Dáil debates
Tuesday, 23 November 2010
Meeting of Ministers for Finance of the Eurogroup: Statements
5:00 am
Séamus Kirk (Louth, Ceann Comhairle)
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I call on the Minister for Finance, Deputy Brian Lenihan, to make a statement under Standing Order 43.
Brian Lenihan Jnr (Dublin West, Fianna Fail)
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I welcome the opportunity to provide the House with information on developments regarding the Government's request for financial assistance and the meetings of the eurogroup and ECOFIN on 21 November 2010. The Government welcomes the decision of our European Union partners to provide assistance to Ireland, not only to address the banking and budgetary challenges we face but also to safeguard financial stability in the European Union and in the euro area.
Before I deal with the substance of the matters before the House, I wish to reassure the House on one subject as requested by Deputy Kenny. Earlier, Deputy Kenny sought reassurance that all deposits in Irish banks are secure. All deposits in Irish banks are secure; they are secure because the Government guarantees them and because as part of the euro system, the European Central Bank ensures that the cash requirements of the Irish banking sector are met at all times.
Michael Noonan (Limerick East, Fine Gael)
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Has the announcement by the Green Party caused difficulties in this respect? I have heard that it has.
Brian Lenihan Jnr (Dublin West, Fianna Fail)
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It was Deputy Noonan's party leader who requested me to make a statement on this.
Michael Noonan (Limerick East, Fine Gael)
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I am asking a separate question.
Brian Lenihan Jnr (Dublin West, Fianna Fail)
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I am responding to Deputy Noonan's party leader. I am not aware of any particular difficulties; I am making this statement in response to a request by Deputy Noonan's party leader. I have met this request, which was a reasonable request to make, and I am simply making clear what the position is. The position is that the necessary cash is provided for the Irish banking system through the European Central Bank and is available.
With regard to the question of European financial stability, we should always put these developments in context. The ECOFIN Council decided in May 2010 on a package of European financial stability arrangements in conjunction with the IMF. These are intended, if needed, to safeguard the financial stability of the EU and the euro area and to support member states in difficulties caused by exceptional circumstances beyond their control. The initiative for requesting this assistance, both from the European Union and the IMF, rests with the member state. There is no arrangement whereby a member state can be invited by the European Commission or the European Central Bank to request such assistance. A request under these facilities is a matter for decision by the Government in the member state concerned.
As I told the House last Thursday, we agreed with our euro area colleagues at the eurogroup meeting on 16 November to hold a short and focussed consultation between the Irish authorities and the Commission, the ECB and the IMF. Its purpose was to determine the best way to provide any necessary support to address market risks, especially relating to the banking sector, in the context of the four-year budgetary plan and the upcoming budget. This proved to be a very constructive and positive engagement and dialogue. The Government then met on Sunday afternoon to consider the outcome of that engagement. We agreed to request financial support from the European Union, the euro area member states and the IMF in the context of a joint EU-IMF programme. The request for external assistance has been made under the terms of the European financial stabilisation mechanism, the European financial stability facility and the IMF assistance programme.
As Deputies will be aware, this matter was discussed at the eurogroup meeting held by teleconference last Sunday. However, the formal decisions were taken by the Ministers of all 27 member states at the ECOFIN meeting held later that evening, also by teleconference. Following the meetings, a statement was issued by the eurogroup-ECOFIN Ministers welcoming the request of the Irish Government for financial assistance from the European Union and euro area member states and noting this assistance is warranted to safeguard financial stability in the European Union and in the euro area.
The European Union and euro area financial support will be provided under a strong policy programme which is being negotiated with the Irish authorities by the Commission and the IMF, in liaison with the ECB. This programme will address the budgetary challenges of the Irish economy in a decisive manner, building on the budgetary adjustment and comprehensive structural reforms that will be contained in the Government's four-year plan. The eurogroup-ECOFIN statement, pointing to the strong fundamentals of the Irish economy, said that decisive implementation of the programme should allow a return to robust and sustainable growth, safeguarding economic and social cohesion. The financial assistance programme may be supplemented by bilateral loans to be provided by EU member states. I would like to take this opportunity to thank the Governments of the United Kingdom and Sweden which stand ready to contribute bilateral loans. I also welcome the statement of the Danish Prime Minister that Denmark will offer a loan having secured cross-party support.
As the Government said in its statement issued last Sunday, a central element of the programme will also be to support further deep restructuring and the restoration of the long-term viability and financial health of the Irish banking system. It will build on the extensive measures taken by Ireland to strengthen its banking sector via guarantees, recapitalisation and asset segregation. These measures have helped to maintain financial stability in the Irish banking sector at a time when both the banking system and the economy have confronted significant challenges reflecting both domestic and international factors. The EU Ministers noted that the programme will also include a fund for potential future capital needs of the Irish banking sector. By building on the measures already taken by Ireland to address stress in its banking sector, a comprehensive range of measures, including deleveraging and restructuring of the banking sector, will contribute to ensuring that the banking system performs its role in the functioning of the economy.
My Department, along with the Central Bank of Ireland and the NTMA, has commenced detailed discussions with a joint European Commission-IMF mission, with a view to finalising the details of the programme of financial assistance and associated policy actions. This programme will build on the fiscal adjustment and structural reforms that will be put forward by the Government in the four-year plan to be published on Wednesday. After approval by the Government, the programme will be endorsed by the ECOFIN Council and the eurogroup, in line with national procedures, on the basis of a Commission and ECB assessment. The programme will also be endorsed by the IMF. The negotiations have started in earnest and, while ongoing, will be completed as soon as possible.
With regard to the budgetary challenges, the Government agreed to publish its four-year plan this week. The strategy reaffirms our commitment to deliver a fiscal consolidation of €15 billion by 2014, of which €6 billion will be front-loaded in 2011. This is on top of the €14.5 billion consolidation delivered by the Government since mid-2008. By the end of 2011, we will have delivered approximately two thirds of the total consolidation over the period out to 2014. The four-year plan will also include significant structural reform measures, which will help underpin and enhance growth in the years ahead. It will also achieve the target of reducing the general Government deficit to 3% of GDP by 2014. It will achieve this through a combination of expenditure reductions, tax increases, a renewed focus on growth and competitiveness, structural reform and public service transformation.
I wish to emphasise that we have many positives at this time. The underlying fiscal position has stabilised this year, with a deficit, excluding the effect of the promissory notes, below 12%. Our GDP will record a very small increase this year based on strong export growth. Exports are expected to grow by about 6% in real terms this year, driven by improvements in competitiveness and a strengthening of international markets and conditions in the labour market are also beginning to stabilise.
With regard to banking, clearly we along with the eurozone as a whole remain in very stormy financial waters. Last week, the House agreed to extend the revised bank guarantee in accordance with the advice of the Governor of the Central Bank. There is a broad European consensus for the need for the continuation of Ireland's banking guarantee. As I have said repeatedly, had the bank guarantee not been introduced two years ago, we would not have an economy today, never mind a banking system. The entire banking system faced collapse at the time, funding for it had all but dried up and the banks faced closure within days. That is not an opinion, but a fact that was starkly illustrated in Governor Honohan's report. Unfortunately, some commentators have chosen to ignore entirely Professor Honohan's conclusion and indeed sought to obscure it and confuse the position in the public's mind by relying on the criticisms that the Governor made to the scope of the guarantee, for example, the inclusion of dated subordinated debt. I have responded to and addressed these points on many occasions. Guarantees were a common feature in the response of many EU member states to the ongoing financial crisis. We were the first to introduce a guarantee, but we were quickly followed by other member states in the European Union. Recent figures from the European Commission indicate since the onset of the crisis in 2008, the Commission, under state aid rules, authorised some €3.6 trillion in guarantees in various member states.
Last Thursday, I also took the opportunity to reiterate the State's commitment to safeguard the interests of depositors in Irish banks and this sentiment was shared with other members of the House. This objective is shared by the eurogroup and supported by the European Commission, the ECB and all authorities with an interest in continuing to maintain the stability and of the Irish banking system. In that regard, it is important to point out to the House that the European Central Bank continues to meet the funding cash requirements of the banking system. As the House will be aware, this scheme guarantees the security of all deposits in the participating institutions in the scheme, along with that of other bank liabilities guaranteed under it. The extension of the guarantee has been approved by the European Commission and was endorsed by the European Central Bank on financial stability grounds. Deposits are safe. Nothing in the content of the discussions under way or anything that may arise thereafter will affect that fact. The scheme complements the protection afforded to all depositors under the permanent deposit guarantee scheme. Those that have funds and deposits in Irish banks can be assured that we have the stability and support of the ECB. It is important that the structural problems that are identified in the market reactions are addressed in a systematic manner and that is what this intensification of engagement is about.
With regard to the issue of a bank resolution regime, which was raised by Deputy Noonan last Thursday, I recently indicated in the House that I was examining options for the introduction of a legislative regime to deal in a systematic way with distressed financial institutions. This is to ensure the State has in place a range of tools to address problem institutions effectively in the interests of maintaining financial stability, minimising reliance on public money and ensuring continuity of key banking activities. In view of the central role performed by central banks in resolution frameworks for financial institutions, the Department is consulting with the Central Bank to develop the necessary legislative proposals. I expect that this process will lead to the introduction of an appropriate legislative framework for bank restructuring.
The provision of financial assistance to Ireland is necessary not only to support our banking and budgetary situation, but also to safeguard financial stability in the European Union and in the euro area. The European Union has acted in a spirit of solidarity with Ireland to ensure stability on behalf of its citizens. We have challenges, but we have responded in a timely and appropriate manner to the challenges that have been presented. I have already stated that we are now seeing the benefits in terms of a stabilisation of the public finances and renewed export-driven economic recovery. The Government is grateful to our European partners for providing assistance at this difficult time. Our strong underlying economic performance, combined with the fiscal correction and reform measures contained in the plan to be published tomorrow, will provide the foundation for recovery. We will emerge from this programme as a vigorous economy and nation once more.
Michael Noonan (Limerick East, Fine Gael)
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Sunday night must have been the worst night for any Irish Cabinet since the Civil War. It was an appalling situation where, after running our own affairs for so many years, the Minister for Finance had to go and plead with our colleagues in Europe to come to the assistance of this country. Nobody on this side of the House had any part to play in the conditions which developed which required the intervention. The intervention was totally as a result of actions taken by the Government and the Minister's attempts to resolve the situation over the past two years have only made matters worse. He has become part of the problem rather than part of the solution.
If our problems arose solely on the fiscal side, they would be difficult but manageable, despite the deficit of almost 12% between income and expenditure, and we could have addressed them ourselves by continuing down the path of fiscal correction which we started to take two years ago and in respect of which I complimented the Minister in the past. The difficulty arises when the burden of bank restructuring is added to the fiscal problem. That is the straw, the bale of straw or the lorry load of straw which broke the camel's back. On Sunday night, it drove the Minister into the arms of his European colleagues and across the Atlantic to ask the IMF in Washington to come to our assistance. That was a humiliating request for the Minister, the Cabinet and the country. While his colleagues have not shown any sense of shame, I hope he is suitably embarrassed.
It is difficult to know where we stand. He has been chary in giving out essential details of the assistance we are receiving. The management of the period preceding the request was extraordinary. I cannot understand why Minister after Minister issued point blank denials about discussions, negotiations, talks or intentions to requesting the intervention of the European Commission, IMF or European Central Bank. I do not know what kind of Cabinet has been operating if Ministers of long standing were not in the loop. To put it bluntly, they were either lying through their teeth or they had not been briefed. Given that it was certainly embarrassing to watch, it must have been excruciating for the people concerned. The Minister should explain to the House what happened. His Cabinet colleagues appeared to be hanging out with no information three or four days before he made the calls to his colleagues in Europe. Contacts had been ongoing for several weeks and discussions were being held under his direction between officials from the Department of Finance, the Central Bank and the institutions concerned.
Charlie O'Connor (Dublin South West, Fianna Fail)
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I do not wish to interrupt the Deputy but I have been reminded by other Members that the "L" word should not be used. The Chair would appreciate it if he used a different word.
Michael Noonan (Limerick East, Fine Gael)
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I withdraw it. They made a series of untruthful statements through their teeth.
Arthur Morgan (Louth, Sinn Fein)
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Deputy Noonan was correct the first time.
Brian Lenihan Jnr (Dublin West, Fianna Fail)
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It was not said with venom.
Michael Noonan (Limerick East, Fine Gael)
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It was an expression that people would understand. I cannot understand the actions of the Green Party Members. What they have done to the coalition Government was outrageous at a time when credibility and certainty were required and Members on this side of the House were walking on eggshells in case we got the Cabinet and the country into further difficulty.
Michael Noonan (Limerick East, Fine Gael)
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They marched down the road to make their daft announcement. I was in Governments which broke up. I was a Member of a coalition Government in the 1980s with the Labour Party and Garret FitzGerald as Taoiseach. For policy reasons, the Labour Party found it could no longer continue but the issue was discussed openly among colleagues who were friendly with each other and arrangements were made for a withdrawal with the minimum of damage. Everybody was in the loop. Furthermore, when the Labour Party Deputies decided to go, they went. This crowd decided to go but stayed. One would send for security if it was a Christmas party.
Joan Burton (Dublin West, Labour)
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They thought they would go for a take out and then come back.
Michael Noonan (Limerick East, Fine Gael)
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They have no confidence in the Government but they want to hang around for another two months. They issued the daftest press statement I ever read from a Minister. It stated that the Irish people were misled and betrayed. They were not misled and betrayed by Fine Gael, the Labour Party or Sinn Féin. The Members from Sinn Féin are too busy in County Donegal to mislead or betray anybody.
Arthur Morgan (Louth, Sinn Fein)
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We had an episode in Government Buildings as well.
Aengus Ó Snodaigh (Dublin South Central, Sinn Fein)
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I was very busy yesterday.
Charlie O'Connor (Dublin South West, Fianna Fail)
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He got his name into the Financial Times.
Brian Lenihan Jnr (Dublin West, Fianna Fail)
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Shame on the Deputy.
Michael Noonan (Limerick East, Fine Gael)
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Deputy Ó Snodaigh embarrassed his mother's people in Newcastle West.
Aengus Ó Snodaigh (Dublin South Central, Sinn Fein)
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I did not. Indeed, I did the exact opposite.
Charlie O'Connor (Dublin South West, Fianna Fail)
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I will protect Deputy Noonan as much as I can.
Brian Lenihan Jnr (Dublin West, Fianna Fail)
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I cannot comment on the events. I witnessed them.
Aengus Ó Snodaigh (Dublin South Central, Sinn Fein)
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He should watch the RTE coverage.
Michael Noonan (Limerick East, Fine Gael)
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Who misled and betrayed the people? The Minister for Justice and Law Reform, Deputy Dermot Ahern, the Minister for Transport, Deputy Noel Dempsey, and the Minister for Tourism, Culture and Sport, Deputy Mary Hanafin, did not know about it. We are getting down to a very short list of misleaders and betrayers. It seems to me they must have been referring to the Minister for Finance and the Taoiseach. How can they continue to have confidence in a Minister and a Taoiseach who allegedly misled and betrayed the Irish people? They are still in Government, using their State bicycles and enjoying the perks of office. There is still supposed to be collective responsibility. It is an insult to the Constitution that the two Green Party Ministers continue to participate in Cabinet. One is either in the Cabinet or one is out. A Minister cannot have a leg in both camps.
I was disappointed by the contribution by the Minister, Deputy Brian Lenihan. Much of his speech involved a discourse on the process and a rehearsal of old ground, such as the bank guarantee and resolution legislation. Certain questions have not been answered.
Brian Lenihan Jnr (Dublin West, Fianna Fail)
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There will be an opportunity for questions.
Michael Noonan (Limerick East, Fine Gael)
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How big is the fund and how will it break down? How much will be used to replace the money we would otherwise draw from the bond market to close the €19 billion gap in the running costs of the country? Will it be used over three or four years and is it expected that we will return to the bond market? How much will be needed for additional capitalisation of the banks? What about the kind of backstop or confidence building fund that would encourage people to leave their deposits in the banks? We hope that money will not be drawn down but its existence will give confidence to depositors.
What are the terms and interest of the arrangement? Somebody rang me this evening to suggest that we would face a penal interest rate of 7%. I understood it would be around 5% but this gentleman seemed to know what he was talking about. He advised me it would be a nine year arrangement rather then the three years I had expected. He also described a peculiar arrangement whereby 30% of what was given would have to be put on deposit as a contribution to the backstop fund. Is this fiction? A lot of the rumours going the rounds are not true but other material is truthful. The Minister is not doing himself a service by withholding the facts. Rumours are always killed by fact but they will fly in their absence. It is not a good idea to allow the continued circulation of rumours which should be either confirmed or contradicted.
We need to know the proportional contribution of each of the three institutions. Will the funds they contribute be in proportion to their respective sizes and will they go into an Irish fund or be assigned to different purposes? It is difficult to understand why the terms are not set out in clear detail.
Brian Lenihan Jnr (Dublin West, Fianna Fail)
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They are not agreed yet.
Michael Noonan (Limerick East, Fine Gael)
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Even if the Minister told us that and told us what the negotiating position is, it would help.
Talking about negotiating positions, who are the negotiators? The Minister for Finance has primary responsibility but is it solely officials from his Department or is he assisted by people from the regulator's office and the Central Bank? Is he bringing in consultants and are there any outside experts in the loop or any who have experience of the IMF? Is the Minister confident his officials have the expertise to negotiate deals with these people? That is not an offensive remark directed at the Minister's officials but they would not have had negotiations with the IMF before, whatever about having talks with the Commission or the European Central Bank. It would be helpful if we knew that as well.
I understand the legal position is that the IMF is required to draw up a memorandum of understanding with recipient nations when it gives them funds. I also understand that a similar approach has been adopted by the euro fund in Berlin, which has €60 billion in capital at present, and it also requires a memorandum of understanding. Will there be one or two? Will there be an amalgamated memorandum of understanding or will there be two separate ones? What are the review periods built into the memorandum of understanding? Most importantly, it has been stated a number of times by Commissioner Olli Rehn and by various spokespersons for him that the advancement of funds is based on conditionality. What are the primary conditions set down for the payment of these funds to Ireland? While we will have questions later, that is my first run of questions.
I do not want to labour the point. It is a serious time and a serious situation. We have been involved in the blame game for too long and it is time to get on to real solutions. However, we need convincing that the Minister has a grip of the situation and that what he is proposing does not get us into greater difficulty. In the past, the Minister made proposals here with great conviction and they have contributed to the problem rather than to the solution.
Joan Burton (Dublin West, Labour)
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I can imagine Sunday must have been a very emotional day for the Minister for Finance. For an Irish Minister for Finance to have to go cap in hand on behalf of his Government to no less than three international bodies - the European Central Bank, the European Commission and the International Monetary Fund - must have been extremely difficult and distressing.
I want to ask the Minister a number of questions about the proposals. First, the Government has made great play in the past couple of weeks about opening the books to the Opposition. However, it appears that one book the Opposition will not be able to open is the four-year plan. The Taoiseach could not even confirm the normal courtesies of giving the Opposition a copy of the plan a couple of hours or the evening before the plan is published on an embargo basis. While the media of the world will, I understand, be gathered in the new conference centre, perilously close to the ruins of the Anglo Irish Bank headquarters - is that off the agenda now-----
Brian Lenihan Jnr (Dublin West, Fianna Fail)
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It is a decision I never heard of; it is one the Deputy invented.
6:00 am
Joan Burton (Dublin West, Labour)
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We have a perfectly serviceable and costly Department of Finance, which has facilities for press conferences.
Will the Minister tell us at this point what is the amount of the loan, the assistance and the facilities he and the Government propose to seek? We have need for money under three headings. First, we need at least another €20 billion for the banks, and some would say perhaps €40 billion - the Minister would know more about that. Second, we need money to cover the fiscal deficit. As the ordinary Irish deficit - the difference between what we, as a country, spend and what we take in taxes - is reckoned to be somewhere between €18 billion and €20 billion, it is estimated that over the three years of the plan we will need €45 billion. However, I have seen others estimate that it may be as much as €60 billion given the interest costs on our ever-growing debt, and the rate at which those interest costs are charged is increasing the deficit gap all the time.
Third, a whole series of national Government debt which was sold ten years ago, five years ago and two years ago falls due in the normal course of events for rolling over the first three years of the loan. I understand the amounts falling due for either payment or rollover in the next three years are significant. Again, the Minister might advise us in this regard. A lot of short-term debt was issued by the State in the past two and a half years because of the blanket bank guarantee. I understand approximately €11 billion of that is falling due in the next three to four years, which clearly means the amount of the facility has to be large.
The next point is the rate of interest. Is the Government really negotiating or is this a technical exercise being carried out by officials in the Department of Finance, where there are observers present from the Central Bank and the NTMA, and where clearly the politicians of the Government are entirely distracted by the internal collapse of the Government and are not in a position to negotiate in any serious way? That alone is a reason for an election.
Finally, what is the term of the loan? I understand most of these facilities are three-year money, which means, for example, if they are priced at 5.5%, although that sounds cheaper than ten-year money at 8% or 9%, it is in fact extremely expensive for three-year money. In other words, the Irish people will be climbing a mountain, and as they climb the top of the mountain they will be going ever higher so we will not be able to get out of this for a very long period.
This brings me to a number of issues that have been mentioned by Ministers and others in the context of the current crisis. I am sick of hearing about the stress testing of banks. It is a phrase I do not want to hear much of when this Dáil is through. We have our old friend, the stress test - what one of the distinguished journalists used to call "Joo Diligence", which is another way of stress testing. It does not matter any longer in the context of the current crisis what stress tests are done because our banks have burned our economy so much the international markets do not believe in them. Somebody may buy them very cheaply. Hedge funds, which are bottom feeders, may be picking up shares in Bank of Ireland and AIB today - who is to say? However, they are bottom feeders and will be in and out as quickly as possible for their buck. Yet, we seriously propose to have more stress tests. If the capital ratio of Irish banks was raised to 12% or 14%, nobody on the markets would care. Why? It is because the contagion of the Irish banks has spread to the Irish sovereign through the disaster of the strategy of the blanket bank guarantee.
The Minister suggested two and a quarter years ago, at the time of the guarantee, that the Irish banks were going to fail. I remember at the time the Governor of the Central Bank and the regulator trotted in and out of committees in the basement of Leinster House to repeat, rather like a prayer to St. Jude, that the fundamentals were sound.
The Minister tells us now, two and a quarter years later, the Irish banks were in meltdown. However, at the time he said anything but that. It is an interesting acknowledgment on his part-----
Brian Lenihan Jnr (Dublin West, Fianna Fail)
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I said it was a liquidity problem.
Joan Burton (Dublin West, Labour)
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I have a question for the Minister which is pertinent to Greece. As I understand it, Greece is reviewed by the IMF team every quarter. I spoke today with a person from Greece who is familiar with what the country is going through. I understand that reviewing data every quarter is part of what the IMF does as its standard template. The Minister made a distinction when he said the ECB and the European Commission would review Ireland only every year but the fact is the IMF does quarterly reviews. That means that if a country does not meet the quarterly target, as in the case of Greece recently, the VAT rate is raised, as it was in Greece. The Minister ought to clarify that point.
Is it the Minister and his Government, rather than mandarins in the Department of Finance, who are negotiating a package and does it consist only of deflationary measures? There is no economy in the world of which I am aware where such deflation has succeeded. I include the great leap forward - or whatever it was called - practised at various times by the Soviet Union and China which consisted of primitive capital accumulation with the people in the country being allowed nothing while everything went into the superstructure, infrastructure and army of the state. Those are the only examples in history and they were accompanied by terrible suffering in the societies in question. How will the Minister deflate this economy back to recovery? It has never been done in economic history.
I say to our European allies that the Irish Labour Party is extremely conscious of its responsibility and of the benefits that membership of the European Union has brought to this country. We are very proud to have been part of the European Union and to share in the many benefits membership has brought us. However, Ireland is in a moment of peril, as an economy and as a country. So, too, is Europe. I do not know whether the Minister is any longer in a position to argue with his European colleagues against deflating Ireland to the point where the Irish economy would be killed for a great number of years, almost like a country paying tribute after a war. That is not the road to recovery, for either Ireland or the European Union. I do not know whether the Minister's Government is in a position, given its state of chaos and collapse and the clear and evident collapse of morale within it, not to mention the departure of the late lamented Green Party-----
Brian Lenihan Jnr (Dublin West, Fianna Fail)
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They are still here.
Brian Hayes (Dublin South West, Fine Gael)
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They are not growing.
Charlie O'Connor (Dublin South West, Fianna Fail)
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Deputy Burton, I ask you to speak through the Chair so that I can protect you.
Aengus Ó Snodaigh (Dublin South Central, Sinn Fein)
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Demented and unlamented.
Charlie O'Connor (Dublin South West, Fianna Fail)
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I invite the Deputy to proceed and I will protect her from interruptions.
Joan Burton (Dublin West, Labour)
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I thank the Chair. The interruption is not a problem. I speak of our absent friends. I do not know whether we are toasting them but let us note the absent friends.
I do not know of an economy which has been deflated back to recovery. This is a fundamental issue and there must be a debate about it. The Irish Labour Party has made a proposal, modelled on what Germany did after the Second World War before the KFW, about which the Minister spoke, invested in derivatives. There was a derogatory comment about that particular KFW banking group. Given that we are all trying to get the country out of this situation it is better to recognise that the model of strategic investment bank in Germany after the war provided for investment in infrastructure and funding for small and medium businesses. We need the same in Ireland, particularly for innovation and for tax sectors that are taking off.
It is almost impossible for the Government to negotiate a deal given its political position. However, even though we are in terrible difficulties, it is really important to get a deal that will enable Ireland to grow and recover. That way we can pay the astonishing debts from the banks that have sunk us and we can give hope to the people that the country can and will recover.
We have a very short period in which to debate this resolution and it is very important that the Minister should explain where exactly these negotiations stand and whether they are simply technical negotiations, the kind in which the Doctors No in the Department of Finance deal. They have only two words; they say "No" to any expenditure and "Yes" to any cut. That is the mindset of the Department of Finance but it is a technical mindset. Perhaps that is what finance officials do, like secret policemen in every country in the world. However, the job of politicians is to use the technical information to bring from difficult circumstances something that will give the people in the country hope and the expectation of growth.
The extraordinary thing is that currently Irish people are saving. They have savings in excess of €88 billion as they save and pay down their debts. Some imagination would provide a mechanism to use some of those savings in a safe way in this country. Most Irish people want to save and invest in their own country. Very few want to be tax exiles. Most of us live and work here, our children are here, our football teams are here - or most of them are and, if not, they are only a short distance away.
We need imaginative ways in which to proceed. If these negotiations are simply and solely led in a kind of technical bookkeeping exercise by people in the Department of Finance and not by politicians of some vision and courage, then Ireland will get a rotten deal and we will pay high interest rates for short-term money over three years. The Minister suggested a figure of €80 billion to €90 billion but I have shown that we may need much more in the contingency fund.
Charlie O'Connor (Dublin South West, Fianna Fail)
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I thank the Deputy.
Joan Burton (Dublin West, Labour)
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We do not have to draw down all of the funding but the worst thing in the world would be to negotiate an inadequate contingency. Then, as with the failed bank guarantee and the failed NAMA, we would have to creep back and look for more. At that point we really would be in a place from which it would be difficult to see a hopeful return.
Charlie O'Connor (Dublin South West, Fianna Fail)
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The next speaker is Deputy Caoimhghín Ó Caoláin. I understand the Deputy is to share his 15 minutes with Deputy Arthur Morgan.
Caoimhghín Ó Caoláin (Cavan-Monaghan, Sinn Fein)
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That is correct. Go raibh maith agat, a Chathaoirligh.
Charlie O'Connor (Dublin South West, Fianna Fail)
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Does the Deputy wish me to remind him of the time at some point?
Caoimhghín Ó Caoláin (Cavan-Monaghan, Sinn Fein)
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That would be fine, at seven minutes.
The debate we should be having tonight is not this one but a debate on the motion of no confidence in the Taoiseach, tabled by the Sinn Féin Deputies. We have been asked to carry on as normal in a Dáil with a Taoiseach and a Cabinet that have not a shred left of credibility or political authority. We have a coalition Government in which one partner has expressed no confidence in the other and has given its notice to quit.
The subject of the statements of the euro group of finance ministers which met last Sunday was only one of the steps taken in the past week to sell out what remains of the economic sovereignty of this State. For more than a week this Government tried to deceive the people about the imminent arrival of the International Monetary Fund to take control of our economy. The Fianna Fáil-Green Party Government took the people for fools but they were found out and the Central Bank Governor, Professor Patrick Honohan, had to go on radio last Thursday to bring the deception to an end. On Sunday the Government finally admitted the truth when the Minister for Finance, Deputy Lenihan, made the announcement that confirmed what had been denied, namely, that the Government was to put the State further into hock with international moneylenders. The cost is to be savage, with widespread cutbacks that will plunge large sections of the people further into poverty. Let us make no mistake - if the cuts made are not savage enough for the IMF and the EU they will be deepened even further. Social supports, public services and jobs will be devastated if this proceeds.
Fianna Fáil, the so-called republican party - although there is nobody on the benches here - having squandered the people's money has now sold out the remnants of Irish sovereignty in order to continue bailing out the banks. This is all about bailing out the banks. IMF intervention was brought about directly by the scandalous policies of this Government. An EU and IMF bailout will not be a bailout for the Irish people, rather, it will be a further bailout for the banks. The Irish people will still have to pay the price. It will represent a loss of control over our economy with implications far beyond the 12.5% corporation tax rate. While the media have focused on this, the reality is that the IMF dictates policy across a whole range of areas and it will mean even more savage cuts to health and education, public service jobs and social welfare, as well as tax increases for the lower paid and the sell-off of Sate assets. Already the IMF has made clear that it will be looking for the lowering of the minimum wage and the cutting of social welfare payments are employed. This is totally in line with current Government thinking, which is to hit the lower paid and poor and drive the unemployed further into despair.
What of Fine Gael? Is it the case that it will be happy to see a savage budget passed by Fianna Fáil, the Green Party and, if they are lucky, the so-called Independent supporters? Is Fine Gael banking on a passed budget, Fianna Fáil taking the blame in the election, Fine Gael sailing into Government and then fully implementing the self same budget? That is a question many people and commentators are asking.
Did Fine Gael know what it wanted yesterday? Make no mistake about it, Deputy Reilly was calling for an immediate general election and he was right. I raised an issue with the number of Fine Gael Deputies earlier today. Deputy Kenny today called for the Fianna Fáil and Green Party Government to remain in office to bring in the budget next week. There is a major contrast between the leader and deputy leader. Where do we all arrive at if that is the case? We arrive at confusion. Will the Labour Party do as Deputy Gilmore indicated last Friday on the "Late Late Show" and refuse to reverse the cuts in such a budget?
The great tragedy is that none of this need have happened. We need not be facing a savage budget or an IMF intervention if the Government had burned the bondholders, set up a State bank and pursued a real plan for economic recovery. There would be no call for any such bailout. It can still be avoided. Such a real recovery plan has been put forward by Sinn Féin. The Irish Congress of Trade Unions has put forward similar proposals and so have individual unions, a whole raft of community and voluntary organisations and many individual economists, both domestically and internationally.
Instead, Fianna Fáil and the Green Party are about to bring us down the road of so many countries where the IMF has dictated policy. In Latvia there was a 30% cut in public service jobs and 17 hospitals were closed. In Greece there were massive wage cuts, job losses and riots on the streets. In Iceland there were savage cuts in health spending and widespread repossessions and evictions. In the Ukraine hospitals were closed, pensions were caught and unemployment doubled. We in Sinn Féin warned earlier this year about what was to happen and in statements on the European Council meeting in July Deputy Ó Snodaigh said:
This Government has also tied the State to the EU's blind determination to protect the euro which means participating in the bail-out of Greece when our deficit exceeds that of Greece. In a few months time we could have the potential situation where Greece is asked to bail out the Irish economy. This shows the ludicrous nature of what is being discussed and imposed upon us. It means partaking of a new loan facility fund, despite the demands that fund can put on a state if it avails of those finances. The EU is becoming the IMF and this Government is signing up wholeheartedly to it, up to the point of agreeing that Brussels should have sight of and commentary on our sovereign budgets in advance of them being put to the national Parliament. This is an insult to this House and an insult to the budgetary process which has gone through the Oireachtas quite well for a number of years. The Government is signing up to an interference from outside in our affairs. That amounts to a loss of sovereignty.
One does not have to add how much foresight Deputy Ó Snodaigh showed in what he warned and cautioned about.
The outcome of yesterday's extraordinary events was fatally wounded Taoiseach who wanted to drag the country down with him, Fianna Fáil and the Green Party. It is shameful that the Green Party is denying people their say in an immediate general election and helping Fianna Fáil to further inflict massive damage on the Irish economy and society. It is a travesty of democracy. There needs to be an immediate general election.
Arthur Morgan (Louth, Sinn Fein)
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When I read some of the material the Government is putting out, it alarms me. The Minister said, "We have challenges but we have responded in a timely and appropriate manner to the challenges which have been presented". The answer to that is "Yes" if one says the challenges were to bail out corrupt bankers. That is all the Government has responded to. It has not done anything constructive for the economy. That is the fact of the matter.
I should be half sorry with the Fianna Fáil part of the Government because the usual practice was that Fianna Fáil would run the economy into the ground, cut to a general election and escape before it was caught. On this occasion, because it has been in power for so long the Government, in particular the Fianna Fáil part of it, was caught badly and demonstrated clearly its level of incompetence in terms of managing the economy in any sort of constructive way. That is particularly evident to everybody now because the economy has smashed to such a degree that it will not be repaired for at least a generation before the so-called bailout from the IMF, the European Commission and the ECB is repaid. That is dreadful.
We are supposed to be discussing the meeting of Ministers for Finance of the euro group. It paid some platitudes to the Minister following the meeting but I would have loved to have been a fly on the wall in the meeting behind closed doors.
Brian Lenihan Jnr (Dublin West, Fianna Fail)
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It was a teleconference.
Arthur Morgan (Louth, Sinn Fein)
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It is the conversations behind the closed doors I would have liked to have heard because I suspect there was a wee bit of clapping on the hand, not a pat on the back despite the public platitudes to make it look like everyone is on playing the one role. They should not all be playing the one role. The ECB-----
Brian Lenihan Jnr (Dublin West, Fianna Fail)
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We comfort each other in our suffering.
Arthur Morgan (Louth, Sinn Fein)
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The Minister will get no comfort here from Sinn Féin. Would the Minister agree that the ECB's role in the lead up to this economic crisis should be examined carefully? It was shovelling cheap finance into the Irish banks without any control, apparent oversight or inspection of what was going on. Would the Minister accept that it has a part to play in sorting this out? Would he accept that we should not be genuflecting before the high altar of the ECB or the Commission because of their failures in this scam?
I am not exonerating the Minister or the role of Fianna Fáil and the Green Party in all of this and how they looked the other way when the Central Bank was also looking the other way. The ECB is culpable as well and should be held accountable. It was acting like the bondholders. It was happy to see cheap credit coming in and believe the Fianna Fáil fantasy that the cheap credit could go on forever and keep everybody happy. Meanwhile, back at the ranch who were the real victims? They were Irish people who, to some degree, were suckers in terms of falling for the myth, going for cheap credit and putting themselves in hock to the banks to a dangerous degree. It was grossly unfair that it was allowed to happen.
There were no big cats in this State. The Celtic tiger was a myth for the overwhelming majority of Irish people. There were some fat cats but they were all huddled up in the Galway tent or were the corrupt bankers to which I referred that were bailed out. No ordinary people became fat cats or enjoyed the fruits of the Celtic tiger. That was all a myth as far they were concerned. The upshot of all that is that the IMF has come in. I met people over the weekend and in my constituency office yesterday who thought the IMF coming in was a good thing. They were relieved because they felt it would lift the burden of Fianna Fáil and the Green Party off their backs. Unfortunately, those people do not know how the IMF works. It imposes a slightly narkier version of the Fianna Fáil policy which is cutting and slashing resources to people who can least afford it, including people with disabilities who depend on this State for their survival and special needs children whose special needs assistants are being removed. They are the primary target of the IMF.
I will ask the Minister questions about the terms and conditions of the loan in a moment, because I would like to know them, and what he believes the parameters for this loan bailout should be. Is it a loan or a bailout? It is a bailout in so far as nobody else would give this Government a ha'penny. It is also a loan because every cent of it will have to be repaid long after the Minister has left office and perhaps long after many of us here, including the Minister and myself, have left political life. The children of today will still be paying for this bailout. That is beyond belief.
We have been told to behave responsibly and get a budget through. Sinn Féin want to see a budget passed as soon as possible but we want to see a budget unlike that which the Government proposes. We want to see those who can afford to pay paying their way. We do not want to see those on lower incomes being further impoverished. We believe that is the wrong way to go as it will only depress the economy further. It is the wrong tack and the Government needs to change direction. There is still time to do so. We would like to see a Sinn Féin-type budget being passed by a Government with a fresh mandate. This Government's mandate is gone. We have had this Lanigan's ball-type behaviour where the Taoiseach and the Green Party were stepping in and out yesterday, each vying with each other to get out of here as quickly as possible but then deciding they would hang on for another while. The lunacy of it was beyond belief.
We have been told by commentators and Ministers that we must behave responsibly but what does that mean? I would like the Minister to qualify that. Does it mean closing further acute hospital beds, depleting the HSE budget even further and cutting home help hours further? That is what I am interpreting as behaving responsibly. What I see as behaving responsibly is dealing with a budget which is fair and can do something about this economy and society. When we look at the budget, we should look at its impact on society. However, I do not expect that from this Government.
It is time the Green Party got on its bike and Fianna Fáil got out of here and called the general election the people so urgently want in order that my party can finally have an opportunity to make a constructive input into a real budget which will not damage society and the economy but will do the opposite, that is, strengthen society and build this economy once and for all.
Brian Hayes (Dublin South West, Fine Gael)
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I wish to share my time with Deputy Kieran O'Donnell.
I would like to take up the remark made about my party by Deputy Ó Caoláin when he suggested some issue of consistency between our statements of yesterday and today. The suggestion made by Deputy Kenny, the leader of my party, to the Taoiseach today to bring the budget date forward to next week was an utterly reasonable one. It was made in the context of trying to bring some certainty to this enormous difficulty the country faces. The tiny little brickbats Deputy Ó Caoláin threw in our direction have no validity. I find it astonishing that Sinn Féin can continue with this kind of pantomime in this House while having absolutely no difficulty involving itself in savage adjustments in Northern Ireland where it is in government. Its Minister heads the Department of Education in Northern Ireland. No new schools will be built in Northern Ireland next year because of a decision by its Minister. Consistency is something about which Deputy Ó Caoláin should not lecture anyone.
Brian Hayes (Dublin South West, Fine Gael)
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Deputy Ó Caoláin can give it but he cannot take it.
I have three questions which I ask the Minister for Finance to address. When the IMF went into Greece, the rate of interest on which the loan facility was given was 5%. The Minister must address what exactly we will pay for this package of funds. Ireland is not Greece. The scale of the economic challenge and the economic restructuring in Greece is substantially different from the scale of restructuring here. Now that the IMF has come in, it would be logical that some countenance be given to the fact that over the past two years, approximately €14 billion has been taken out of the economy and very severe adjustments have been made to public sector pay. Will that be taken into consideration when the rate of interest on which this loan facility will be given is struck? The Minister must make a statement about that.
I would interested in the Minister's comments on the bilateral loans offered by the Swedes and the British. He said that the financial assistance programme may possibly be supplemented by bilateral loans. Who exactly makes that decision? If these bilateral loans are offered by two governments to this State outside the emergency funding system the EU has put in place, surely that is a matter for this sovereign House and, ultimately, the Government to determine? Who exactly makes that call? Will the Minister clarify that because the British have made it absolutely clear that their bilateral loan facility is separate to the funds that will be made available through the emergency fund. There must be some clarity on that.
Deputy Kenny said something on Leaders' Questions which was not taken up by the Taoiseach. He suggested that Opposition parties should have access to the negotiations going on with the IMF given that whatever deal is brokered will be in effect for some years and there will be a new Government. It seems crazy that the Government does not have, as a central component of the discussions and negotiations on this package, involvement from the Opposition. I find that quite astonishing.
When the Taoiseach telephoned Deputy Kenny and Deputy Gilmore last evening, I understand the discussion was about information on the budget. There should be discussions on the bailout conditions and the terms of that memorandum. The Minister needs to address that issue.
Kieran O'Donnell (Limerick East, Fine Gael)
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I would like to deal with a number of points raised on which the Minister might provide clarification. In the context of the review being carried out by the IMF of the balance sheets of the banks, will the Minister indicate what further recapitalisation he expects the banks will require? What are the amounts involved? Will the banks require more capital and will it come in the form of extra borrowing by the State that would be put directly into the banks and would basically become part of taxpayers' borrowings?
Will the Minister give us a breakdown of the fund and the make-up between what will be banking debt and State debt or public debt - we have heard various figures mentioned - the total breakdown, the rate of interest, the period of time over which it will happen and the make-up of the funds provided by the European Commission, the IMF, Sweden and Britain and the terms of those loans?
What discussions are involved in the bank resolution scheme? We have heard that there are differences between the European Commission, the European Central Bank and the International Monetary Fund on how to deal specifically with bondholders in a banking resolution scheme. Will the Minister indicate if he is aware of those differences, how are they being manifested in negotiations and what he expects to be the outcome in terms of a bank resolution scheme? When will that be in place?
Our party leader, Deputy Enda Kenny, put various questions to the Taoiseach today about bringing forward the budget. We were told by the Taoiseach this was not possible because we are still in November and tax returns are still coming in. It should be pointed out that when Deputy Brian Lenihan became Minister for Finance, his first budget was delivered on 14 October 2008. It was a very early budget and much earlier than what was proposed today. That was the budget for 2009, so there is a precedent for introducing an early budget.
The bulk of income tax revenues for November are in and the Minister is well aware that people filing manually must pay their income tax by 31 October, and those filing through the revenue online service, ROS, must pay by 17 November, which is almost a week ago. I expect the figures to be available because of the sophistication of systems in the Revenue Commissioners. One can compliment the ROS, which has been immensely successful for collection. I expect that the figures for income tax are available to the Minister for Finance.
Brian Lenihan Jnr (Dublin West, Fianna Fail)
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What about corporation tax?
Kieran O'Donnell (Limerick East, Fine Gael)
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The bulk of the corporation tax is due today. The information for income tax should be available and there is no reason to delay the budget until 7 December. If the Government's four-year plan, which is to be published tomorrow, has the 2011 budget as the first year, can I take it that the bulk of the measures in the budget have been discussed at Cabinet level? The Minister for Communications, Energy and Natural Resources, Deputy Eamon Ryan, can clarify that. If that is the case, there is no practical reason not to bring forward the budget.
Our bond yields have gone up again today, although that is an unreal market, and share prices for banks have decreased. This is a major issue for the euro, and the European Commissioner, Ollie Rehn has stated he would like to see the budget as soon as possible. Deputy Kenny's proposal to the Taoiseach is eminently sensible and radical but it provides an opportunity for this House to show overall leadership, particularly in the case of the Taoiseach. He indicated that figures for income tax and other revenues would have to come in over the course of this month but the bulk of Irish income taxpayers are highly compliant, with the majority of funds already in.
What are the Minister's views on bringing the budget forward next week, allowing us to have discussions on legislative measures? We could provide certainty with an early election. International parties are looking at us now, wondering how Ireland can have a Government with a leader doing nothing more than implementing delaying tactics for political reasons. The stakes are much higher now but the Minister for Finance could ensure the budget is brought forward with immediate effect. The four-year plan will be published tomorrow and it is like the chicken and the egg; we cannot have the budget without the four-year plan. I await the Minister's comments on the matter.
Charlie O'Connor (Dublin South West, Fianna Fail)
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By order of the day the Minister shall now take questions.
Pat Rabbitte (Dublin South West, Labour)
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There are a few minutes left.
Charlie O'Connor (Dublin South West, Fianna Fail)
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We will now take questions.
Pat Rabbitte (Dublin South West, Labour)
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I thought we were running to 6.35 p.m.
Charlie O'Connor (Dublin South West, Fianna Fail)
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The order of the day provides that the Minister shall take questions.
Pat Rabbitte (Dublin South West, Labour)
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We are running to 6.35 p.m., according to the order of the day.
Charlie O'Connor (Dublin South West, Fianna Fail)
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I am going by the clock used by the Chair, which indicates it is now 6.35 p.m.
Kieran O'Donnell (Limerick East, Fine Gael)
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Will the Acting Chairman indulge us?
Joan Burton (Dublin West, Labour)
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With the agreement of the House-----
Charlie O'Connor (Dublin South West, Fianna Fail)
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I would not interrupt Deputy Rabbitte.
Pat Rabbitte (Dublin South West, Labour)
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I do not want to cut into the Minister's time either.
Charlie O'Connor (Dublin South West, Fianna Fail)
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I would be happy to take a question from Deputy Rabbitte first if other Members are happy to do that.
Kieran O'Donnell (Limerick East, Fine Gael)
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We have no issue with a few minutes.
Brian Lenihan Jnr (Dublin West, Fianna Fail)
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I have no issue with that either, as long as the questioning finishes at 7 p.m.
Charlie O'Connor (Dublin South West, Fianna Fail)
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I apologise for following the order.
Charlie O'Connor (Dublin South West, Fianna Fail)
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The order of the day provides that the Minister shall take questions for 20 minutes until 6.55 p.m. and will then be asked to make a statement for five minutes.
Brian Lenihan Jnr (Dublin West, Fianna Fail)
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I can waive my right to a statement.
Charlie O'Connor (Dublin South West, Fianna Fail)
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I call Deputy Rabbitte. He should not blame me for following the order of the day.
Pat Rabbitte (Dublin South West, Labour)
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I would not blame you for greater offences than that.
Kieran O'Donnell (Limerick East, Fine Gael)
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That was spoken like a true constituency colleague.
Charlie O'Connor (Dublin South West, Fianna Fail)
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The Deputy should proceed. I am in his hands.
Pat Rabbitte (Dublin South West, Labour)
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I take very seriously the injunction of the Taoiseach last night that each of us in this Chamber must take responsibility for the positions we hold, particularly as they relate to the budget. As we speak in the calm of the Chamber, there is considerable chaos outside. The television news is full of colleagues of the Minister threatening barefisted quarrel at the Fianna Fáil parliamentary party meeting and according to the national broadcaster, Ministers are at loggerheads and pointing fingers. Meanwhile, the Governor of the Central Bank has indicated that the Irish banks are for sale and NAMA has not produced the results that had been hoped for.
We are entitled to assurance from the Minister in these circumstances that there is the capacity on the Government side to pass the budget. If there are injunctions and requests for co-ordination, co-operation and responsibility on this side of the House, we are entitled to see that response from the Government. I have never seen in my days, not just in here but watching politics as a whole, such irresponsible action as I saw from the Green Party yesterday. In the current climate, the Green Party portentously telling us that it wants to pass the budget, publish the four-year plan and complete the negotiations with the IMF and EU is irreconcilable to the announcement it made thereafter. All its members had to do was keep their mouths shut until 8 December but they chose not to do so.
The Minister must give us some assurance on what he means by the "budgetary process". It is unconscionable that the Government expects this House, in the current climate and amidst the actions outside, to continue into the early spring as would be the normal timeline for drafting, publishing, scrutinising and enacting a Finance Bill. We cannot do so and we cannot put this House on an election footing over 12 or 14 weeks in the current climate. The Minister must be honest with the House about the capacity of his Department to produce a Finance Bill in the wake of a budget if it is passed in this House. Otherwise the request to the Opposition is not meaningful.
I agree with my colleague, Deputy Brian Hayes. He asked that if we accept there is to be a general election, why has the Opposition not been consulted and involved in discussions about the negotiations with the IMF and the EU? If the Government is genuinely asking for co-operation from this side, we should know what is going on, what is realistic and what can be expected in the discussions with the IMF and European Union which will set a framework for the fiscal and budgetary situation for at least the lifetime of a new Government.
Charlie O'Connor (Dublin South West, Fianna Fail)
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I invite the Minister to reply to Deputy Rabbitte's questions.
Brian Lenihan Jnr (Dublin West, Fianna Fail)
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It was my intention to take them in the first instance.
On the European authorities, which are assisted by the IMF in the negotiations, the position, as I understand it, is that it is intended to brief the Opposition parties directly later this week on the issues involved in the negotiations. That is the intention of the European authorities and IMF. I agree with Deputy Rabbitte that it is very important that the Opposition parties are put in the picture. When Commissioner Rehn visited Ireland some time ago he extended an invitation to the Opposition parties to meet him. I found it regrettable that the leaders of the Opposition parties chose not to meet the Commissioner, although I acknowledge that Deputies Burton and Noonan met him, as did, I believe, a representative of Sinn Féin. That is the position in relation to the negotiations.
On the more fundamental and very fair question Deputy Rabbitte posed regarding the political capacity of the Government to carry a budget, I am satisfied that it has such political capacity and will carry the budget. The Deputy referred to the capacity of my Department. My Department has had to work flat out in recent months and years. I have worked flat out throughout that period and have been in continuous work since last Monday week, largely at the Department. There are understandable limits to the capacity of my Department in the context of a crisis of this character.
I have noted the request of the Fine Gael Party to bring forward the budget. While I do not impugn the good faith of that request, my Department must prepare the budget. The plan, which is a plan for national recovery, will be published tomorrow and discussed in the House in the ensuing days. I hope there will be an ample debate on the plan. The process will conclude with a budget on Tuesday, 7 December.
It is important for the country that we have a comprehensive assessment of the revenues that are available to us before we introduce the budget because the revenues available have a vital bearing on the forecasts for next year, as well as being simply a matter of reconciling the figures for this year. Deputy O'Donnell is correct that there have been significant improvements in the technology for the transmission of payments to the Revenue Commissioners. However, a sizeable number of payments are received in the final days and are not fully computed at my Department until these days have elapsed.
I have attempted to address Deputy Rabbitte's more fundamental question by stating that, as a result of the meeting of the Government this morning and discussions with different Deputies, I am satisfied that the Government has the capacity to pass the budget and deal with the necessary consequential measures.
On the various consequential measures in the budget, while I do not want to anticipate my Budget Statement, a number of legislative items are always involved. In general, there is always a Social Welfare Bill and Finance Bill. I cannot rule out on this occasion that other items of essential legislation will be required to support the budgetary measures, although not all of them will necessarily be extensive in size. In addition, in any event and at all hazards - even Sinn Féin Members will agree - the Appropriation Bill must be passed before the end of the year, as otherwise there is no basis for making any payments in the State next year.
On the question of the Finance Bill, the Department is examining a number of options and I am having a number of options examined. It is important to realise, however, that the resolutions passed on budget night under the relevant statutory machinery permit the relevant taxes to be collected for a substantial period of the ensuing year.
Charlie O'Connor (Dublin South West, Fianna Fail)
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I appeal to Deputies to ask brief questions. I will endeavour to facilitate everybody.
Brian Hayes (Dublin South West, Fine Gael)
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I ask the Minister to address the interest rate which will be negotiated. When does he expect the negotiations to be concluded? I presume an essential feature of the negotiations will be determining the interest rate we will pay for the loan facility. Given that the position of Ireland is significantly better than that of Greece in respect of a large number of macroeconomic statistics, surely we should pay significantly less than the 5% interest rate paid by Greece? I ask the Minister to provide some information on this matter.
Brian Lenihan Jnr (Dublin West, Fianna Fail)
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The interest rate is a crucial part of the negotiations. Deputy Burton highlighted a very important issue in the negotiations, namely, the period for which the relevant funds will be available, in other words, the term of the funding. One of the difficulties with Greece was that the funding was very short term which will create a funding wall for the country at the end of the three year period. With regard to variable terms, for example, three year, six year or nine year money, naturally one's interest rate increases with one's term.
Joan Burton (Dublin West, Labour)
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The interest rate falls with the term because one expects the country to be solvent again in ten years.
Brian Lenihan Jnr (Dublin West, Fianna Fail)
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Short-term interest tends to be very low.
Brian Lenihan Jnr (Dublin West, Fianna Fail)
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That is true in the present circumstances. In any event, the considerations that determine the appropriate rate of interest vary enormously depending on whether it is short-term, three year, six year or nine year funding.
One must also remember that in respect of Ireland's application we are dealing with three different funds, all of which have different rules on the appropriate computation of interest on the principal sums advanced. In essence, what one will have is a blended interest rate, the computation of which will depend on the proportion one derives from each of the three funds that can be accessed under this particular arrangement.
Brian Hayes (Dublin South West, Fine Gael)
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Given that Ireland is in a different position from Greece, I assume we will pay an interest rate lower than 5%.
Brian Lenihan Jnr (Dublin West, Fianna Fail)
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I am not entering into the substance of the negotiations on this issue at this stage. I am simply pointing out that in relation to Greece an arrangement was made for three year money which was very disadvantageous for that country. We do not want such an arrangement for Ireland.
Brian Hayes (Dublin South West, Fine Gael)
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Does the Minister expect money to be provided on a term longer than three years?
Brian Lenihan Jnr (Dublin West, Fianna Fail)
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In general terms, longer-term money gives greater security. It is also important to bear in mind that Greece was facing an immediate funding wall for what I will describe as the Greek Exchequer. I am not sure if the term "Exchequer" is used in Greece. We should use "Central Fund", the term used in the Constitution. The expression "Exchequer" has survived in our financial procedures. The position in Greece was different in that respect and also to the extent that while the Greek banking system came under severe pressure - it was downgraded and had to avail of unlimited liquidity facilities from the European Central Bank during the period of the pressure - the issue of standing behind the banking system in terms of stability was not crucial in the Greek case. In the Irish case, we can see that while the Exchequer has certain short-term balances in terms of cash reserves, it also has much more substantial reserves in the pension fund. While there is considerable reserve firepower available to the Exchequer, there is the issue of putting beyond doubt in a contingent way the fact that moneys can be accessed by the Exchequer for Exchequer purposes.
I believe Deputy Burton touched on this point during her contribution in a question on when was it envisaged that Ireland would return to the bond markets. It of course is envisaged that we should be in a position to return to the bond markets if this arrangement can demonstrate both a funding capacity for Ireland and a confidence that the terms and nature of the programme are such that it assists the economy on a sustainable path. At the heart of these discussions is the question of the sustainability of the amount of borrowing involved and the interest rates applicable, which is the reason I am not at liberty at this stage to disclose matters of negotiation in that regard.
Séamus Kirk (Louth, Ceann Comhairle)
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Before calling Deputy Burton, as I will call the Minister at 6:55 p.m. to conclude and a number of Members are offering, I would appreciate co-operation.
Joan Burton (Dublin West, Labour)
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The British Chancellor of the Exchequer, George Osborne and the Swedish finance minister have indicated that they expect that their money will be available to Ireland at a rate of approximately 3%. Mr. Regling and other sources have indicated that Mr. Regling's fund essentially will be priced at 300 basis points of a penalty above the German rates. This probably means a rate of at least 5.5%. If this is three-year money, the point I was making is that this would be extremely expensive. Although a state such as Ireland normally could borrow for ten years and not encounter funding cliffs, does the Minister agree that on three-year money, our previous debt that will comes up for renewal or repayment will then go into the three year cycle? This is what is killing Greece.
Joan Burton (Dublin West, Labour)
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What negotiations is the Minister undertaking to prevent Ireland from been killed in the same fashion? Second, can the Minister confirm that the four-year plan to be published tomorrow will in effect be the letter of intent? The letter of intent is the formal application by the Government and it precedes the memorandum of understanding. Can the Minister state whether the four-year plan to be published tomorrow forms the basis or the entirety of the letter of intent to be forwarded to the three different parties that will be offering advances to Ireland?
Séamus Kirk (Louth, Ceann Comhairle)
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Before the Minister responds, I will let in two other Members briefly, because we are under time constraints. I call Deputy Morgan.
Arthur Morgan (Louth, Sinn Fein)
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Can the Minister provide Members with an indication of the level of contingency loan being considered? As the Minister is describing it as a contingency and he has stated that not all of it would be drawn down, can he at least provide Members with a percentage figure of what he envisages may be drawn down?
Kieran O'Donnell (Limerick East, Fine Gael)
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Can the Minister indicate the breakdown he anticipates between bank versus State borrowings from the fund? In addition, he might indicate the make-up of the funds from the various participants, such as Britain, Sweden, the IMF and the European Commission. Finally, with regard to the negotiations on a bank resolution scheme, the Minister might refer to his understanding on the differences between the views of the IMF and the European Union on dealing with bondholders. As Members have had a long-running discussion on this subject, he might provide clarification.
Brian Lenihan Jnr (Dublin West, Fianna Fail)
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A number of issues were raised. First, Deputy Burton raised the question regarding the funding cliff. I agree with the Deputy that this is a very important question. As I said a few moments ago, at the heart of this discussion must be our future debt dynamics and the impact of such lending on them. As for the letter of intent, the plan being published tomorrow is a four-year plan for national economic recovery. As a programme term typically is of three years' duration, there is a distinction. Nevertheless, the plan to be published tomorrow is the Government's own view on how the economic and social position can be developed with regard to growth, expenditure, taxation and fiscal controls in the next four years. Consequently, it is an assessment by the Government and there was no consultation with either the Commission or the IMF on the content of that document. However, with the leave of the Government, on the substantial completion of the document - because there were textual matters that still had to be addressed and I must attend to some textual matters when I return to my Department after this debate-----
Joan Burton (Dublin West, Labour)
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Is that the Green Party still being textually difficult?
Brian Lenihan Jnr (Dublin West, Fianna Fail)
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No, funnily not. It is just the usual textual tidying up that happens at the conclusion of the drawing up of a document. This remains to be done and I undertake to give the Opposition spokespersons a copy as early as I can tomorrow morning. However, the reason for the delay in furnishing them with copies is that much textual work went on in the document over the last 24 hours and final approval for the actual text was secured at the Cabinet meeting today. However, my point is that while the document was shown at the conclusion of the discussions to the representatives of the international organisations with the authority of the Government, it was not shown to them for the purpose of eliciting their views on any possible amendment. It is the Government's own view in respect of the four-year period.
Joan Burton (Dublin West, Labour)
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Will it be the basis of the letter of intent? That is what normally happens in other countries.
Brian Lenihan Jnr (Dublin West, Fianna Fail)
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That is a matter for the talks.
Joan Burton (Dublin West, Labour)
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So, it will in fact be the basis.
Brian Lenihan Jnr (Dublin West, Fianna Fail)
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It may well, but again the key point-----
Joan Burton (Dublin West, Labour)
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With respect, the Opposition needs to know this as it is a very important point. If this is what the Government is putting forward as the basis of a letter of intent, the Opposition needs to know this because it is being given to international bodies as a negotiating base.
Séamus Kirk (Louth, Ceann Comhairle)
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The Deputy should allow the Minister to continue because we rapidly are running out of time as only two and a half minutes remain.
Joan Burton (Dublin West, Labour)
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Sorry Ceann Comhairle, but this is an important point.
Brian Lenihan Jnr (Dublin West, Fianna Fail)
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It is an important point and I can clarify it for the Deputy quickly. It is not the formal letter of intent.
Joan Burton (Dublin West, Labour)
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No, but it is the basis of it.
Brian Lenihan Jnr (Dublin West, Fianna Fail)
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Yes, it is the basis but it is not in itself the formal letter of intent.
Deputy Morgan asked about the issue of the contingent character of the funds and Deputy O'Donnell also touched on this point when he asked for a breakdown between the different facilities. A precise breakdown between the facilities has not been agreed.
In reply to Deputy Morgan question regarding the contingent character of the funds, they are contingent in two different respects. First, in respect of the funding of the State, the funding of the sovereign and its central fund, the position of course is that the State can go to the market and raise funds. It does not need to rely on the facilities that may be agreed. That is the position with regard to the funding of the State itself. Therefore, the funds remain contingent to the extent that the State has a borrowing requirement that it can meet from funds it raises itself.
Arthur Morgan (Louth, Sinn Fein)
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That will be after two or three years.
Brian Lenihan Jnr (Dublin West, Fianna Fail)
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The State could fund itself in any event for the earlier half of next year and could return to the markets during their programme, were there sufficient market confidence, and raise funds for itself. That is the contingent character of the State funds. Moreover, the type of funds that may be required are clearly known from the size of Ireland's Exchequer deficit and projected Exchequer deficits, which will be clear in the plan to be published tomorrow.
As for the issue of the banking sector, the position is that the contingent character of the fund arises because, as the Governor pointed out last week, there is a need to demonstrate convincing firepower behind the banking system. However, the purpose of displaying that firepower, and I wish to take up an issue raised by Deputy Noonan in the debate, is not to provide liquidity funding or cash funding for the banks but to provide potential capital that can be drawn down to give them confidence. The funding cash requirements of the banks are met by the European Central Bank. This is so important in the context of the queries that we receive about deposits. Deposits are not simply guaranteed by the Government but are met by the cash support that the entire banking system obtains as part of the euro system from the European Central Bank.