, I have my doubts.

Martin Mansergh (Tipperary South, Fianna Fail)
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This is certainly a very important day in the history of this country and, indeed, the life of this Dáil. There is a conviction on the part of the Government that, with today's announcements, we have finally hit the bottom as far as the banking situation is concerned and that potential liabilities have been defined. Uncertainty as to the dimensions of the problem, coupled with the difficult budgetary decisions to be taken in the short to medium term, has caused many stresses in the market and challenges to our position over the past month or six weeks. It is also fair to say that today also shows us the full dimensions of the banking calamity that has hit this country.

There has been much discussion, and there will be more discussion and debate, about the causes of and responsibility for the banking crisis and what should have been done at various critical stages, up to and including today. Government clearly bears an important responsibility, but there is also - I do not mean to include literally everyone in this - a collective responsibility. Most people bought into and benefited in some way from the Celtic tiger. Politically, people are not being honest if they claim that they saw the calamity coming. It is quite true that Deputy Burton claims - I heard her do so - that she was critical of many of the property reliefs, but I would suggest that was much more motivated by equity considerations and traditional Labour thinking on what taxes wealthier people ought to pay than by the anticipated economic consequences, which Members are aware have turned into something close to catastrophe. People from the Labour Party benches often stated that Ireland was the second richest country in the developed world, which nominally was true in GDP terms but not in real terms. In addition, one of the mantras of the party's former leader was that the country was awash with money and ergo, more should be spent. However, with the benefit of hindsight it is clear that in many respects spending should have been more restrained.

Likewise, to defend Deputy Bruton, it is quite true that together with his party, he was highly critical of the benchmarking process. Although that was something that I have defended and still defend, the rates of increase for public servants, including Members, at the middle and higher levels were excessive and certainly were far in excess of those experienced at lower levels of the Civil Service. While Members may find it strange that I will cite someone who is not very popular on this side of the House, namely, Fintan O'Toole of The Irish Times, it appeared for a time as though we could have European-style social services for American levels of taxation.

Ruairi Quinn (Dublin South East, Labour)
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I believe that being closer to Boston than to Berlin is the official description.

Martin Mansergh (Tipperary South, Fianna Fail)
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The interesting point in this regard is that the debate has changed. When that comment was first made, Boston represented America, neoliberalism, light regulation and so on, while Berlin represented European social democracy. There is a good case to be made that today, we perhaps are closer to Frankfurt than to Berlin or Boston. As Frankfurt has a sort of rigour about it that would not necessarily always be welcome to European social democracy, there is a little irony in that debate.

Ruairi Quinn (Dublin South East, Labour)
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We will return to it.

Martin Mansergh (Tipperary South, Fianna Fail)
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For a long time, property and banks were advocated and thought of as the safest and most profitable forms of investment. Undoubtedly, low taxes for higher earners fuelled the property bubble and led people to spend money on all sorts of inessentials. To the extent that there were warnings, and I suppose most Members would have been aware of them in the background over the years, in the main they were qualified by predictions of a soft landing. The overwhelming consensus among economists, including the ESRI, was that for demographic and other reasons, we were heading for a soft landing, whereas we have experienced not just a hard landing but a crash landing.

I can recall being a member of the Oireachtas Joint Committee on Finance and the Public Service, which dealt quite a lot with banking. During the middle of the last decade, the main issue was greater competition in banking. There always was some concern about the very high level of bank profits and on the whole, we welcomed in competitors and so on. However, as Members again know now with the benefit of hindsight, this in some ways exacerbated the situation, in that it led to a mad scramble for market share, to corners being cut and to safeguards being thrown to the wind. In addition, as the Taoiseach certainly has implicitly acknowledged, the moves to phase out the property reliefs were much too gradual.

I remember there was much concern at the beginning of the decade regarding the very steep rises in house prices and various measures were attempted on foot of the Bacon reports and so on to try to control and regulate that. Ultimately, however, those attempts were largely abandoned and the policy was simply to increase supply, which did not anticipate that getting production up to approximately 91,000 houses being constructed in a year would result in a crash. There were one or two economists who predicted that there would be a property crash and not a soft landing, certainly from 2006 if not earlier. However, I believe even they did not anticipate the double whammy of the international crisis interacting with what has been called the homegrown one.

Among the jobs of central bankers and regulators is the maintenance of financial confidence. While they often have concerns, they are unlikely to vent them in public except in careful ways. Many times over the decades in different countries, one has seen central bankers saying something that then is taken up in a certain way by markets with short-term dramatic financial consequences. Consequently, it must be understood that central bankers are cautious in spreading alarm, other than in the fairly typical and unsurprising tones that they always strike in respect of financial caution.

Unfortunately, markets, particularly when there is much uncertainty and volatility, are not rational. This was to be seen clearly in 2008 in particular. One could make all sorts of arguments, had they been acting rationally, as to the reason they should have done this or that. That may be true but when one faces something close to market hysteria, one must consider very carefully how one will react to it. Small countries - by which I mean small in terms of population - such as Ireland and peripheral countries undoubtedly were judged to have done exceptionally well in the earlier part of the decade and to have done better than bigger countries such as Germany, France, Britain and so on. However, in a situation such as that faced by Ireland in September 2008, a small economy out of balance was much more vulnerable than a larger country.

Opposition and media, which I am not criticising as they are doing their job, can discuss and put forward alternative courses of action, as is their duty. However, only Government and related State authorities are answerable for the consequences of their decisions. There is little doubt that the action taken by the Government at the end of September 2008 did prevent a widespread banking collapse with disastrous and disruptive consequences.

The argument about whether subordinated debt should have been included is a sideshow because, although it was covered - it is covered no longer - it has not cost the taxpayer. This has been illustrated by quotations at various points along the line but I am sure similar quotations could be found in quarters other than those of the Government. The full dimensions of the hole the banks were in has only gradually become evident. There is no doubt that banks tended to want to hide their problems or put up a front of confidence to show they could sort them. The Minister has stated this.

The Government has put in place successive measures, up to and including today, to deal with the fallout from the situation, including recapitalisation, NAMA etc. I do not want to cover ground that has been well covered. We had to do what was necessary. The reliability and creditworthiness of this country is terribly important to maintain. It could be argued that it has been somewhat battered in the past couple of years. However, I heard Madam Christine Lagarde, the greatly respected French Finance Minister, state today she trusts Ireland. It is also clear from the Commission's comments that it trusts us.

One can argue about a partial default - it is perfectly legitimate to do so - but the argument is profoundly mistaken. I refer to today as opposed to September 2008.

Ireland has been up-front about its problems. I am not certain that can be said of all euro zone countries. I was deputising for the Minister at an ECOFIN euro zone meeting in the middle of July. One of my duties was to disclose to colleagues the figures that were valid at the time. I disclosed that the budget deficit for this year was to be 20%. It is now to be 32%. There is no doubt my disclosure caused a distinct frisson in the room. Obviously I explained the reasons, which pertain to EUROSTAT. As we know, the deficit is once off, but obviously what we do as a euro zone member is of profound interest to other euro zone countries because, no matter how small our economy is as a proportion of the total euro zone, it is clear that even the smallest country can affect the euro zone as a whole. Our economy comprises 1% of the euro zone and 2% of the economy of the European Union as a whole. This and future Governments will have to operate within very tight constraints.

The cost of the banking crisis, certainly that of Anglo Irish Bank, is rather less than the deficit for this year and last year. It is clear that the real challenge we now face, having dealt with the banking crisis, is to formulate a budget and budgetary strategy for the next four years.

Ruairi Quinn (Dublin South East, Labour)
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I would like to structure my comments in three parts. First I want to review the history of events before 29 September 2008. Second, I want to consider the options presented to this House at that time and the directions that were taken subsequently. Third, I want to examine what we must now do. I will try to speak as quickly as possible and I hope brevity will not be confused with a scarcity of thought.

History is always rewritten and the voices that have an alternative view are dismissed or ignored, unless it suits the prevailing orthodoxy not to do so. In the run-up to the crisis, many people were saying the Irish economy was out of control and that the banking system was over-reliant on property. It was also stated we were excessive in our spending. The Minister of State, Deputy Mansergh, referred to people saying that this country was awash with money. I remind him that it was his colleague, the former Tánaiste, Deputy Harney, who made that observation. It was said there was excessive spending and that we were just going along with the good times and the boom and that there was really no alternative. Ms Margaret Thatcher referred to this as "TINA".

There was an alternative. When the rainbow coalition left Government in 1997, we were moving relentlessly in the direction of qualifying for the single currency. That single currency presented two phenomena that this economy never had before, namely, low interest rates and low inflation, which the Germans had battled for following the collapse of the Weimar Republic due to hyperinflation and the rise of Nazism. Germany and the rest of Europe had to learn this lesson at a very costly price.

As somebody said to me when I left the Department of Finance in 1997 and as we entered the harbour of the euro zone, instead of the Department of Finance and the then new Minister for Finance learning how to behave like Germans, they continued to act like Italians. There was a failure in governance in the Department of Finance, both at official and political levels. Ultimately, ministerial political responsibility is the final point of authority. Not only was there failure in the Department but also in the Central Bank, including in respect of the subsequent division of the regulatory authorities, which was done at the expense of allowing the Central Bank to continue as it had done. Mr. Michael McDowell, former Minister and Attorney General, was obsessed with the separation of the two. Even when the then Governor, Mr. John Hurley, published his quarterly reports and drew attention to the over-reliance on property, nobody seemed to be listening. Since there was nobody listening, inflation in the property sector was to many people a connivance and a conspiracy, with the Galway tent the symbol of the unhealthy political relationship between landowners, developers and builders and the Fianna Fáil Party in Merrion Street. Long after they were no longer needed, pro-cyclical tax breaks were retained which ensured that everybody at the front end of the transaction chain was incentivised to encourage more lending, more property development, more rezoning, and more selling on to innocent would be landlords who believed becoming a landlord would be easy.

I will relate an anecdote to illustrate the point I am making. In the early spring of 1997, on a visit to Sligo and Leitrim in the run-up to the election later that year, I met our then parliamentary colleague, Declan Bree, in Carrick-on-Shannon for the start of a one-day tour of that constituency. The first meeting that had been organised was with the Chamber of Commerce in Carrick-on-Shannon, a place that is familiar to most Deputies. The usual formalities were observed; I am sure the Minister of State, Deputy Mansergh, is more than familiar with the protocols associated with these types of meetings. When I asked the chamber members how we could assist them, the response was that what they sought was section 23, which had become the generic term for tax breaks on property and which in this case referred to the urban renewal scheme which was first introduced in the early 1980s. When I asked them what part of the town they had in mind they told me I had misunderstood them and that they did not wish to discriminate within the town of Carrick-on-Shannon nor within the county of Leitrim. In other words, they wanted what were officially known as urban renewal tax-led incentives for the entire county.

Pat Rabbitte (Dublin South West, Labour)
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The county is now on stilts.

Ruairi Quinn (Dublin South East, Labour)
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I had to stifle a grin because I was trying to secure support for my colleague, Mr. Bree, but I said to him afterwards that the proposal was nonsense and simply impossible. However, if I am accurate in my recollection, within 18 months the new Minister for Finance, Mr. Charlie McCreevy, went one step further by designating the entire upper Shannon area under section 23. The consequences of that are self-evident.

I am told that when the Leinster rugby team went professional and its young athletic players in their early 20s suddenly found themselves with salaries out of all kilter with what their peer group was experiencing at that time, they were encouraged by financial advisers to put their money in property as the Eircom share issue experiment had bombed. Many of them purchased apartments in Carrick-on-Shannon. Some of them go up there periodically to have a barbecue or party, but those properties are essentially wasting away. These guys felt that since they were paying very heavy taxes - which, in fact, they were not - that this was a type of no-cost option. All of the people in the transaction chain were front-loading. They assumed no responsibility because they were not travelling the same journey as the people who bought into these types of developments. The landowner, builder, auctioneer and solicitor were all there at the beginning, but they assumed no responsibility for what has happening.

The upshot of all of this was the massive dependence on property to which the Minister of State referred. The Minister of State suggested that we could not have done anything else. That is not the case. While the Opposition must be constrained in some of its comments because we are not in possession of all the facts, governments can and do take action. The Government could have dampened down the spending explosion by way of additional taxation. Some positive actions were taken by Mr. McCreevy, particularly the investment of the proceeds of the Eircom privatisation into the National Pensions Reserve Fund.

In general, however, instead of leaving tax breaks in place and incentivising banks to get rid of the money accruing to them by offering it, at apparently low risk, to customers in order to unlock equity in their primary residence for the purpose of investing in property, the Government should have harnessed the energy, expertise and resources of the construction industry to build, for example, decent schools. As we speak, there are 50,000 primary school children that we know of learning in prefabricated buildings. Some children will spend their entire primary school experience in a prefabricated construction. Money should have gone into that type of long-term infrastructural investment.

This would have had two effects. First, it would have provided decent school buildings of a standard which one would expect. Second, it would have soaked up capacity within the construction industry and prevented the hyper-inflation in property prices that developed. Development of the public sector could not proceed at a reasonable pace because the prices quoted by the private sector construction industry - the capacity of which was so stretched that we had the proverbial Polish plumber coming to Ireland and not France - for far more tightly regulated public sector contracts were simply nominal prices the purpose of which was to deliver the message that the public sector should get lost. The industry was more than happy to continue its jerry-building and lightly regulated activities in the private sector.

The property boom coincided with the over-extending of credit to individuals who had no experience of investing in property or becoming landlords. It was made to appear absolutely effortless. When the crash came following the collapse of Lehman Brothers, the impact in this country for individuals was far higher than it was in any other country. One of the reasons people are so angry is that they are up to their oxters in debt. The 1980s were tough enough because the country was in debt, but there was very little private sector or personal debt. People are seething with anger because they were encouraged to over-extend themselves and now feel duped. This is not to say there was not an element of greed in all of this. These were so-called responsible adults who are ultimately responsible for their own actions. However, they had no experience of any of this. When the Minister of State and I were of college-going age we were not receiving letters from our bank offering an extension of €10,000 on our overdraft. We might have put the money into prize beer but not into prize bonds.

That culture was there and we were all talking about it. Yet the Department of Finance did not intervene, the Minister for Finance did not intervene, the Central Bank did not intervene and the regulatory authorities did not intervene. When some people suggested there was something wrong with the system, they were told by the then Taoiseach, Deputy Bertie Ahern, in a speech in Donegal, that if they were so pessimistic about the Irish economy and so worried about the future, why did they not simply go off and commit suicide. That is where we were.

This time two years ago the Government was faced with a crisis. It must have been extremely scary for those directly involved, most of whom, including the Minister, Deputy Brian Lenihan, had come to their jobs very recently. The Minister is a very talented barrister and without question a very able individual, but he has none of the economic experience that would have been of help. It will be for the history books to tell us the facts of what happened that night two years ago, if those facts were recorded in a format that will ensure they end up in the archives. From what we know, it is my guess that the banks lied through their teeth to the Government on the night in question and that people were spooked, just as Allied Irish Banks spooked the Government back in the 1980s when we were left with the mess of ICI.

There were two options available to the Government two years ago. The first was simply to take Bank of Ireland and Allied Irish Banks - the systemically important banks for the regular operation of our economy - into temporary public ownership, and to take into nationalised ownership the basket case that was the boutique Anglo Irish Bank. For reasons that may only emerge in the future, that option was turned down by the Ministers in question and, as I understand it, by senior officials in Merrion Street. Instead we had the NAMA concept which nobody fully understood. We also had the underwriting of the guarantee in respect of which - let the record show - Labour Party did not oppose Second Stage on that evening two years ago. We did not oppose the principle of a guarantee. When we explored the implications of this guarantee with the current Minister, what we got was waffle. It was very eloquently phrased waffle, but waffle. Faced with a lack of clarity we opposed the Bill. We were the only party in this House to oppose it, not on Second Stage but on Final Stage.

NAMA has been a moving target of facts. When it came to evaluating how much it was going to cost and how long it would take and so on, the narrative changed each time. Medium-term economic value is an economic concept that does not, to the best of my knowledge, exist in any economic textbook of which I am aware and I would not describe myself as an economist. What would have happened had the Labour Party proposal at that time been undertaken? Our proposal was that we get rid of the Governor and entire board of the Central Bank because they had failed and appoint a new Governor. As it turns out the new Governor is an excellent individual of international reputation who has done a spectacular job so far. We would not have stopped there. We would have sought the establishment of a banking commission, headed up by an Irish person of international reputation but specifically and uniquely made up of, say, a former German central banker and former American central banker, people of credibility so that the international community would realise we were having a serious look at ourselves and this was not some type of Sicilian inquiry run by Sicilians.

We would then have taken Anglo Irish Bank and put it where it is; a clapped out bank. We would then have taken on the two systemic banks that we need, Bank of Ireland and Allied Irish Bank, whose share value had collapsed to what it is today, approximately 50 cent. We would have got them for virtually nothing. We would then have recapitalised them and, not nationalised them, but taken them into temporary public ownership and said, not through some slash and burn intervention but in an orderly way: "Thank you for your services but we are going to replace you." We would then have said to the next tier of management - we have very good experienced prudent banking management as the history of those two banks has demonstrated over the past number of years - here is the deal: "We want you to fix this bank and run it so that the economy once again functions; your salary, if you take the job, is what you are currently on plus 10%. There will be no bonuses but in seven to ten years time when we refloat these two banks in a much stronger economy the State will take from that flotation the equity it has put in plus the accumulated cost the taxpayers had to pay - that is all we would want as we would not necessarily be trying to make a profit from this - with the balance going to the shareholders and, by the way, we will ring-fence 5% of the equity raised and that will be divided among yourselves by way of bonus." We would then request that the following morning they work to get the Irish economy functioning.

What is happening now is that the economy is not functioning. We need an economy that is growing. I accept it will grow slowly at first because confidence is shattered. I know what this means because the economy was previously shattered in 1991-1992 and in the early part of 1993 when I was Minister for Enterprise, Trade and Employment. There is a lag in terms of confidence and market reality. Had the two main banks started lending to the private sector this time two years ago we would be in a far different place now. I have heard from Chambers of Commerce and individual business people that AIB and, to a lesser extent, Bank of Ireland, in order to avoid falling into a situation whereby its majority shareholding is owned by the State they have been extracting capital from ordinary small businesses. Let us take a book shop as an example, the total sales of which, as the Minister of State well knows, peaks between September and Christmas. The remainder of the year overheads are higher than income. This type of business needs a facility with the bank to cover the 12 month cycle. This is normal practice in any type of cyclical business. What the banks have been doing is unilaterally changing the terms of overdrafts and increasing the terms, conditions and interest rates on these facilities. This is the reason for the dip in the second quarter of economic activity in our economy.

It is hoped that given we are to be a 91% owner of AIB and, possibly, a 50%, if not close to it, shareholder in Bank of Ireland, that Merrion Street, the Minister, Deputy Lenihan and Minister of State, Deputy Mansergh, will do as was done with Irish Life. In the 1930s, the life assurance industry was restructured and Irish life was established from the remnants of four failed entities. The Government then stood back from it and allowed it to reconfigure and get on with running a commercially vibrant business. The great success of Irish Life is that it was 98% owned by Merrion Street and there was virtually no political interference in its operation just as there was no political interference with the operation of Renault in France as distinct from the BMC in Britain. It was a commercial operation. The contrast was the constant interference with ACC at the behest of the farming community.

The Government now owns AIB. For God's sake, do not screw it up. Change the management along the lines I have set out, bring in new directors, keeping the public interest directors on board and then give them a remit and tell them you will not second guess their commercial decisions. The fear Merrion Street officials have of being responsible for a bank will then be insured and protected. The sole job of AIB and Bank of Ireland will be to grow the economy, slowly at first because that is how it will start. If it is allowed to start slowly without interference it will then start providing working capital. There is an enormous amount of capital in this country; the savings ratio has never been higher. If it does this, we will have the type of economic growth that will enable us to draw down the national debt and bring it back to manageable proportions, which is possible. If we do not do this, we will be in serious trouble.

Leo Varadkar (Dublin West, Fine Gael)
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I wish to share time with Deputy Reilly.

One of the strangest things about politics is that one never knows what is going to happen on any particular day. I thought today was going to be a quiet day as I had only two meetings to attend and a few phone calls to make. Then came the opinion poll last night followed by a phone call at 11 p.m. informing me that AIB was to be effectively nationalised today and asking if I would be available for a meeting this morning.

Earlier today I read an article, not about opinion polls or banks in Ireland but about the fact that today Germany paid the last instalments of its war reparations from the First World War, the war from 1914-1918. I did not realise Germany was still paying those reparations. I had thought the reparations had partly led to the Second World War and had all been forgotten after that. However, seemingly that was not the case. Germany paid its last instalment to France and Britain today. It occurred to me that there has been an economic war in Ireland and that we, the Irish people, even though we were not participants in it, have become the losers. On our bill now is between €50 billion and €65 billion that will be given to the banks. What this means is interest payments of, say, €1.5 billion to €2 billion per annum forever, namely, 3 to 4 cents on every euro earned in my lifetime, the lifetime of my children and, potentially, the lifetime of their children. I saw the similarities between the war reparations which Germany is now finally paying.

After two years of austerity, pay cuts, tax increases, cuts to services and bank bail outs, the public and the country are no better off than we were at the start of all of this. When one has had in place for two years a set of policies from which one does not see results, one must ask if they are working or if they are right. They are not right and they are not working, of that I am becoming increasingly convinced. Let us look at the Government's banking policies to date. First, we had the guarantee, which was two years old yesterday. The guarantee did not cause the losses in the banks and they would eventually have had to be dealt with some way or other but it did at least give the Government a timeframe, a two year period, to sort out the banking system but it did not do that. All the guarantee did was buy time, time that the Government should have used to restructure and recapitalise the banks but did not do so. That is the real failure, not the guarantee which, because it was too extensive, did limit the Government's policy options. The real crime was the Government's failure to restructure and recapitalise the banking system in the two-year period since the banking guarantee was introduced. The first Government recapitalisation of Allied Irish Banks and Bank of Ireland took place just before Christmas 2008. I recall the time because I travelled to RTE to discuss the matter on "Morning Ireland". It announced another recapitalisation in early 2009 followed by the nationalisation of Anglo Irish Bank and the effective nationalisation of Allied Irish Banks and Irish Nationwide Building Society. The establishment of the National Asset Management Agency has been followed up with today's announcement of a third recapitalisation, which does not include the recapitalisation of AIB, INBS and EBS under the NAMA process, and a de facto fourth nationalisation.

The Government must be honest and stop denying that its policies are not working. The €45 billion figure announced today is not the end of the matter because until such as time as we accept that the current policies have failed, it will be necessary to put more money into the banks. The Minister for Finance, Deputy Brian Lenihan, stated that today was a final staging post and provided certainty and clarity, while the Minister of State, Deputy Mike Mansergh, argued that we have finally hit the bottom. I have seen enough over the past two years not to believe either statement. The Government told us that the cost of Anglo Irish Bank would be €4.5 billion. The final figure will be closer to ten times that estimate than seven times the estimate.

The Government argued that the establishment of the National Asset Management Agency would result in a wall of cash feeding into the economy. This did not transpire. It also called that Bank of Ireland and Allied Irish Banks were well capitalised, strong and fundamentally sound when that was clearly not the case. No one who has been awake for the past two years would possibly believe that we have today drawn a line under the cost of the bank bailout. Now that the State owns Allied Irish Banks, it can start to go through its books. I believe it will find that the bank is in a much worse state than we have been given to believe and that its developer and commercial property loans are as bad as those of Anglo Irish bank, and that its mortgage books and credit card debts are full of serious holes. I suspect the House will be informed in a few months that €10 billion was not sufficient for AIB and the bank may need €20 billion. The argument then will be that having spent €60 billion, why should we not spend another €60 billion.

The flaw in the Government's approach to the banks is its underlying philosophy that bank debts are State debts and Irish people must bear the burden of the losses and debts the banks have run up. The Government argues - sincerely, I believe - that if we do not take the debts of the banks on our shoulders, we will not be able to borrow the money required to run public services. It genuinely believes this to be the case even though it is clearly not true because despite having taken the debts of the banks on our shoulders, we cannot borrow money for public services. Ireland will not even go to the markets until January. I am not convinced the markets will be open to us when we go to them in January. The evidence for this is available. The Government was wrong on this matter because, having taken the debts of the banks on our shoulders, we are no longer able to borrow to pay for public services.

Essentially, the Government has torn up the rules of free market capitalism. While I accept that some of the over-exuberance of capitalism helped cause the crisis, the Government has essentially socialised the losses and debts of the banks by offering socialism for the banks and no one else. It should have applied the basic rules of capitalism and required that the banks enter resolution, the bondholders become the owners of the banks, have a debt for equity swap and in some way negotiate down the bonds. That should have been the principle but the Government's principle has been to keep the show on the road and maintain the same old banking system as if nothing had happened. Even the idea of keeping 10% of the bank in private hands for the sake of it does not make any sense. Why pretend that the banks can go back to the way they were when that is not possible?

The Irish people will not be able to pay the bill. We are informed the final bill will be €45 billion. I believe it will be higher, as do all of those who have been right in the past two years. I believe it will €50 billion, €60 billion or perhaps €70 billion. We cannot afford to pay it and should admit that. The price of the banking collapse in this country is huge compared to collapses in Britain, the United States or Germany. What we have here is much more akin to the banking collapse in Iceland. We should be honest and admit that and stop pretending that we can pay the bill.

We must accept that Government policy is not working. We must end the denial, face up to the truth and deal with the problem. This will require making four policy changes. We need a new banking system. While it is possible that Bank of Ireland may be able to continue in some form and, over time, restore its position, it is clear this is not possible in the case of the other banks which are all effectively in State ownership. The Government must accept this and merge the State banks, break them up and rebuild them or take whatever action is necessary to carve out new banks from the four nationalised financial institutions. It must tell shareholders that their money is gone and creditors that they will lose much of their money. It must carve out new banks that will lend money and reinvigorate the economy. That is all the Government can do at this stage.

The economy also requires stimulus. Deputy Simon Coveney and other members of my party have shown how to do this without borrowing, for example, by using money from the pension fund or generating money from the sale of State assets.

We also need to improve cost competitiveness in this country. I hope we do not end up having to do this by leaving the euro. If we do not improve cost competitiveness, we will fall out of the euro, possibly in a very dramatic way.

The fourth step is to reduce the deficit but this must be done over time. We need to accept that we will probably not be able to achieve the 3% target by 2014. We must be honest in this matter to members of the public and the rest of the word. While the idea of having a four-year scheme is welcome, when people see the details of the budgetary consolidation programme they will decide it would be impossible to implement it without destroying the economy. We need to consider this issue and discuss it with our European partners, the International Monetary Fund and others who can help us rectify our financial position. I am certain that today is not the end of this matter and the House will be told some time in the future that we have more war reparations to pay.

James Reilly (Dublin North, Fine Gael)
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I welcome the opportunity to participate in this debate. This is a very bad day for Ireland and Irish people. Yet again, as my colleague Deputy Varadkar stated, we have been told we have turned a corner or reached finality. We have heard many metaphors in the past two years but they amount to nothing more than meaningless bluff.

I remind Deputies that the Minister for Finance, Deputy Brian Lenihan, informed the House that the Government's approach would be the most cost-effective way of dealing with the banking problem and we could even turn a profit through NAMA and other measures. We were then told the cost of the banking measures would be €4 billion, a figure which later increased to €10 billion, €20 billion and €28 billion. This morning we were told that Anglo Irish Bank alone, in a worst-case scenario, will cost €34 billion.

The €34 billion must be taken as the minimum final figure because on every other occasion, the worst-case scenario, as enunciated by the Minister for Finance, has been surpassed. This figure does not include the €6 billion required by Irish Nationwide and the additional €3.5 billion announced for AIB.

The Government's banking strategy has cost the country a fortune and ruined the economy. Notwithstanding the Minister's statement that his measures would settle the market and make it easier for Ireland to borrow, it has had the opposite effect, to the point that we have had to withdraw from the market for fear that an auction would fail or the interest rates offered to us would be so extreme as to be unaffordable. What do I mean when I state the Government's banking strategy has ruined the country for its citizens? What it means in hard, cold facts is 462,000 people unemployed, which is 200,000 more than when the Government returned to power in 2007. It means 100,000 people emigrating by next spring, people who are terminally ill being unable to get medical cards and a reduction in the allowances for disability, and all for nothing. It is being done so that all this money can be invested in the banks while the taxpayers and ordinary citizens of this country suffer. Some 2,500 people per week are having their electricity disconnected and businesses are hanging on by the skin of their teeth or their fingernails.

Our health system is in chaos and further chaos threatens. This day six years ago we got a new Minister for Health and Children and there was great hope that the morass of the health service and its lack of reform could be sorted out. Six years later it is worse than ever. That is not the subject we are here to discuss.

As the Fine Gael finance spokesman said, it is more money for the banks and more misery for the taxpayers and citizens. This proves that the Minister's banking policy is in shreds. Notwithstanding what other action he takes, the economy is mortally wounded by this.

When Professor Honohan was asked today if this was the end of the matter, he said it was, at this stage. The qualifier was there. I must share the pessimism of my colleague, Deputy Varadkar. Why would the Government not listen to the Fine Gael position and to the suggestions we put forward? Why, when the guarantee was introduced two years ago, was the House told there was a liquidity problem? The Government must have known it was a solvency issue. Anglo Irish Bank had told the Bank of Ireland only days previously that it was broke. Long before that, knowing there was an escalating crisis, surely the Minister for Finance must have asked his officials, the regulator and others to assess the balance sheets of the banks. It is incredible that the Government did not know there was a solvency crisis and, as such, misled this Chamber into voting for the bank guarantee.

The bank guarantee was too extensive. There were repeated refusals to wind down Anglo Irish Bank and deal with subordinated bond holders. Everyone knows that subordinated bond holders get a premium on their interest rate for the additional risk they perceive they are taking. Any punter knows that when the punt goes wrong, they take the hit. We decided to guarantee everything. There is still money to be saved if negotiations take place.

Deputy Varadkar referred to the deliberate confusion by the Government of sovereign debt and bank debt. Many people on this side of the House believe this is what the Government truly believed and that is why the Government did what it did and made such a mess of things. Equally, there is talk of default as opposed to renegotiation. If it is true that Anglo Irish bonds are changing hands at somewhere between 17 cent and 35 cent in the euro, there is no reason the Minister, the Central Bank and others cannot renegotiate our exposure along that level.

The only way we will get out of this financial morass is with honesty and transparency. While M. Jean-Claude Trichet congratulates us and commends us on our four-year strategy to deal with our budgetary situation and the Government promises to do this, can anyone in this country have any belief in its ability to do it? Will the Government have any credibility in international markets, given that any strategy it devises will not last? The Government will be out of power by March 2011, in my view, but certainly by May 2012. What good is a four-year strategy? What credibility does it have?

Today is a very dark day for this country. It is clear who is responsible for turning out the lights. It is the Fianna Fáil Government and its Minister who blindly followed this course and refused to listen to those on this side of the House and to many other experts who were accused at every step along the way of economic treachery. I remind the Government that the best option open to it, if it truly cares about this country, is to go to the country, let the people have their say and give a mandate to a new Government that can deal with the crisis. After two and a half years, the Government is incapable of dealing with it.

Seán Sherlock (Cork East, Labour)
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Earlier today, Deputy Joan Burton stated the following:

Today, we have been given more bad news about the two institutions to which I refer. The Financial Times states that the cost in respect of Anglo Irish Bank will be €35 billion and €5 billion for the tiny building society that is known as Irish Nationwide.

That is the pass to which the Minister and his leader, the Taoiseach, have brought this country. Today is black Thursday and the Minister and his party, Fianna Fáil, will be remembered for visiting it upon this country.

I am an optimistic person by nature. I came into this House in 2007 as an Opposition Deputy. When my party, the Labour Party, is elected to govern this country, how will we get it out of the economic maelstrom in which we find ourselves? To say it will be a Herculean task is to put it mildly.

I listened intently to the contributions from the Fianna Fáil side of the House, which looked backwards in their analysis of the situation. They do not give me grounds for optimism. It was especially disheartening to hear someone of my own generation, Deputy Thomas Byrne, seeking to undermine the Labour Party as part of his contribution to a debate on the financial institutions as they are now. When the Deputy referred to Labour's 2007 manifesto and the promises or aspirations contained therein, he neglected to mention that those promises and aspirations were based on figures that were then in the public domain. The figures to which I refer were provided by the Department of Finance and the plans in the manifesto were costed in respect of the economic climate that obtained at that time. It is not credible for a member of Fianna Fáil to attack the Labour Party for what has happened in the past two years, even if doing so is part of some defence mechanism.

I have stated publicly on previous occasions that I have a great regard for the Minister of State, Deputy Mansergh, particularly in the context of the depth of knowledge he possesses and the values he espouses. However, the Minister of State indicated earlier that because Madame Christine Lagarde has bestowed her imprimatur on the strategy that has been adopted, this is somehow a justification-----

Martin Mansergh (Tipperary South, Fianna Fail)
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I did not say that.

Seán Sherlock (Cork East, Labour)
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-----for that strategy. Madame Lagarde is representative of the centre right in France and is a member of President Sarkozy's Government. I would not be looking to France in search of a degree of comfort or solace with regard to this country's current economic position. We are, however, very fortunate that we are part of the European Union and that we have access to the European Central Bank, ECB. I suspect the latter shored up our position in respect of the bond issue in recent weeks. I would be anxious to discover the degree to which the ECB intervened in this regard.

There is no doubt that this is a black day. However, I am moved to state that I am of a generation that benefited from the fact that, socially, politically and economically, Ireland looked outwards during the 1980s and 1990s. We drew economic strength from the pooling of sovereignty that occurred with our European neighbours at that time. As a result of this, people of my generation benefited by being able to travel, obtain an education and gain proper employment. In the late 1990s and early 2000s, however, we thought we could go it alone. We became extremely greedy and selfish and began to look inwards again. In order to claw our way out of the morass in which we find ourselves, we will be obliged to look outwards once again. We must work with our European neighbours in order to find solutions to the economic problems that exist.

I sat the leaving certificate in 1991. I am of the generation which benefited from the abolition of university fees. Many of the other members of my generation who also benefited in this way travelled the world for a number of years and returned to Ireland when the economic climate appeared brighter. These people, some of whom are friends of mine, got married, had children and bought houses for astronomical prices. It is our generation that will be obliged to pay for the profligacy and disastrous economic policies preferred by the so-called republican party.

If it is given the opportunity to govern, the Labour Party, and people of my generation, will get us out of the morass to which I refer. In the past it was the Labour Party which made the ultimate sacrifice. During previous periods of severe economic difficulty, it was my party which took the tough decisions that were necessary to place the country back on an even keel. The country has been holed below the water line but we are not beaten yet. I refuse to be beaten. I am of that generation of politicians whose members will be obliged to look not two or three but rather 20 years hence in order to identify how we want our society to develop. We will be obliged to set down a formula to achieve our goals in this regard.

The figures that emerged earlier today mean the next Government, of which I am sure Labour will be a part, will be at a disadvantage in the context of being able to repair the damage that has been done. That is a message which must be put across. We will not give up on the Irish people. Although there is an air of despair and depression in this Parliament today, I can inform the Minister of State that we will fight with every fibre of our beings in order to try to claw our way out of our current difficulties. The Irish people will do so because they are resourceful.

Deputy Quinn referred to the time he spent as Minister for Finance. When it is once again in government, the Labour Party will work to claw the country out of the mess in which it currently finds itself. We may, as in the past, pay the ultimate price by losing the general election which follows. However, we will do what is necessary because we are patriots. We will not do what is required for personal gain, we will do it because we believe in this country and its people.

It will take a great deal of time to do what needs to be done. A message must be sent to the people that it will be the Labour Party that will rectify the problems caused by the policies that were followed during the past 13 years. It will not be easy and the people know that. What citizens want is some honesty. If the Labour Party is honest and states that the next five years are going to be tough but that there will be a point below which no citizen will be permitted to fall, I am of the view that the people will give us the chance to do what is required. That is all we are seeking.

I wish to refer to an article by Colm Keena in The Irish Times on 21 September. Mr. Keena reported that:

The Governor of the Central Bank has indicated he believes the December budget should involve a package of cuts in excess of €3 billion so Ireland can keep reducing its deficit on track.

Prof Patrick Honohan said yesterday the Government's multi-year plan for reducing the deficit needed "explicit reprogramming" and this was "clearly necessary soon". He did not want to go into detail for any given year, but there was an overall need for reprogramming...

If the economy stayed on track with what had been initially envisaged, the deficit would come close to 3 per cent by 2014. "But as the IMF and others have noted, the real economy, the price level and interest rates on Government borrowing have evolved in a less favourable way. Servicing of the additional debt related to bank restructuring is also a negative factor."

With the passage of time, one comes to learn what is meant when language is used in a certain way. The term "explicit programming" is code for stating that a deficit target of 3% by 2014 is just not tenable. That is particularly true in light of the figures produced today. Where does this leave us?

Deputy Coveney brought some degree of realism to the debate by outlining an agreed approach in terms of how we might proceed. I am sure the Deputy's thoughts in this regard are based on his experiences as an MEP. In Europe, programmes are multi-annual in nature and there is a political consensus in respect of them. We need to ensure that our European partners will allow for the fact that the banking crisis has cost us so much that any servicing of a deficit or any stimulus package will be a major challenge and that we need some degree of stability and political consensus as to how that might be reached. An election tomorrow morning would clear the air and allow for an alternative government to be able to tell the people that we are starting on a new footing. We could also say to our partners in the European Union and the European Commission that there is a new impetus as to how we can get ourselves out of the mess in which we find ourselves, but that it might take longer than the period envisaged in the target to reduce the deficit to less than the 3% by 2014.

Ireland is a test bed and there is no paradigm for where we are at the moment. Nobody in Europe can judge how this will pan out. It would be fundamentally dishonest for me as a representative of the people of Cork East to say that I know exactly what the answers are because I do not. I am trying to grapple with these figures and it is impossible. It would be wrong of me to claim there is a model for where Ireland is now, which is why we need to work outwardly and why our membership of the European Union will ultimately be our saviour. Many of my fellow citizens would claim that some of the blame for this should be laid at the door of Europe. When people speak of Europe they do so as a concept that is somehow out there, but we are Europe. While we may be on the periphery geographically, we are part of that decision-making process and we may need more help from our European neighbours to ensure that we can rebuild from the ashes of a republic that is in a terrible state at the moment.

I believe in this republic and that we can find a way out of this. We must not be afraid to take tough decisions to ensure our citizens have some hope for the future. We should not give up or give in to a body such as the IMF. Our sovereignty must mean something more than just an economic value. We need to recreate the value systems or go back to previous value systems we had in this country and work in partnership with our European Union neighbours to look outwardly for some solution to the problems in which we find ourselves. Now that the banking system has been brought into temporary public ownership it needs to go through a major overhaul. The culture that exists, which has not changed since September 2008, must be revisited. If the guarantee that was provided in 2008 has not changed the banking culture and people in the real economy are still suffering owing to lack of credit, then given that we have taken these banks into temporary public ownership we should do whatever we deem necessary on behalf of the people to ensure those banks are functioning as they should and we should make no apology for that. We have been too deferential to the banking moguls here.

I have searched the Statute Book to ascertain whether it would be possible to bring these guys out in handcuffs and do the perp walk as famously mentioned by the Minister, Deputy Gormley. I know a change in the Constitution and a change in law would be required to effect that. How many of them have been arrested and brought before the courts for threatening the very sovereignty of the State? The silver-haired foxes in the Department of Finance and those on the Fianna Fáil side of the House have left the people of my generation and the people of the generation to come after me with an albatross of debt around their necks. Fianna Fáil politicians have the temerity to come out and attack the Labour Party. What is patriotism? They are not patriots and never were. They are self-interested and always were.

Martin Mansergh (Tipperary South, Fianna Fail)
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The Deputy should not attack public servants who do not have the right of reply and should apologise.

Brendan Howlin (Wexford, Labour)
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The Minister of State should allow the Deputy to conclude his speech.

Seán Sherlock (Cork East, Labour)
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Now is the time for patriotism and for honesty in order to restore this Republic and give it some sense of dignity. In ainm Dé the Government should get out of here and go, and give us a chance to rule the country.

Martin Mansergh (Tipperary South, Fianna Fail)
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On a point of order, it is wrong to make strong attacks on civil servants who do not have a right of reply in this House. There is a well established practice in this House on that.

Brendan Howlin (Wexford, Labour)
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There is a rule that no person can be named. There is precedence for general comments about people without naming individuals.

Damien English (Meath West, Fine Gael)
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I welcome the chance to say a few words in this debate. Deputy Sherlock has probably summarised much of what we feel on this side of the House. It is our age group that will suffer from all these decisions in the past two years culminating in this black Thursday or bleak Thursday or whatever one likes to call it. It will affect those aged under 45 or 50 with large mortgages and other debts. Everybody will suffer somewhat, but it will really affect our age group, our friends and colleagues, the people with whom we were in school and whom we represent. They and their children will take the hit for this.

I listened to the Taoiseach and the Minister for Finance suggest that it is all grand and is sorted now by spreading the cost over ten years. However, it is not that simple; the country is now in massive debt. The BBC news this morning claimed that Ireland was practically bankrupt. It is all very fine to say it is all sorted out, nicely tucked away, hidden and parked for ten or 15 years. As with NAMA the debt is parked to one side. While there is some small hope that NAMA will get back some of its money, it will not make profit despite what the Minister claims; it cannot and will not make profit. I hope still to be here in ten years' time when we find that out, but we, the taxpayers, will pay for it.

Earlier I asked the Minister what will be the total net cost per year for the next ten or 15 years on the current annual budget of this. I am not referring to the total amount given to bank bailouts; I know what that is. I want to know the approximate cost to the nation of doing that because I know it is not as simple as applying 4% or 5% to the total bailout. I ask the Minister to tell me and the people how much taxpayers' money will be spent every year before we get to invest any money in items such as social housing, parks, schools, hospitals etc. They will all become of secondary importance because the debt will need to be paid for first. It has not gone away and is not over today; it is just parked. A big dark cloud will be left long after the Government is gone and most of its Ministers are finished in politics. Instead it will be left to the rest of us to find ways to raise the moneys every year to pay it back. I do not believe the Government has yet realised how serious this is or even feels the pain felt by many people. Ministers do not live in the real world; most have not even probably driven a car in 14 years.

Martin Mansergh (Tipperary South, Fianna Fail)
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I drive a car every day of the week.

Damien English (Meath West, Fine Gael)
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I am glad Deputy Mansergh does but he has not been a Minister for the past 14 years.

Martin Mansergh (Tipperary South, Fianna Fail)
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No, I accept that.

Damien English (Meath West, Fine Gael)
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Many of the Minister of State's colleagues are not in the real world or feel the pain of the people. The Minister for Finance spoke about how anger is anger and will not fix anything. People are angry because they believe the Government does not understand their pain. People whom we all think had money are now under serious pressure and attend social welfare offices and community welfare officers nearly every day. Many already know they will not have enough money for sufficient heating or food come Christmas time. They must believe the Government understands their pain and point them in a direction out of it.

They do not, however, buy into these bank plans. The Minister for Finance speaks of turning corners. If one takes four corners, one is back to where one started. We have turned so many corners now, most people think we are back to where we started. It is like the Minister is on a monopoly board, passing "Go" and picking up a few more billion euro each time. Those billions happen to be taxpayers' money, however. We are told the total cost for Anglo Irish Bank will be €34 billion which is more than a full year's tax take for this country. That is like all the hard work going down the drain for a year. It is so bad, people might as well have stayed at home for a year.

I hope the Minister will grasp this and speak to the people with some understanding and respect rather than in the way he treats this House with total contempt and arrogance; that whatever he says is right and how dare we question him.

I still have not got answers to the simple questions I asked at the beginning of this crisis. For example, how was it the former Financial Regulator, Mr. Neary, told an Oireachtas committee that the banks' exposure to debt was €39.4 billion, when it was announced a few months later in the April 2009 mini-budget that it was €90 billion? Those involved in all of this walked away with massive pay-outs and pensions. Today, when the Minister was asked about severance packages for those in AIB, he said it has nothing to do with him.

It has everything to do with the Minister. After today, we will own AIB. There must be some policy on severance packages rather than rewarding those who got us into this mess. The perception outside of this House is that those who created this mess will be rewarded while others will be punished for the smallest transgression. If this is not fixed, we will have serious problems. We are fortunate the people are not as rebellious as they are in other countries. If they were, we would not be able to raise the moneys on the bond markets. As I have said already, if the Government does not start treating people properly, there will be rebellion on the streets. It may even be worse than it is in other countries. There is only so much the people can take. It is time they were treated properly, told the truth and given a direction out of this crisis.

I welcome the idea of a four-year plan for tackling the banking problems. The people need to see this plan so they can make decisions. Many people have money saved. If we cannot give them the confidence to spend their savings, there will be more job losses in the wider economy. There is also a duty to give those who have lost their jobs hope and a direction. Last week's announcement of a job creation strategy was a rehash of other plans. It does not wash any more. Proper sectorial plans need to be set out showing the job creation potential of each sector. Such a four-year plan will only be credible if all parties are involved in it. If the Government wants to put forward such a plan that will be believed by the bond markets, it must have the backing of the House.

The Minister claimed today this brings closure to the process of determining the level of State support for the banking sector. It does not. There are still question marks over Anglo Irish Bank and NAMA. The sooner these are brought to a head the better.

The Minister also claimed that since the announcement of the banking guarantee, the State has been required to stand behind the domestic banking sector to safeguard the financial system and economy. It is time the banks stood behind the State and stopped treating business and personal customers shoddily. I get calls from business people who are being harassed and abused by bank staff looking for a few euro in loan repayments while their overdrafts of €15,000 are pulled. This is Mickey Mouse stuff compared to the billions of euro the banks owe. This will have to stop. Business people are doing their best to keep their businesses going and others employed. The banks need to work with people, not abuse them.

The Minister must consider a State-owned recovery bank to get more credit flowing by using some of the funds from the National Pensions Reserve Fund. Mr. John Trethowan, head of the credit review office, agreed with me at an Oireachtas committee on this proposal. The Minister stated he wants a banking system that is firmly focused on meeting the needs of the real economy. While we are waiting for the domestic banking sector to come around to this, there is a need for a national recovery bank. Billions of euro have been spent on bailing out the banks; it is time some billions were put into businesses to survive.

Now that we have come to the final figures for the bank bail out, is it possible to turn our attention to a job stimulus plan? The one announced during the week was a Mickey Mouse one which no one believes.

Some proposals for businesses are quite simple and would cost nothing such as giving them professional advice on how to draw up, say, business plans. Many small businesses will survive if they get assistance in financial management, legal affairs or employment law matters. Other countries stepped up to the mark two years ago to provide this assistance while we cut the funding to enterprise boards which provided such mentoring schemes.