Dáil debates
Tuesday, 5 October 2010
Leaders' Questions
4:00 am
Enda Kenny (Mayo, Fine Gael)
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Last Thursday was a black day for Ireland's economy and people. It was the day we were finally told the cost of the failure of the Government's banking strategy - €50 billion. It was also revealed that as a direct consequence of that, there will now be a need for a much tougher budget to be introduced because, we are told, the country will not be able to borrow money on the international markets next year. The reason is that the international markets do not want to lend money to Ireland, other than at exorbitant rates, because they do not believe the growth plan for the country which the Government has brought forward.
The announcements made last week have left hundreds of thousands of people shocked, confused and very angry. They felt that having taken on board salary cuts, pension levies, overtime cutbacks and reductions in services, they were making a contribution to sorting out the financial crisis and the economic situation into which the Government has led the country. Now they know the difference. Their money has gone and it has not made any appreciable difference.
For the past two years, we were told quite clearly that the banking crisis and the budget deficit were separate. After last Thursday, we now know that the taxpayer and the citizen will have to pay directly for the failure of the Government's banking strategy.
Séamus Kirk (Louth, Ceann Comhairle)
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Has the Deputy a question?
Enda Kenny (Mayo, Fine Gael)
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Does the Taoiseach accept that the citizen and the taxpayer will have to pay directly for the failure of the Government's banking strategy? What level of cut is the Government considering for the 2011 budget? Is it €3 billion, €3.5 billion, €4 billion or, as some commentators suggest, more than €4 billion?
I ask the Deputy to try to maintain some accuracy in the context of what emerged last week. We have investments which have been made into AIB and Bank of Ireland. They are preference shares which are now converted to ordinary shareholdings - we have the majority in one and a considerable portion in the other- upon which a return will be obtained in due course.
There is, of course, the appalling situation where we estimate we have to pay €29.3 billion in regard to Anglo Irish Bank for its orderly wind-down over a long period of years. I have made the point to the Deputy already on a few occasions, and I make it again today, that the accountancy treatment of that and the Irish National Building Society amount must go onto the general government balance this year as an accountancy issue but over the next ten to 14 years we will be issuing promissory notes on those. That is how we can manage it. Otherwise, we would not be able to manage it.
The cash flow implications next year for the first €3 billion of a promissory note in that respect is €172 million, as estimated by the Department of Finance, and €344 million the following year. The cash flow impact, therefore, of the payment we have to make in respect of the orderly wind-down of these financial institutions makes that a manageable operation for us.
The issue on the budget is a separate matter because we have a €18.5 billion gap on the budget that must be dealt with. That is the context in which we are operating, and the issue in that regard is that, as members of the eurozone, we are required by the European Commission, and in the interests of maintaining confidence in the country's capacity to deal with the situation, to come forward with a four year budgetary framework which will be the same framework for whosoever has the honour and privilege of serving in Government between now and 2014. We will outline, as a Government, what we believe is the best way forward in getting a credible pathway to a 3% deficit by the end of 2014. That is an obligation we have as members of the eurozone and in the implementation of the Stability and Growth Pact as interpreted by the European Commission.
If we are going to get into a politics as usual debate, we need a position where we face up to the scale of the issues with which we have to deal. We have had a banking crisis in this country. We have had a banking policy which we outlined last March. We put a six to nine months timeframe on bringing that about. We believe we will deal with it in that timeframe, as we outlined last Thursday. The loans that have been transferred to NAMA from those institutions have now been identified and valued. Those are the figures with which the Financial Regulator has come forward. I have explained to the Deputy again that this will be in addition to our national debt but we will pay interest on that debt. We will not be reducing that debt over that time. We will be paying interest, or serving the debt. In the same way as we saw in the past when there was growth in the economy, it is by that measure that one reduces the debt-GDP ratio over time through economic growth coming into the equation. That is the reason that is manageable, despite the very important imposition it places upon us in the longer term.
The issue in the medium term, whether it is the 2011 budget or the requirement to provide a budgetary framework as to how we get to a 3% deficit by 2014, is one to which we are now addressing our minds, and we will bring forward that framework in mid-November.
Enda Kenny (Mayo, Fine Gael)
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I asked the Taoiseach two questions. The first was whether he was prepared to accept that it is the citizens and the ordinary taxpayers who will have to pay for the failure of banking strategy. We had comments from the Minister for Finance, and indeed from the Taoiseach and other Ministers, that a wind-down of Anglo Irish Bank would be catastrophic and that the proposals put forward by the Fine Gael Party would cost the country billions of euro. The Taoiseach has now arrived at the same situation as the advice we gave two years ago. It is a fact of life that it is the citizens and the taxpayers who will have to pay for the cost of the borrowed money, that is, the interest to deal with the banking situation. That is a charge for years to come on every taxpayer. The Taoiseach should accept that but it is something to which he has not yet admitted.
Second, on the budget deficit of the scale of €18.5 or €19 billion that the Taoiseach mentioned, the Fine Gael Party agrees it is critical that we get the deficit to GDP ratio down to 3% by 2014. The Taoiseach can take it that the Fine Gael Party would be happy to accept any advice or assistance from the Department of Finance in determining our proposals to deal with the budget deficit for 2011-----
Séamus Kirk (Louth, Ceann Comhairle)
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A question Deputy, please.
Enda Kenny (Mayo, Fine Gael)
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-----and will engage constructively with the Government in that regard.
What has happened is that the hopes and the spirits of hundreds of thousands of people have been shattered by what they were told last year, namely, that if they made these contributions and sacrifices, it would go a long way towards sorting out the position. That is not the truth of the matter.
We have a situation now where €100,000 is spent on a child in prison and €5,000 on a child in primary education. We have a situation where the State does not want to know children on the streets until they reach the age of 18, when they are no longer the responsibility of the State. Hundreds and thousands of businesses are today suffering from lack of credit-----
Séamus Kirk (Louth, Ceann Comhairle)
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Could we have a question from the Deputy?
Enda Kenny (Mayo, Fine Gael)
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-----and there is no assistance from banks to allow them continue and do their business.
How can this party, any other party or even the Government decide to put forward its plan for the 2011 budget if it does not know the figure and the target or what are to be the scale of cuts? I ask the question again Taoiseach. Is the figure €3 billion, €3.5 billion or €4 billion because this party, for its part, will present our view of what the strategy should be, as we did previously, where jobs and growth were central to what we had to say? On each occasion in the past three years that we put forward sensible, practical, costed proposals, they were rejected out of hand by the Government.
I would like to hear from the Taoiseach, after consideration by the Cabinet and all the people on the opposite side of the House, the figure for 2011. We need to know if it is €3 billion, €3.5 billion, €4 billion or more so that, for our part, as one party, we can engage with officials from the Department of Finance or whatever to put forward our view of an alternative to provide jobs and growth and point a pathway to restoring our country's good fortunes.
Brian Cowen (Laois-Offaly, Fianna Fail)
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First, when we are talking about recapitalising the banks, as we are with two of these banks, and also financing an orderly wind-down of two others which have failed, that is clearly a case of the taxpayer being the ultimate payer of these payments. That is the truth. Our national debt will increase as a result of it. I am simply explaining the method by which it is a manageable issue for us in cash flow terms into the future. It is not correct to say that it requires a €4 billion repayment every year for the next ten years. It is about the fact that we will increase our debt, pay the interest on that debt and do it using a promissory note method which, over time, will have that impact so that by the end of the period we will be talking about a repayment of the €1.72 billion. Those are the figures brought forward by the Department of Finance. In the meantime, there is an incremental build-up of interest over that time. I say that for the purpose of clarification because it has been suggested that the taxpayer is being hit for €4 billion next year every year for the next ten years. I saw that in a statement recently.
Brian Cowen (Laois-Offaly, Fianna Fail)
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I saw that in a statement from a Member of the House yesterday or today.
Brian Cowen (Laois-Offaly, Fianna Fail)
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The second point I want to make concerns the Deputy's question regarding the budget for next year. That figure is being worked on currently by the Government.
Brian Cowen (Laois-Offaly, Fianna Fail)
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The Government is in the midst of Estimates in regard to the 2011 budget and we are now having to bring this other requirement of a four year budgetary framework because that is in the interests of the country. I note that on the basis of what we announced last week the spread reduced from 6.9% to 6.1%.
Enda Kenny (Mayo, Fine Gael)
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What is the figure for next year?
Brian Cowen (Laois-Offaly, Fianna Fail)
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We need to ensure that the markets generally and, more importantly, we as a people can see what the real options are for the country and what are the expenditure and taxation implications to meet this requirement of reducing our deficit to 3%. That is an obligation on this or any other Government during that period.
Enda Kenny (Mayo, Fine Gael)
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Has the Taoiseach decided on the figure?
Brian Cowen (Laois-Offaly, Fianna Fail)
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On the issue Deputy Kenny is talking about, we will come up with that in mid-November and then in December we will introduce the 2011 budget. In terms of the purpose of what we are bringing forward, it is needed to ensure a credible pathway is set out by this country as to how we reach the deficit reduction we agreed to last February.
Enda Kenny (Mayo, Fine Gael)
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So the Taoiseach does not know the scale of what is involved, whether it is €3.5 billion or €4 billion.
Eamon Gilmore (Dún Laoghaire, Labour)
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Most people in the country are in a state of shock at what we heard on Thursday about the eventual cost of bailing out the banks - coming in at €50 billion - and all of the implications of that for public finances, taxation, State borrowing and the cost of borrowing. During the month of September, RTE ran two documentaries, entitled, "Freefall", which dealt in particular with the bank guarantee and what led up to it. In the course of those documentaries, it was reported that on 29 September 2008, the top people in Anglo Irish Bank went to Bank of Ireland and told the top people there that Anglo Irish Bank was facing insolvency and might not be able to open its doors the following morning. They asked Bank of Ireland to take over Anglo Irish Bank, but Bank of Ireland refused to take it over. However, it appears Bank of Ireland shared that information with Allied Irish Banks and that both of them then went to the Government to discuss the impending crisis. Arising from those discussions, the Government made the decision to go ahead with the blanket guarantee of the six banking institutions, including Anglo Irish Bank. When he and the Minister for Finance were making that decision, did the Taoiseach know that Anglo Irish Bank was facing insolvency?
Eamon Gilmore (Dún Laoghaire, Labour)
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It is very strange that a series of events was triggered by Anglo Irish Bank people going to Bank of Ireland and telling them Anglo was facing insolvency and that this caused both Bank of Ireland and Allied Irish Banks to come rushing down to Government Buildings to talk about the banking crisis without ever mentioning that Anglo Irish Bank faced insolvency. Did the two banks not tell the Taoiseach what they believed to be the case? Did Bank of Ireland people not tell the Taoiseach that they had been told that Anglo Irish Bank faced insolvency? Did the Taoiseach never raise the question of Anglo Irish Bank's solvency? That seems strange, because a few days previously, according to the documents that have been provided to the Committee of Public Accounts, the then Secretary General of the Department of Finance appeared to be in that territory. The note of that meeting stated that Mr. Doyle noted that the Government would need a good idea of the potential loss exposures within Anglo Irish Bank and Irish Nationwide and that on some assumptions the exposure of Irish Nationwide could be €2 billion after capital and that of Anglo Irish Bank could be €8.5 billion.
A number of days before the meetings on 29 September, senior Government officials were certainly in insolvency territory in their discussions. Incidentally, according to the list of attendees at that meeting, the Taoiseach was present at it. It is very strange that in circumstances where senior Government officials were talking about solvency issues in Anglo Irish Bank, where that bank had gone to Bank of Ireland and said it faced insolvency and where Bank of Ireland and Allied Irish Bank people came rushing down to Government buildings in crisis mode, that they would not have shared that information with the Taoiseach. Is that what the Taoiseach is telling us?
Brian Cowen (Laois-Offaly, Fianna Fail)
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This point has been made clear previously. I want to make it clear to Deputy Gilmore that the issue here, which has been confirmed in reports which have been undertaken on behalf of the House, is that Anglo Irish Bank was a bank of systemic importance. Clearly, there were questions about liquidity issues arising in the banking system. There was also the question of what was the best thing to do for the next morning to avoid a run on banks and any contagion effect that would have. The decision taken - people in attendance on the night in question would have included the person mentioned in one of the Deputy's supplementary questions - was that a guarantee of the banking system was the best solution to the problem. An extensive guarantee has been confirmed by Professor Honohan as being necessary. He also confirms in his report that this was a bank of systemic importance, something the Deputy has questioned over 18 months.
Joan BurtonBrian Cowen (Laois-Offaly, Fianna Fail)
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He also confirmed that were any bank allowed to go down, we would have had a meltdown in the banking system within days or weeks. That would have been the consequence had we adopted Labour Party policy at the time. Labour Party policy now seems to suggest that the issue was really the extent of the guarantee. That was not the Labour Party position at the time. The Labour Party seems to be trying to reinvent itself on that, just as the Deputy was trying to reinvent himself in trying to remember what party he joined when he left UCG. He could not remember whether it was Sinn Féin The Workers Party or the Workers Party.
The point is that Labour Party policy on the banking issue was wrong. It would have brought about a meltdown of the financial system, a nuclear winter in this country and hundreds and thousands of jobs would have been lost.
Kathleen Lynch (Cork North Central, Labour)
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What spooked the banks?
Séamus Kirk (Louth, Ceann Comhairle)
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The Taoiseach, without interruption please.
Brian Cowen (Laois-Offaly, Fianna Fail)
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Yet, Deputy Gilmore comes in here and suggests that the Labour Party had a solution to the problem that would have saved us.
Kathleen Lynch (Cork North Central, Labour)
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What spooked the banks?
Brendan Howlin (Wexford, Labour)
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The Taoiseach has not answered the question.
Brian Cowen (Laois-Offaly, Fianna Fail)
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I have answered the question and my response is very clear. We took all necessary steps to preserve our economic system after making our decision. I believe it was the right decision and that the independent reports that have followed it have been in favour of that decision, with the exception of the issue of subordinated debt, which is 3.3% of the total volume guaranteed on the night. I will accept it as a criticism that I am 97% right rather than 100%, but I will not accept the subsequent criticism of the Labour Party which has described the guaranteeing of the banks on that night as the worst decision made in the history of the State.
Brian Cowen (Laois-Offaly, Fianna Fail)
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Let me make it clear, the current Governor of the Central Bank says that had we listened to the Labour Party view, we would have had a meltdown of the financial system and this economy would have been set back decades.