Wednesday, 1 December 2010
EU-IMF Programme for Ireland and National Recovery Plan 2011-14: Statements (Resumed)
I wish to inform the House that I am circulating to Members the five documents which set out the policy conditions for the provision of financial support to Ireland by European Union member states and the International Monetary Fund. These documents underpin the three year programme of banking and economic measures on which we have now embarked. The documents are: the Memorandum of Economic and Financial Policies 2010; the Memorandum of Understanding on Specific Economic Policy Conditionality; the letters of intent to the IMF and the EU authorities; and the technical memorandum of understanding attached to the letter of intent to the IMF. These documents are not yet finalised but they are not expected to change in substance.
The memorandum on economic and fiscal policies is the foundation document of the IMF and EU elements of the programme. It sets out the reasons for the programme along with its principal policy objectives, namely, banking reorganisation, fiscal consolidation and the renewal of growth. It outlines the substantial external financial assistance to support these policy objectives. The memorandum of understanding on specific economic policy conditionality sets out the conditions for the disbursement of the assistance being provided under the European financial stabilisation mechanism, the European financial stability facility and the bilateral loans by the United Kingdom, Sweden and Denmark. This document relates to the EU element of the programme although it does refer to the IMF. The memorandum sets quarterly targets for the achievement of the specified policy objectives and requires detailed quarterly reporting in respect of the achievement of these objectives. The document closely reflects our national recovery plan. It also requires the Government to consult with the European Commission, the ECB and the IMF about the adoption of policies not consistent with this memorandum.
The technical memorandum of understanding, as its name suggests, relates in the main to the definitions and reporting for fiscal aggregates. It also requires that foreign debt arrears are not incurred. The letters of intent are Ireland's formal applications for support to the EU authorities and to the IMF. The question of whether this support programme has the status of an international agreement has been raised. I am advised by the Attorney General that the programme and these supporting documents do not represent international agreements and do not require the approval of the Dáil. I am presenting the documents to Dáil Éireann for information and to inform discussion of the programme.
Amid the sometimes hysterical and contradictory reaction to the external assistance programme, it strikes me that one quintessential point has been overlooked, namely, without this programme our ability to fund the payments to social welfare recipients, and the salaries of our nurses, doctors, teachers and gardaí would have been extraordinarily limited and highly uncertain.
Of the €67.5 billion we will receive from our European partners and the IMF, €50 billion will go to fund those vital public services over the next three years. In those circumstances, the only responsible course of action for any government would be to accept the EU-IMF financial assistance fund.
We enter this programme not as a delinquent State that has lost fiscal control. We enter it as a country funded until the middle of next year, as a State whose citizens have shown remarkable resilience and flexibility over the past two years in facing head on an economic and financial crisis the severity of which has few modern parallels. In my discussions at the euro group level, I found the understanding and acceptance of the Irish position very strong indeed. Many of our partner countries in the EU pointed to the extraordinary resilience of the Irish people and the courage and determination of the Government in tackling these problems. This is one of the reasons Sweden and the United Kingdom, particularly, were anxious to join in the assistance.
The teams with whom we negotiated acknowledged our success in stabilising our public finances and endorsed our banking strategy. This is borne out in the documents I have circulated to the House. They have also accepted our four year plan for national recovery and have built their prescribed programme around that plan. This needs to be emphasised because it shows we have the capacity to get out of our difficulties and have already made considerable progress in that respect.
Our economy is showing signs of recovery. As I reminded the House last week, 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. Conditions in the labour market are also beginning to stabilise. The outlook for next year is much improved. As forecast in the plan, growth is expected to be approximately 1.75% next year again driven by a remarkably robust export performance.
The Fine Gael leader, Deputy Kenny, referred to the European Commission's less optimistic forecasts in the Dáil yesterday which, he suggested, undermined our four year plan. He ignored the substantial upward revision of the Commission's forecast on international trade which will benefit a small open economy like ours in which growth, by common consent, will be export led.
Under the programme, we have also been given an extra year to reach the deficit target of 3% of GDP precisely to take account of the Commission's lower growth forecast. I welcome this step but it does not alter our budgetary plans as set out in the recovery plan. The target of €15 billion of adjustments by 2014 will remain but there is further room for manoeuvre in the event that growth is lower than expected.
In the later years, the Commission's growth forecasts are similar to my Department's. It is also the case that others, such as the ESRI for example, believe the Department's forecast is too pessimistic.
The programme has adopted in its entirety the measures set out in the national recovery plan as a roadmap to return our economy to sustainable growth. The adjustment of €15 billion by 2014 has been accepted, as has the breakdown of €10 billion in spending reductions and €5 billion in revenue raising measures. The details of the first €6 billion of this adjustment will be contained in the Budget Statement next Tuesday.
The programme of structural and labour market reform aimed at improving our competitiveness has also been endorsed by the programme. It sets out a detailed quarterly schedule for the achievement of the agreed measures. The negotiations on the programme, which took place over ten days, were intense and at times difficult. They were conducted under my direction and that of the Governor of the Central Bank by the most senior officials from my Department, the Central Bank and the Financial Regulator, the National Treasury Management Agency and the Office of the Attorney General.
There has been the usual barrage of criticism of the outcome, accompanied by the personal abuse of those involved that has become commonplace in our debased public discourse. None of the critics, however, can explain how we could have secured the funds we require at less cost to the State. Indeed, the arguments put forward have been patently wrong.
For example, it is claimed Ireland will pay higher interest rates than Greece even though Greece is now seeking our terms. The interest on Greek loans is 5.2% for three-year loans; Ireland's is 5.8% for loans averaging 7.5 years. A basic fact of sovereign borrowing is that the longer a country borrows money, the higher the interest rate paid. Everyone who studied the operations of the secondary bond markets in recent months must be aware of that essential and undeniable fact.
I want to clarify the position of the €85 billion funding package and its impact on our debt levels. Of the total, €50 billion is to provide the normal budget financing. In other words, it is money we would have had to borrow over the next three years in any event. The programme provides these funds at a much lower rate than currently available to us in the market. This level of funding is already included in the plan. Of the remaining €35 billion, €10 billion is for immediate additional bank recapitalisation and the remaining €25 billion as a contingency fund, only to be drawn down if required based, for example, on the results of the updated capital assessments.
The State is in the happy position of being able to contribute €17.5 billion towards the €85 billion from its own resources, including the National Pensions Reserve Fund. It can do this without prejudicing the commitments in the four year plan to use moneys from the fund for projects such as the water metering programme and retrofitting.
The European Financial Stability Mechanism is managed by the European Commission and turns on a majority vote of all EU finance Ministers. The external assistance facility is a matter for the euro group members acting unanimously. Many of them must enact legislation in their national parliaments. One crucial element of the programme which impressed our partners was the capacity of Ireland to put up money itself for this programme. That has eased the parliamentary difficulties of securing approval of these loans in other jurisdictions.
The use of the National Pensions Reserve Fund has provoked the most bewildering criticism of all from parties which, having for years fundamentally disagreed with the very existence of the fund, have now become its most ardent protectors. On this point, the arguments make absolutely no sense. Why should Ireland borrow expensively to invest in our banks when there is money in a cash deposit earning a low rate of interest? How on earth can we ask taxpayers in other countries to contribute to a financial support package while we hold a sovereign wealth fund? We have a large problem with our banks which has forced us to seek this external assistance. In these circumstances, it is surely appropriate our cash reserves be deployed to help solve that problem. We have already amended the pension fund legislation precisely to permit investment from the fund into listed banks on the Stock Exchange.
The reason we had to seek external assistance is because the problems in our banking system simply became too large for the State to handle on its own. Our public finance problems are serious but we were well on the way to solving them. The combination of the two sets of difficulties in circumstances in which the entire eurozone was under pressure was beyond our capacity. Accordingly, the programme's primary aim is to support the recovery and restructuring of our banking system.
It has been clear for some time that our banks were facing serious challenges in terms of their liquidity position. Lingering concerns in the market regarding their capital position led to negative market sentiment. This was despite the substantial transfer of the banks' riskiest loans to NAMA and the detailed capital adequacy assessment made by the Financial Regulator in the summer, as well as the significant recapitalisation measures that flowed from that.
The programme does not propose any departure from existing policy, however. Its prescription is an intensification and acceleration of the restructuring process already being undertaken for the Irish banks. A key objective is to ensure the size of the domestic banking system is proportionate to the size of the economy and is appropriately aligned with the funding capacity of the banks overall, taking into account stable sources of deposit and wholesale funding.
The programme also seeks to demonstrate the capacity of the banks to accommodate any unexpected significant further deterioration in asset quality so as to rebuild market confidence in the robustness and financial resilience of the banking system overall.
The Central Bank is requiring the banks to meet a core tier 1 capital ratio of 12% - a key measure of capital strength. If the banks cannot source it themselves, the State will inject the necessary capital. This can be drawn from the €10 billion which is available immediately from the overall programme fund. A further remaining €25 billion will be available on a contingency basis.
A detailed and extensive review of the financial status of the Irish banks was undertaken by the external authorities in advance of the agreement on the EU-IMF programme. There was a very sharp focus in this work on the results of the Central Bank's prudential capital assessment review carried out earlier this year and updated in September last.
The Governor of the Central Bank recently confirmed that the external experts had found no fault with the methodology used for this assessment.
Under the terms of the programme, the Central Bank will carry out an updated review exercise on the capital position of the banks in early 2011, based on stringent stress testing and detailed reviews of asset quality and valuation. This exercise will take into account updated assessments of the macroeconomic environment. It will ensure that over the coming years the banks' capital ratios do not fall below 10.5%. This is a high standard in international terms and it should give confidence to the markets that our banks will be in a strong financial position. This in turn will provide the necessary reassurance to allow the banks to attract greater market funding in due course.
The Government will also undertake a process of significant restructuring and right-sizing of the banks to reduce their balance sheets. In this context, all land and development loans below €20 million in Bank of Ireland and AIB will be transferred to NAMA.
Further work will be undertaken in the short-term with the banks to identify how the sector can be reorganised to ensure that we have a viable and financially strong banking system which meets the needs of the real economy and has the confidence of international markets. This strategy, developed in collaboration with the various international organisations and endorsed by them, builds on the measures adopted by the Government over the past two years to resolve these difficulties.
The programme allows for an integrated approach to the restructuring of Anglo Irish bank and Irish Nationwide Building Society, building on the proposed asset recovery bank structure to seek to maximise value from their loan books. Revised restructuring plans for the two institutions will be submitted to the European Commission in early 2011 detailing the resolution of the institutions, and in particular the arrangements for working out of assets over an extended period of time.
I would like to reiterate that all deposits held with the domestic banking system are safe and covered by the deposit protection scheme for sums up to €100,000. In addition, deposits in participating institutions under the guarantee scheme are guaranteed in line with the terms of the scheme for sums over €100,000. That scheme has been extended in national law to the end of 2011.
In recent years, there has been much commentary about the need for senior bondholders to accept their share of the burden of this crisis. I have to say that there has been far too much discussion. When those who deplore the gradual erosion of the deposit base of the Irish banking system come to reflect on it, they will see the substantial contribution that was made to that by the amount of domestic noise generated in this area.
Now that we are out of the markets, however, I raised this matter in the course of the negotiations. The unanimous view of the ECB and the Commission was, and is, that no programme would be possible if it were intended by us to dishonour senior debt. The strongly held belief among our European partners is that any move to impose burden sharing on this group of investors would have the potential to create a huge wave of further negative sentiment towards the eurozone and the banking system. That apprehension was confirmed by Professor Honohan in an interview last Monday when he said there was no enthusiasm in Europe for this course of action.
There is simply no way that this country, whose banks are so dependent on international investors, can unilaterally renege on senior bondholders against the wishes of the European Central Bank. In any country where such experiments have taken place, the central bank stands behind the affected banks throughout the resolution of the resulting crisis. Those who think we could unilaterally renege on senior bondholders against the wishes of the ECB are living in fantasy land. Worse still, those who know we cannot do so but who nonetheless persist with this line are damaging this country and its financial system, and all for the sake of a cheap headline. It is a case of politics as usual, even at this most difficult time.
The idea, which is now commonplace, that somehow there are no costs associated with default, is entirely incorrect. This country is hugely dependent on foreign direct investment. These companies have large funds and investments in Ireland and, directly and indirectly, employ a quarter of a million people in this economy. Any default on senior debt and the uncertainty that would cause would undoubtedly impact on the future investment decisions of these companies.
Subordinated debt bondholders are in a different position. As I said in my statement on 30 September, there will be significant burden sharing by junior bondholders in Irish Nationwide and Anglo Irish Bank. These two institutions had received very substantial amounts of State assistance and it was only right that this should be done.
My Department has been working with the Office of the Attorney General to draft appropriate legislation to achieve this and it is close to finalisation. Parallel to this, Anglo Irish Bank has run a buy-back operation which will offer these bondholders an exchange of new debt for old but at a discount of at least 80%. This process is still underway and will be concluded shortly. Clearly this approach will also have to be considered in other circumstances where an institution receives substantial and significant State assistance in terms of capital provided to maintain its solvency ratios. I will be in a position to announce this legislation shortly.
We need a properly functioning banking system in this country. As I have indicated in the past, we need to shift to a banking system commensurate with the economy but one that is strong and capable of meeting our needs. That has been the overriding objective of all our efforts since this crisis began two years ago. I believe the considerable funds provided by this programme will enable us to bring this crisis to an end and secure the future of that system so it can play its full role in supporting our economy.
We have been through a traumatic two years. Of course, we would have preferred to avoid resort to external assistance but we can emerge from this as a stronger and fitter economy. The attributes that brought us the boom - the quality of our workers, our entrepreneurship and our pro-business environment - all remain intact. During the boom we built a top-class transport infrastructure, sport and cultural facilities, and educational sector. In the last two years, we have won back much of the competitiveness we lost during that era.
This three-year programme will provide the basis for funding us through our current difficulties. It provides the funding to restructure and recapitalise our banking system. In addition, it will guide us through the implementation of the necessary budgetary and reform strategies set out in the national recovery plan. We have every reason to be confident about the future of this country.
Yes, but when they are finalised what legal basis will they have under the European treaties, our Constitution and in Irish law? Are they an international agreement and, if not, why not?
I thought the Minister's speech was sad. He is still going on with this challenge to the Opposition. He challenges us to advise how we are going to pay the teachers, the nurses and the gardaí if we don't take the money from Europe. He says there is no alternative and he challenges us to come u with one. That is pathetic debating society stuff. The Minister is like a person who went from dry land to a ship, then to a lifeboat and from there to a life preserver. He is now spluttering on the shore as they resuscitate him, yet he asks us to explain what we would do. It is a silly argument. We have spent the last two and a half years explaining that we would not have got into this position in the first place because we had an entirely different attitude to banking policy.
It is principally the Minister's banking policy, associated with his fiscal policy, that has destroyed this country. It has destroyed the economy along with the jobs and future of so many families. It has also brought in the IMF, the European Central Bank and the European Commission who are knocking on the door. It has sorely diminished our sovereignty. The Minister is wrong to challenge the Opposition to come up with an alternative when it is clear from the record of the House over the past three years that, on any reasonable interpretation of the Opposition policies enunciated here, we would not have got into this position. It is the most pathetic argument I have heard for a long time and it is unworthy of the Minister.
What surprises me about this situation is how rapidly it developed. I cannot understand how a Government that is doing its job could have been left in a situation where, in the words of the Minister for Justice and Law Reform,- they all got mugged by the European Central Bank over a two-week period. Since the infamous meeting of the Minister's parliamentary party in Galway, the fiscal correction jumped quickly from €3 billion to €6 billion. Meanwhile, the overall correction jumped from €7.5 billion to €15 billion. The Minister's position was then, and still is, that somehow or another it all sneaked up on him - he was mugged and got no notice of it.
The figures are astronomical. Only a few months ago the Minister was talking about a total correction of €3 billion for the forthcoming budget. Now, it will be €6 billion. What happened? We received no accurate explanation for that. Only a while ago, the banks were sailing on to prosperity, there was going to be a wall of money and credit would flow everywhere as businesses were supplied with it. Suddenly, it all went wrong. Two weeks ago, there was a suggestion from sources in Europe, such as governors of central banks and spokespersons for the European Commission, that Ireland would have to be bailed out. The Minister's colleagues in government were as surprised as the Opposition because, according to themselves, they knew absolutely nothing about this. They denied it with great regularity over one long weekend. The Minister for Justice and Law Reform, who is now retiring, said this was all fiction. The Minister for Tourism, Culture and Sport, Deputy Mary Hanafin, said there was no basis to it and a line of Cabinet colleagues went into denial. Will the Minister finally tell us, two weeks later, whether he kept it to himself? Did he not brief them? Did the Minister for Finance and the Taoiseach decide the bad news would leak from Government and that they could not tell the Green Party or their Cabinet colleagues? Worse than that, they were provided with a briefing note and let onto the airwaves to explain that everything was fine and everything will be right in the best of all possible worlds. That is what those Cabinet colleagues are saying publicly and privately. There is the small matter of collective Cabinet responsibility.
Barry Andrews (Minister of State with special responsibility for Children and Young People, Department of Health and Children; Minister of State, Department of Justice, Equality and Law Reform; Minister of State, Department of Education and Science; Dún Laoghaire, Fianna Fail)
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Are we getting lectures in disunity from Fine Gael?
If I can continue the image, Deputies will remember the sign in the western saloons, "Don't shoot the piano player, he is doing his best". Some of us may agree with that but in the past fortnight we are wondering if the Minister is doing his best because he did not share events with his colleagues.
Be that as it may, it was an appalling shock for everyone in this country to realise there was no possibility of saving ourselves through our own resources and the IMF, the European Commission and the European Central Bank were coming in. The Minister has never explained, to this House or to the public, the triggers that led to those events, what was going on in the background and how we got into this position. When negotiations came around, it was equally bizarre. There were European, IMF and Irish civil servants beavering away and doing their best but they were not under any political direction. At least, that is the position of the Minister's colleagues. They said they did not know what was going on, that the Cabinet was not making those decisions and that there were no instructions coming from Cabinet. Was it a one-man band or a two-man band or was there any band at all? Was it left totally to officials?
The deal is interesting, with some €85 billion available, €50 billion of which is for financing the day-to-day needs of Departments as described by the Minister in his introductory remarks. The profile of the three budgets to come does not add up to €50 billion but I presume there is an element of refinancing contained in the €50 billion sum as it is rolled over and refinanced. Some €35 billion is for the banks, with €10 billion going into AIB and Bank of Ireland up front and the contingency sum of €25 billion in case further black holes emerge. The Minister owes the House his view on this. Members were assured by the Minister, on the authority of the new regulator and the new Governor of the Central Bank, that AIB and Bank of Ireland were adequately capitalised. We were told tier 1 ratios were up to 8%, ahead of European norms. We had a series of European stress tests that said this was sufficient for the ongoing lending of the banks. Now the policy is to overcapitalise the banks in accordance with the old criteria. The €5 billion for each bank will amount to a tier 1 ratio of 12%, which is far beyond what we thought was necessary when we received assurances from the Minister in early autumn. Will the Minister explain what is going on?
Members in this House are aware of the flow of deposits out of the banks and we know the ECB has provided an enormous amount of money from the Irish banking system, at 1%, to maintain liquidity. However, the case has not been made by the Minister to explain why the banks must be recapitalised to the tune of 12%. It is unclear what the contingency money is for. Even though the ECB is much criticised, it continues to be committed to providing liquidity necessary for the Irish banking system at 1%, to see us through this crisis. The €35 billion in contingency money is not for liquidity purposes. The €35 billion in reserve is for further recapitalisation. What are the circumstances the Minister envisages that will require further recapitalisation above 12%, when this is at the upper end of the recapitalisation of any bank in Europe at this point? I have been talking to people on the regulatory side and they are not aware of any potential black hole. Is it all a magic trick where confidence evaporated from the Irish banking system and the money in contingency will never be used?
There is a view that the amount required for the banks is in excess of €35 billion, a view recited by independent economists. Perhaps the Minister might clarify if the €85 billion is a unified pool of money that can be used at the Government's discretion on the fiscal side or on the banking side and that it is not really divided into €35 billion and €50 billion but the sums are interchangeable if much more is needed on one side rather than the other. The interest rate is also inexplicable. Greece borrowed at 5.2%, while Ireland is working out at 5.8%. On this side of the House, it is impossible to get a straight answer to a simple question of how was this interest rate is built up. Is it calculated on the basis of the full €85 billion, including the €17.5 billion from the Irish pension funds and all resources? If it is, what interest is implied in this amount? Is it a notional 1% or a higher rate? If it is 1%, does that not suggest the money coming from elsewhere is at a much higher rate than 5.8%? I understand when everything is taken into account, including the transfer of a basket of currencies into euro, that the IMF money works out at approximately 5.5%. We cannot get an answer to the question of what interest rate is being charged on the two European funds. Is it variable, and is it really close to 7%, which one calculation would suggest? That is a composite rate of interest on a fund which is being drawn from four different sources. I want to know what is the interest rate on the European component and to what degree the Minister's negotiation with his colleagues in Europe was effective? Is it, as many people say, a punitive interest rate to teach the Irish a lesson or is it a market interest rate on funds that they will have to acquire on the open market?
What kind of resistance did the Minister put up to the use of the Irish pension fund? The fund was introduced by a predecessor of the Minister, Charlie McCreevy, at a time when the State was running surpluses. We had long debates on the matter in this House. The fund was always presented on the basis that a pension crisis would emerge around 2025 and that 20 years later there would be an unsupportable pension burden and that we needed to put money away to fund future pensions. It would not only be used to fund public service pensions but pensions payable to persons based on their PRSI payments. People were counting on that. Those who were hard working, who were fearful for their jobs, saw the fund as their safety net. They said that whatever happened in the economy an enormous pool of money was underpinning their future pensions. The fund gave the country a great sense of security. Of all the things that happened in the past week, the grab of the pension fund money to bail out an inept Government has been the biggest psychological blow to the people because that is on what they were building their hopes. They may have been wrong in the way they perceived the pension fund and that it would save their pensions in the future but the fact of the matter is that is what they thought about it, that is what they felt about it. It was very bad negotiation to pull the rug from under so many hard-working people in this country and to give the pension fund to the banks.
The banks are not very popular in this country. We are in the third year since the Minister introduced the infamous guarantee in the last days of September 2008. No file has yet gone to the Director of Public Prosecutions. I forget how many times I have said that in this House. The two investigations are ongoing. The previous time I asked a parliamentary question for written answer, approximately seven weeks ago, the Minister told me that of the 65 directors who were in the covered institutions at the time of the crisis in September 2008, some 32 are still in position. When companies go bust the norm is that the first thing one does is to take out the management team and put in a new one. As I said previously, I am not ascribing personal blame to the directors or the bank executives who were in place when the crisis occurred, but it happened on their watch.
There is such a thing as moral hazard. It starts with the individual management and board of directors and then it goes to the institutions. It is a principle of moral hazard in the context of liberal capitalism that if one behaves recklessly, one gets punished. One gets punished because one deserves to get punished and it is an example to everyone else in the system that if people behave recklessly they will be punished also. The principle of moral hazard applies not only to those who invested as shareholders and lost all their shares, as happened in Anglo Irish Bank. It also applies to those who borrowed recklessly, which has happened right across the banking system. It further applies to those who lend recklessly. The only part of moral hazard that seems not to be understood in this country is that those who lent recklessly can walk free and the taxpayers have their liabilities transferred to them. There is no work-out of the situation where the concept of moral hazard applies to the bondholders who lent recklessly and who fuelled the problem in this country by setting the country awash with cheap money.
I know that issue came up in negotiations and that there were different views among the representatives of the agencies at the other side of the table but at the end of the day the view of the European Central Bank prevailed that senior bondholders were untouchable. My view and that of my party is that if there had to be a work-out with senior bondholders it could only be done under the umbrella of the European Union. That was not the situation two years ago. Anglo Irish Bank could have been wound down. The State had no involvement in it whatsoever. It was a developer's bank. It was privately owned and underpinned by private shareholders. The State had nothing to do with it until the Minister nationalised it. Then bank debt became State debt and now there is a problem. Anglo Irish Bank is no longer a licensed bank. It is moving to a situation where it is no longer part of the Irish banking system.
I ask the Minister to set out in so far as he can in the question and answer session what restructuring will take place of the banks. This started with the banks. It was all about the banks and suddenly there is nothing about the banks. We were promised great restructuring a couple of weeks ago but there has been no announcement. We do not know exactly what is going to happen.
When the history books come to be written this rather modest, slim document will stand probably beside the treaty, the declaration of Irish neutrality in the Second World War, the decisions about joining the European Union, the issues dealing with the IRA and violence in this country, as probably one of the most important documents presented to the Dáil. It is presented on a snowy 1 December evening. Inevitably, because of the weather it has been difficult for Members to be present. True to form, the Minister has decided to sneak it in just as we approach early evening on a snowy December day.
It ill becomes the Minister not to have given it to the Opposition parties and to have allowed time for an analysis. The document is not warm from the printer so it is clear it was printed some hours ago.
The document will tie this country hand and foot to a bad deal that was negotiated on behalf of the Irish people at the weekend by a Minister who appointed as his plenipotentiaries rather anonymous senior officials in the Department of Finance with associated assistance from the Governor of the Central Bank and the head of the National Treasury Management Agency. I understand that the principals negotiating for the Minister were a small group of officials from the Department of Finance known to a few of us but I do not think known to the general public. This is on what the Minister has signed off.
For such an important document the Minister used some extraordinary phraseology in his presentation to the House. I made some quick notes on what was said but we can check the blacks later on. He said in regard to the bondholders that there was too much discussion, far too much discussion and domestic noise. The Minister is nodding in agreement.
So this is what Fianna Fáil has to say to the citizens of this country who have the temerity to discuss for the sake of themselves, their children and their grandchildren what Fianna Fáil proposes to sign off on as a non-negotiable agreement, something it hopes will serve as a straitjacket for a future Government. I do not accept Fianna Fáil's claim of too much discussion and domestic noise.
Two and a half years ago, Labour Deputies, including our leader and I, advised the House not to vote for the bank guarantee. I am sorry that other parties, such as the Green, Fine Gael and Sinn Féin parties, all voted wrongly for the bank guarantee. One reason people voted for it was that, as with today's document, it was sprung on us without an opportunity in a citizen's democracy and republic for the citizens and their representatives to read, discuss and examine its contents. Twenty minutes will not do this document justice. Several elements of it which I will briefly mention will require constitutional action. I will revert to this issue.
The Minister advocates austerity and front-loading. All of his cheerleaders among the newspapers' various columnists and all of the other advocates of austerity and front-loading told us that taking the pain now would see interest rates fall. This has been the Minister's mantra for the past few weeks but the reverse has occurred. There has been no relief in interest rates and bond spreads. On the contrary, the deal has spread the contagion to Portugal and other European countries.
Eurozone Ministers, ECOFIN, the European Central Bank and the General Affairs Council must give serious consideration to what this package will do to Ireland. This is debt deflation. As the great American economist Irving Fisher wrote at the height of the Great Depression in the United States when the Hoover Government was in charge, one could deflate an economy via debt deflation. Our economy is riddled with debt. It can be found in the banks and among many young people with large personal mortgages and many businesses that have lost trade and are unable to resource financing from the banking system.
On the night of the bank guarantee, the Minister claimed it would be the cheapest bailout in the world. This programme is the bill for that bailout. Were Ireland's fiscal deficit its only problem, we would have austerity for a couple of years and probably a change of Government to return to the type of economic management practised by my colleague, Deputy Quinn, the Labour Party's last Minister for Finance and a man who left this country with a small but important budget surplus and an economy that was growing by 1,000 jobs per week. The Minister has brought into the House a document that indicates we will be hobbled by a programme that makes no provision for economic growth.
The Labour Party advocated an adjustment of €4.5 billion. It would have been tough, but achievable. Fianna Fáil and Fine Gael have opted for a front-loading of the pain through austerity measures worth €6 billion. Speaking on behalf of the Labour Party, such front-loading is economically misconceived. Even at this point, the Government should seek to renegotiate the document and provide for growth in the economy and an orderly restructuring of the country's finances. The Minister's four attempts to fix the banks so far have ended in failure, yet here is another attempt.
I do not know whether the Minister is aware of a distinguished German commentator who is resolutely pro-European, Professor Barry Eichengreen. In the Handelsblatt, Germany's Financial Times, he wrote: "The Irish 'programme' solves exactly nothing – it simply kicks the can down the road". Kicking the can down the road for Ireland is a misconceived plan to kick the can down the road for Europe. Had the Minister been a better negotiator, he would have told our European partners that not only could they make the situation better for Ireland, they could engineer a better outcome for European economies and the European currency, which is entering an existential crisis. It does not even seem as if the Minister put this argument.
The Minister can tell us later. In the questions and answers session, will he answer all of the questions I put to the teams of international negotiators? He could outline how hard he fought for his country, a "What did you do in the war, Daddy?"
According to Professor Eichengreen, "Ireland will be transferring nearly 10% of its national income as reparations to the bondholders, year after painful year". He uses the word "reparations" because almost every German who is literate in terms of German and European history knows about the Treaty of Versailles and the notion of what reparations do to a country. As described by a conservative German commentator, we will be making reparations to bondholders for ten years. How much time have I remaining?
Most of this document deals with the arrangements in respect of the banks. There is barely a mention of the domestic economy, the more than 450,000 unemployed people or the hidden assumption in the Government's green-covered book on the four year recovery plan that 40,000 people will emigrate per year. What is the Government's expectation of the likely level of annual emigration during the period of the so-called recovery programme? The adjustments in social expenditure that have been pencilled in, worth €3 billion per year for the four year programme, cannot be achieved even with the various control measures set out in this document unless significant annual emigration is assumed. What are the document's underlying assumptions about emigration and unemployment?
We are buying Europe time to create something that will show European firepower to the bond markets. The Government claims - it suits many commentators to say it - that the remarks of the German Chancellor, Angela Merkel, less than two weeks ago about bondholders bearing responsibility in future caused the current wave of unrest and the attack on those European countries that are perceived to be weak. I do not agree, given the way in which the Irish crisis was approached and the many assertions by the Minister and the Government that Ireland was turning a corner. That turning of the corner never came. As a consequence, even among eurosceptics who were sceptical both about the euro and the capacity of countries such as Ireland to survive these adjustments, the Minister's continuous avowals that we were turning a corner mean that Ireland has relatively little credibility. Mrs. Merkel's comments, therefore, were perfectly justifiable, in my view. The bondholders are basically saying that in the new structures of European or world capitalism-----
-----there should be no risk for bondholders. Capitalism, actually, is about the allocation of capital. That is where it gets its name, and the allocation of capital is never a risk-free project. We know pension funds, for instance, want a high degree of security and high levels of information. Clearly, what happened in Ireland as regards our banks has come as a terrible shock, not just to us but to them too because the regulation system set up by the Minister's predecessor, former Deputy Charlie McCreevy and overseen by Deputy Brian Cowen as Minister for Finance, failed miserably and hopelessly. Added to that Fianna Fáil's crony bankers and developers along with the former tax breaks introduced by former Minister for Finance, Charlie McCreevy for the construction industry all helped to create a bubble. The European Union obviously did not have the policy instruments to provide oversight in an adequate manner, and the regulators in Ireland failed miserably. I do not know what they were doing, but that is for another day. That is why Ireland has lost its reputation.
The Minister is now saying that in terms of debt deflation, we can grow the economy and take this level of debt burden while having this savage deflation. Like Fine Gael, the Labour Party obviously met the teams. It seemed to me to some degree that the IMF was playing soft cop, but I believe it has learned from its experience in Latin America and Africa - in particular relating to democratic stability - by having austerity programmes that are too great for countries to bear. The IMF recently published very detailed research by Barry Eichengreen, which showed it could not find any examples of countries that have been able to successfully endure the type of inflation the Minister proposes to introduce next Tuesday in his budget and actually get back to recovery.
There is a question to be answered here. Clearly, we have a Government that is really exhausted, but has Europe reached its limit? Leadership from the European Union can provide a better way. Europe has the resources and our colleague in the Socialist group in the European Parliament, the head of the Party of European Socialists, Mr. Paul Rasmussen, at the start of the crisis more than two years ago put forward a proposal to effectively have eurobonds, where weaker European member states could have a mechanism for borrowing. The more conservative minded in the European People's Party and the Liberals to which Fianna Fáil is aligned have yet to be persuaded of the merits of this, but I understand they might be coming around to it. However, there are solutions to the problem. What Europe needs is a Rooseveltian New Deal outlook for countries that are troubled, as opposed to the Hoover Administration approach that the Minister and his counterparts in Europe, unfortunately, seem to be fixed on at the moment.
Will the Minister say what is the future of the AIB rights issue and whether he is still going ahead with it? What is the story on the closure of Anglo? I am told Anglo wants to change its name, but wants to keep the words "Irish" and "Bank". Here is a puzzle for after the Christmas pudding: What is a three-letter, or perhaps it is more-----
Yes, it could be the Galway tent bank. What shall we call it?
I also want to ask the Minister as well about recent court cases in relation to Anglo, featuring a senior executive of the bank who is in the newspapers this week, indebted for up to €50 million, perhaps, they suggest. The bank was still advancing loans to that particular individual and to developments he was involved in, several months after the bank guarantee was introduced.
In terms of dealing with the bondholders, this is the type of default mechanism that many people are talking about. In this regard the Minister has to take his courage in his hands. All the references he made in his speech to not seeking any sacrifice from the bondholders add up to a very serious mistake. He wants to introduce a fiscal stability law with fixed fiscal targets. We have taken legal advice because of course this came up before the finance committee. I understand that such a fiscal stability law as envisaged in this programme is not achievable without a constitutional referendum. I do not see any chance of people in Ireland voting for a constitutional referendum on a fiscal stability law some time in the middle of next year, in the detailed programme.
We had it researched by the Labour Party. I am glad the Deputies opposite find it funny because I find today rather sad when we see the details of what ordinary Irish people are to endure and to suffer. I want to draw attention in particular to table 1 on page 33 and the subsequent table, which I find frightening, in terms of the conditions they impose on Ireland.
At the outset, I am half afraid to speak in critical terms of this proposal from the Government lest I incur the wrath of the Minister for Finance and his colleagues in Cabinet, although perhaps such fear is unnecessary because they were a complete roll-over for the IMF-ECB group of negotiators. I should have no concern, really.
Why is the Government pursuing this crazy loan bailout business at all, when it must know we simply cannot afford to repay it? We simply do not have the economic base in the State to be able to create the type of revenue necessary to repay this loan. Surely that is a fact of life, and our negotiators should have gone in with that information, and pressed it home to those with whom they were dealing.
This is really about saving the euro, I believe, as far as the Government and the ECB are concerned. However, from where Sinn Féin is coming it is also about the people of this State who are struggling, some of them in jobs, or unemployed and many more of them to be made unemployed shortly, I am afraid. It is about those people who are being required to pony up for the speculation the bondholders took, mainly in Anglo Irish Bank, but in the other banks as well, at a time when the Minister should know this country simply cannot afford to make those repayments. People currently cannot afford to pay their mortgages which themselves are grossly excessive because of the greed of speculators who in turn were cheered on by the Government and bankers. These people simply cannot afford to repay these loans.
Let us be clear, the cheap and easy credit pouring into this State came in under the nose of the European Central Bank, which, in my view, makes the ECB at least as culpable as the lack of regulation in this State. The Sinn Féin delegation told this to the ECB, IMF and Commission representatives when they met with them last week. They had no answer for us because they were at least as culpable for this mess as was the political misdirection of this State and our lack of proper regulation in this area.
Copies of the memorandum of understanding have just been circulated. It is difficult at a couple of minute's notice to give a substantial response to it. However, we already know some of what is contained therein. The Minister is going after easy pickings, namely, the minimum wage and VAT. Two years ago, the Minister for Finance increased the VAT rate by 0.5%, which resulted in businesses, in the retail sector in particular, within a 40 mile radius south of the Border being almost wiped out. The Minister now proposes to increase VAT by 2% during the course of the four year plan.
Watch this space and see what will happen. In any event, it is a regressive measure irrespective of what the British do. The Minister knows better than most that it is the families on low incomes that will pay a higher percentage of their income as a result of what will happen in respect of VAT. The percentage rate of 5.83% in respect of the EU-IMF loan amounts, in my view, to backstreet money lending, which is completely unacceptable.
The Taoiseach stated yesterday: "This country needs this package at this time. We believe we have brought forward a package which will serve this country well." Does the Taoiseach really believe that or is he just playing politics and games? Is he for real? This State simply cannot afford to repay that loan. The Taoiseach's comments are in my view another of those comments such as "the cheapest bailout in the world". The Taoiseach and the Minister will be coming back to revisit the Taoiseach's comments yesterday. The Minister for the Environment, Heritage and Local Government, Deputy John Gormley, shared some information with us yesterday afternoon in his contribution. He told us that the satellite vans had gone from here and were on their way to Portugal and Spain. That was useful information. Why have they gone to Portugal and Spain? They have gone there because they know, as do the markets, that what is proposed in this document will not work.
This project by the Government and its EU masters - I believe they are masters more than partners - seeks to appease the markets with notions that will not work. I accept that action is needed. What was also needed was hard nosed negotiation. I am not speaking about or being critical of the public servants involved in the negotiations, rather I am speaking about the political leadership involved, which amounted to sending in a bunch of kittens to be mauled by a German shepherd. We should not have sent in kittens, rather we should have had a properly thought out policy in regard to how to take on these negotiations. At the heart of these negotiations is the euro currency. We had aces to play in this regard but the Government chose not to hard ball it. It preferred to simply roll over and go along with it, all the while knowing that our economy could not afford to repay this loan.
I accept we need support but the fundamental question that will have to be answered in the future is whether we have received support from our friends in Europe or our masters in Europe. We should have given Allied Irish Banks and Bank of Ireland bondholders an opportunity to negotiate a deal and to put their spreads over a significantly longer period with them taking up a huge chunk of the tab. If they chose not to do so, I would have advocated burning them by reconfiguring their payments into the never-never. I believe that is reasonable because that is the "market". These people took a punt. They have already made substantial gains from investments in the Irish market and elsewhere. I wonder where the question of moral hazard comes in. The consequences of the approach by the EU and the Irish Government is that no bank bondholder will fail. What will be the consequences of this in terms of how those bondholders behave in the future? This indicates to them that they can do what they like, that they can again give out money like crazy, thus creating another cycle of the mess we are now in for some future generation, be it in Ireland or elsewhere. What is happening here by way of policy in this regard is not acceptable. It is scandalous.
The Taoiseach also told us yesterday that we need to have the markets accept that what we are doing will work. The markets know this will not work. That is the reason the satellite vans, as referred to by the Minister, Deputy Gormley, have gone to Lisbon and Madrid. If this had any possibility of working those satellite vans would have returned to their stations. What the Government is doing, by way of this approach, is preparing the ground for more difficulties. There is no incentive to deal with the real problem. We all know the genesis of the problem, namely, that the Government became completely over-dependent on consumption taxes, including VAT, stamp duty and so on. The Government was happy when that cash was flowing into the Exchequer because it made Government look good. The speculators were happy because they were making fortunes and still have them. The banks, with their easy credit, were also happy. We all know that the senior bankers are not worried about this. They have gone off with huge pensions and bonuses, unlike their victims, the public. The public fell for it and went for the easy credit because they thought the good times would last forever, which was the message put out from the political leadership. The current Taoiseach was the Minister for Finance all through this period. Is it any wonder, when one looks at that whole context, that our negotiations were such a push over for the institutions.
The Minister referred in his contribution to the national recovery plan projections. Let us measure them against the figures which Commissioner Rehn's office came up with the day after the EU-IMF bailout was signed. The figures apply in respect of the two year period 2011 to 2012. The Government is projecting a 5% growth in GDP. The EU speaks of growth of 2.8%, which is almost half that projected by the Government. In respect of GNP, the Government has predicted 3.5% growth while the EU states the percentage in this respect is 0%. We then come to GNI, which is GNP plus the transfers from the EU. When one takes away those transfers and the GDP, growth, according to the EU forecast will be negative.
In relation to consumer spending, the Government is predicting a 1% increase. The EU figure in this regard is -2.8%. On investment, the Government figure in this regard is -0.7% while the EU figure is -10%. The Minister for Finance was critical of the Fine Gael leader referring yesterday to these figures. I believe Deputy Kenny was right to put these figures on the record.
It is worth doing so again as it might highlight for the Minister of Finance and his colleagues how negative are these figures. The Government is projecting an increase in employment of 18,500 while the EU projects a decrease of 4,000. Many of those who are coming off the live register are aged under 25 and they are emigrating because emigration is now a central plank of Government policy. Now that the pension fund has been given away, who will be left to pay the pensions needed in the future? That is a problem we are facing. How can a tiny, open economy service the debts run up by private banks whose bad debts are allied to those of the State? How can the State grow its way out of this debt when the Government is cutting the economy to death and using the reserve fund, not for investment or job creation, but for bank bailouts? Ireland now faces an enormous debt load, made worse by deflation and stagnation. That is where the Government is at.
The State still has options. We can burn the bondholders in Anglo Irish Bank and people should know they deserve to be burned. We can offer the bondholders in AIB and Bank of Ireland hugely discounted rates to go away before the banks are fully nationalised and if they do not accept that, we can burn them too. This is a market solution to a market problem. This is bank debt, not Government or sovereign debt. The banking guarantee must be immediately abolished and only the guarantee for depositors must remain. This will show international markets we are serious about protecting our citizens and rebuilding our economy.
The Minister stated:
Our public finance problems are serious but we were well on the way to solving them. The combination of the two sets of difficulties in circumstances where the entire eurozone was under pressure was beyond our capacity.
I agree with those comments but I completely disagree with him regarding the solution. He has taken the wrong option and, more than two years on from the emergence of the crisis, the Government is still looking in the wrong direction.
When Sinn Féin supported the bank guarantee scheme in September 2008, it was on foot of private briefings by the Minister and information given to the House that there was a liquidity and not a solvency issue. On foot of those undertakings, we supported the scheme. As Deputy Burton said earlier, had we been given the real information and documentation, which we should have insisted on, it probably would not have saved the day. The banks were throwing all sorts of information at the Government and it would not have solved anything.
The Minister for the Environment, Heritage and Local Government said in the House yesterday that he has had sleepless nights and he referred to how difficult it is for him in the "asylum", as he described Government Buildings. If I had a violin, I would have tried to play a tune or two to see if that would get him to nod off. Perhaps he gets a nap during the day but I almost felt sorry for him until all the families who are having sleepless nights and whose homes are about to be repossessed and all the people who are struggling to feed their children and making decisions on whether they should buy bread or milk came to mind. I am sure all Deputies meet these people, as my constituency office in Louth is in no way unique. We hear Ministers are under pressure but at least they have a job and a salary for the moment and they will have a pension on which they will live comfortably when they leave office. The victims of this Government who are suffering at the coal face will not have substantial ministerial pensions.
The Ministers for Finance and Environment, Heritage and Local Government have both said we need the bailout to pay the salaries of nurses, doctors and gardaí. There are way fewer of them than there has been and they have been fleeced by the pension and income levies imposed on public servants.
The Minister did not outline his negotiating strategy but I hope he can share it with us when he concludes the debate. Did he have any red lines or bottom lines? Did he decide to put it up to the institutions about the euro? Did he threaten to go it alone with a default, given the consequences of that for Europe? I do not believe a hard nosed negotiation took place. The Government simply rolled over and left them to it. A huge opportunity was missed.
I refer to the consequences of what has happened. The live register figures were published earlier. The number on the register has reduced and the Government parties are clapping themselves on the back but the reduction is down to emigration. If not, from where are the jobs coming? The Minister for Community, Rural and Gaeltacht Affairs is indicating this is not all down to emigration. No employment is being created.
In the Government's statement last Sunday night, the Taoiseach said, "The State's contribution to the €85 billion facility will be €17.5 billion, which will come from the National Pension Reserve Fund and other domestic resources". This means external assistance will amount to €67.5 billion. Is this to be a consolation? The NPRF will be effectively liquidated. Should its title be changed to the national bank pension reserve fund? There is still time for Government backbenchers and Ministers to change their minds. I hope somebody will have a serious look at this. Perhaps if the pressure on the Minister for the Environment, Heritage and Local Government is maintained for another day or two, he may get sense and say this should not be the legacy of the Green Party's time in government. Surely it can come away with better than this. If it cannot give political leadership, rather than agree to this bailout, it should step aside and let in people with the steel and backbone to negotiate a better deal for the public and to develop better policies on their behalf. It should step aside, let us go to the country and let the people decide on a real Government with a fresh mandate to sort out these matters for once and for all.
Táim buíoch as an deis labhairt tráthnóna faoin ábhar tábhachtach seo. Agus sinn ag tabhairt aghaidh ar na dúshláin éagsúla atá romhainn, ní foláir thar aon rud eile dóchas a bheith againn. Ach ní féidir dóchas a bheith againn gan cinnteacht a bheith againn. Is dóigh liom go dtugann an comhaontú lenár bpáirtnéirí Eorpacha agus an IMF an chinnteacht sin dúinn. Bheadh sé tubaisteach dá ngéillimis anois don éadóchas agus don dtuairmíocht mhístuama nach bhfuil aon teacht aniar i ndán dúinn. Ní dóigh liom gur dual don Éireannach géilleadh mar sin. Is daoine cróga, ábalta agus bródúil sinn. Tiocfaimid slán as an ngéarcheím ina bhfuilfimid faoi láthair. Chonaic mé seanráiteas ó Aodh Mór Ó Neill i nuachtán an tseachtain seo caite, "beidh lá geal gréine go fóill in Eirinn". B'fhéidir go bhfuil sé deacair é a shamhlú tráthnóna, agus an sneachta ag titim go tiubh, ach credim go mbeidh lá geal gréine go fóill in Éirinn.
Since the onset of the global economic crisis we have, as a Government, had to take difficult but necessary decisions in the face of unprecedented challenges. More recently, continuing uncertainty in the markets, particularly about our banking sector, has led to a situation where the cost of new borrowing is not affordable. While we are funded until the middle of next year, as John Maynard Keynes said, '"the market can stay irrational for longer than you can stay liquid'. We have no way of knowing whether borrowing costs will come down to a reasonable level in the new year and we cannot afford to take a risk if we want to ensure the continuation of key public services. That is why we have agreed a three-year programme with our EU partners and the IMF; to ensure Ireland will have access to borrowing to fund social welfare payments, our health service and our education system. The deal was the best available for Ireland and will give us cheaper access to money we would have had to borrow in any case.
This is the reality of our current situation. These are the facts and no amount of wishful thinking or political posturing will alter those facts. The uncertainty, which was borne out of broader market conditions, had to be addressed and we have addressed it in conjunction with our European colleagues and with the IMF. The agreement we have reached will put an end to that uncertainty and allow us to begin restoring confidence in our banking system. Other speakers have taken issue with the agreement. I believe those arguments are sincere, but I also believe that what has been achieved is the best that could have been achieved in the circumstances.
The certainty that this agreement brings will allow us to continue our focus on the development of our real economy, which is showing real signs of recovery and offering a real cause for hope. For example, exports are growing and manufacturing has improved in eight of the past nine months. Figures announced today show that redundancy claims for the first 11 months of the year show a drop of 16,970, or 23%. This is further evidence that the labour market is stabilizing. Today's live register figures show the biggest November fall since 1999. These are some of the important yardsticks we use to measure the strength of our real economy and they are showing signs of real improvement. While people are justifiably concerned and angry at our current situation, this is not a time for trying to make political capital out of that concern. Defeatism will get us nowhere. Alarmism will get us nowhere.
This is not a time for painting apocalyptic scenarios, for theatrics or for engaging in scaremongering. Neither is it a time for presenting unrealistic propositions as realistic alternatives in the hope that an easy soundbite will become a cheap headline.
It is easy to make fine speeches about what we could do, or angry speeches about what we should have done. This was the best deal available to Ireland and to the people of Ireland. We did what we had to do. We did what we had to do in order to bring certainty to our economic situation. We did what we had to do to ensure we can go on paying for our public services. We did what we had to do to bring stability to our banks, and we did what we had to do so that we can continue to build on the foundations of recovery in our economy, to create jobs and to return to sustainable economic growth.
We need the certainty that this deal brings because it is futile to talk about hope without first having that certainty. We could not afford to take the risks involved in some of the so-called alternatives to this agreement being offered in some quarters. Now that we have the clarity that this agreement brings, we cannot afford to lose sight of the underlying strengths of our economy and of the great strengths of the Irish people. We accept that people are concerned and that the path ahead will be painful for all, but I do not accept what we are constantly hearing about a despairing people, crippled by shame. Unfortunately, this false narrative of a broken people in a broken country dominates much of our current discourse. It is doing damage to our economic prospects and our standing globally. I do not for a minute accept that this narrative reflects the mood of the Irish people or the determination of the Irish people to work at overcoming our current difficulties.
We are a resilient people, a proud people and a resourceful people. We will fight back as we have done before. We have a responsibility to each other and to future generations to work together to overcome our current difficulties, to build on our economic strengths and our strengths as a nation. We can have our political arguments on another day and the people will have their say on another day, but this responsibility goes beyond any personal interest or political belief. Of course people are suffering and of course people are looking for certainty and hope, but they do not want hope in the abstract. They want hope that is backed up by clear and constructive policies.
This agreement with our EU partners consolidates and accelerates the policies we have pursued as a Government in the past two years. The agreement and the negotiations that led to it were based on the credibility of our national plan for recovery. This programme will guarantee that the State has secure access to the funding it needs. As Governor Honohan has said, it will give us the time we need; the time we need to stabilise our finances and the time we need to build confidence in our banks so they can meet the needs of our economy.
We can and we will emerge from our current problems. Níor chaill fear an mhisnigh riamh é. Mar a dúirt mé ar dtús, a Chathaoirligh, beidh lá geal gréine go fóill in Éireann.
I have listened carefully to the debate on the plan for recovery and the agreement reached with our European partners, the IMF and with countries who are giving us bilateral assistance. It is relatively easy to cast alternative scenarios, including the regular call to burn the bondholders. I have to say that burning the bondholders seems to me, as someone who is not versed in economics, to be very similar to what unscrupulous employers might do when they realise they are in difficulties, where they simply close shop and turn their backs on their responsibilities to their creditors and to their employees. That simply was not an option. Whatever ideological views we might have on this, it is verging on the irresponsible for us to perpetuate the myth that this option does not have any consequences.
The debate has been useful at a critical time in the life of our country. However, we would be less than fair to the nation and to ourselves as parliamentarians if we tried to hide any of the realities out there. From the very beginning of this crisis, the Government has acted in good faith, put the good of the country and the best interests of its people to the forefront. While the next three to five years will be difficult, I have no doubt we will come through this and we will emerge as an even stronger people.
One of the privileges I have had as Minister in this Department is to be able to interact with some of the 24,000 community groups the length and breadth of this country, all of which are working tooth and nail to ensure Ireland is a more vibrant, resilient and richer place at the end of this crisis. With the increase in the number of people who are out there looking after their neighbours and helping each other, such strength will stand to us in the years ahead and we will emerge a much stronger and more resilient and vibrant people.
There is no bank resolution in this deal. There is no bottom line. There is more money for Ireland to borrow to throw at the banks. Where is the bank resolution? Where is the final place of rest for this problem? The people have been asked to shoulder more and more debt without any sight of an end, other than platitudes from a Government and the Minister. For the past two years, he has told us we will make money out of this, that it will be the cheapest bank rescue ever, that it will cost only €4 billion, that it will cost €16 billion, that it might cost €30 billion, and that it now stands at €50 billion. Where does it end? We have our sovereign debt and we must honour that.
I put it to the Minister that we have created a moral hazard. We have created a situation in which investors have lost all their money and borrowers find themselves in negative equity but those who engaged in reckless lending and who lent to them, both here and abroad, walk away scot-free, carry none of the burden and share none of the hurt. This is acceptable neither to me nor to the ordinary people, who had no hand, act or part in this mess, which was presided over by the Government through lack of regulation. These are the facts. The Minister of State, Deputy Peter Power, may wish to nod, shake his head or spin as much as he wishes but that will not change the facts.
What else is wrong in this regard? I note that it appears to be perfectly all right for Angela Merkel to indicate that bondholders should be negotiated with. Furthermore, it appears quite clear that under the draft Basel agreement for banks currently under discussion, in future bondholders will be negotiated with. Consequently, I do not see a reason for Ireland to take on this full burden itself. Moreover, I dislike the phrase, "burning the bondholders", because that predetermines the outcome of negotiations.
This memorandum of agreement, on which the Government refused to allow the people to vote and on which it refused to allow this Parliament to vote on their behalf, fails because of the absence of bank resolution and the lack of a growth plan. Moreover, the Government's own growth figures that were included already have been contradicted by the IMF and the European Union as being utterly unrealistic. They are utterly unrealistic because neither a growth package nor a jobs stimulus package was included. However, worst of all, the Government has saddled the people with what many consider to be a penal rate of interest. It certainly is a highly punishing rate that means that by 2013, we could be paying as much as €11 billion in interest payments. I believe the Government has been inept in this regard and put out the wrong people to negotiate. Moreover, I fail to understand how it could allow its negotiators to throw their hats into the ring at 4 p.m. when the opposition - which is how one must look at it when in negotiations - had a deadline of 7 a.m. the following morning with the markets. Why were they not held there until 6.57 a.m. to extract what should have been a much better deal than we got?
This morning I asked the Taoiseach whether there was any inference for Ireland, given that Greece now has been given the same deal as us, even though everyone is familiar with the problems the Greeks had with their annual reporting. Have Members become too busy in being good Europeans instead of remembering that their first duty is to be good Irish men and women and to stand by the people and the Republic? The Minister, Deputy Pat Carey, was correct when he suggested that we will come through this. While we will come through this, it will not be because of the Government but because of the people themselves, who have shown they have the energy, enthusiasm and innovation to get through this. However, this will be achieved much quicker with new leadership and a new Government that speaks to and for the people and that listens to the people. If Members opposite truly wish to put the interests of Ireland first, this evening they will support the motion that Fine Gael has tabled. They will allow for all the attendant legislation pertaining to the budget to be dealt with before Christmas, thereby affording a clean slate going into January and offering the people new hope and a new dawn.
Dúirt an tAire go dtiocfadh an lá geal gréine agus an lá go mbeadh buarthaí na tíre seo thart, ach ní thiocfaidh sé go dtí go ndíbreofar an Rialtas seo as oifig. Is ansin a bheidh an breacadh nó fáinne geal an lae againn, nuair a bheidh lucht Fhianna Fáil imithe as Rialtas, do chum glóire Dé agus onóra na hÉireann. Caithfidh sin a tharlú chomh luath agus is féidir. Beidh toghchán ginearálta againn sar i bhfad chun sin a chur i gcrích.
The time is here and the time is now for change. This country obviously needs a change of Government, as well as a new dawn to which the Minister referred. However, it should be a dawn that is without the soldiers of destiny and without the legacy they have left behind. It is the most appalling legacy ever in the history of this State. This is best measured by a press conference that was held after the Government press conference last week. It was held in Government Buildings in the heart of the Department of the Taoiseach, right under his office, but it was the IMF that was holding forth. This is a sign of who Fianna Fáil has left running this country at present. The IMF and the European Central Bank are dictating policy to us in respect of things that will and must happen. Not alone are they dictating this from the heart of the Taoiseach's office but they also will inspect the Government's homework on a three-monthly basis. Every quarter, the progress that has or has not been made on their terms - not on the Government's - will be decided and depending on what that might be, I presume there will be changes under the memorandum of understanding. For instance, there could be changes in our interest rate and they will be dictating to us once again.
Most of all, this country desires change and reform and hope. The only way to get hope is by having a change of Government and by having new policies, new Ministers and new parties in government that will bring about such change. In the dying days of the Government, one must put behind one the fact that the Government's day is done and its race is run. It now is time for a new Government to come into being. Members on this side of the House must articulate the policies and changes they seek and to offer that hope, change and reform that is so badly needed.
In respect of education, if there is to be a future for the citizens or hope for change for the future, it will be with young people. Such hope must reside in how the education given to them may be improved and how they can be made more fit for the new jobs that will come down the road. This will not be easy because many of our young people will be obliged to leave our shores because of the lack of employment opportunities at present. Nevertheless, it is an appalling disgrace that the Tánaiste and Minister for Education and Skills today is returning €5 million out of the FÁS apprenticeship course budget that she was unable to spend. I refer to money that should be spent on retraining or to help the 7,000 apprentices who are unable to qualify because of the absence of jobs and places for them to train. In respect of education and training, the Minister of State, Deputy Haughey, is aware that approximately 180,000 citizens require upgrading from FETAC level 3 to FETAC levels 4 or 5. However, €22 million in total is being returned from the FÁS budget and will be spent elsewhere this year because the Government has failed to deliver training to the unemployed and has failed to deliver a new future to the aforementioned 7,000 apprentices who are without work and qualifications.
Moreover, the Government no longer is looking forward and most of its members are looking backwards. Last night witnessed the sad saga of Deputy Gormley talking about his sleepless nights. At least he has a bed in which to sleep, a car to pick him up and a job to go to even if he will become unemployed shortly. The point is that hundreds of thousands of people do not have those comforts but endure the same sleepless nights. The only hope one can give and the only change on can make is a general election and a new Government. When that comes, the changes that are needed will take place. An bhfuil mórán ama fágtha agam?
Part of this debate has been conducted as though, were the arrangement with the European institutions and the IMF not to be entered into, Ireland could operate without any borrowing whatsoever. Some of those who appear to put forward this idea simultaneously appear to operate as though it would be possible to operate exactly as we do at present, with borrowings of approximately €18 billion per annum. We need to establish clearly what are the exact parameters. One of the parameters, of course, is that if we were not accessing this funding from the European institutions and the IMF, we would be accessing it in the markets. An element of this discussion has centred on the interest rate we are paying for this facility. Those who have been talking about such matters forget that the last time Ireland went to the market - last September - eight-year money was costing just over 6%. In fact, the entire borrowing in this deal, which is for an average duration of seven and a half years, costs an average of 5.83%. It is cheaper than the last time Ireland went to the market to borrow money for a commensurate length. That point about the interest rate should be noted. At that point, which was in September, there were no complaints about the rate of interest on our borrowings. In fact, there were few enough complaints about the fact that we were borrowing to the extent we were.
I am sure the Deputy will have an opportunity to speak eventually. When we were still in the market, we were paying more in interest to borrow money for approximately the same length of time. We are no longer in the market. We have entered into a programme for a period of years. It allows us to stay out of the market, in the first instance. It also gives us an opportunity to re-enter the market when conditions settle. At that time, we will be able to avail of a cheaper interest rate. It is important to bear in mind that as a country, we need to have a range of borrowings in order to be able to do business in the way we do. Some borrowings are over a relatively short period of time, perhaps three years. Other borrowings are over a much longer timeframe, perhaps nine or ten years.
Many people choose to ignore the fact that if we were to continue to borrow €18 billion per annum, we would have to do so in the open market at an interest rate of 9% or 10%. It would be entirely unaffordable for the country to enter into such a long-term commitment. It is important that we look at the four year plan, the borrowing requirement and the availability of money under the facility in those terms. If one considers those factors in an objective manner, one will agree that the interest rate is better than it was the last time we were in the market for borrowing of the same duration.
Deputies on most sides of the House agree that the four year plan sets out a programme that is difficult but attainable. It is difficult because a gap of approximately €18 billion has developed between the State's income and the cost of the services the State provides. It is clear that such an unsustainable gap has to be reduced. We are reducing it by €6 billion, which is a big chunk, by making this year's alteration, the details of which will be made available next Tuesday. I do not doubt that they will be debated at length before they are voted on. That element of the programme will be dealt with in such a manner. Lesser amounts will have to be dealt with in each of the following three years. One of the elements of the programme is that an additional year is available. If the 3% target is not reached - I think it will be - we can take another year to reach it. That is another advantage of the manner in which the programme has been laid out and the opportunities presented by it.
When Deputy O'Dowd was talking, I was reminded of the comment of the US satirist, P.J. O'Rourke, that a country cannot vote itself richer. He said a lot of other interesting things, not all of which I would choose to quote. The over-concentration on the idea that an election will sort everything will present enormous difficulties for the parties that will be on the Government side of the House after we go to the polls. Before I let in my colleague, Deputy Fahey, I want to mention that last night I went into some of the problems I see being created. I made the point that there is a particular onus on people in this House. It is different from the onus on commentators and others. We should give some thought to that.
I thank the Minister of State, Deputy Killeen, for sharing his time with me. Both main Opposition parties have opposed every measure this Government has taken to tackle the financial crisis. Our efforts have been endorsed by the European Commission, the European Central Bank, the International Monetary Fund and the Organisation for Economic Co-operation and Development. Neither Fine Gael nor the Labour Party has offered a credible alternative banking strategy. Fine Gael's plan for a national investment bank seems to have been dropped since Deputy Noonan returned to that party's Front Bench, as has the NewERA policy. Similarly, the Labour Party's policy plan to establish a strategic investment bank has not been endorsed by any international bodies or commentators.
Perhaps Deputy Rabbitte can state whether the strategic investment bank proposal has been examined by the European Central Bank, the European Commission or any other body. As far as I am aware, nobody has endorsed the idea.
The Labour Party has suggested that it can take €2 billion from the National Pensions Reserve Fund, in the present economic climate, before going to the market to raise another €18 billion. It is the most ridiculous idea that has been proposed in this House for a long time. I ask Deputy Rabbitte and his colleagues to spell out where they will borrow the €18 billion that is the cornerstone of their economic policies. In the past week, both parties have been completely disingenuous when talking about the terms of the EU-IMF assistance. The idea that things in this country will magically improve overnight if the Labour Party and Fine Gael get into government is not credible. They know, as I know, that there is no magic solution to our economic woes. It would be fairer on the electorate if they made that clear at this stage. If the Labour Party intends to raise half the moneys needed in taxation, that clearly must mean a significant property tax for the middle classes in this country. I was shown an advertisement recently that purported to be from a political party that intends to introduce a property tax, but cannot say so yet. It ended with the words "Vote Labour". That is the kind of magic myth the Labour Party is portraying in society at the moment. That is the kind of con job in which the Labour Party is involved. It will do the greatest U-turn that has ever been done-----
We have spelt out our plan. We await with interest the Labour Party's plan. The reality is that the middle classes of this country will get a hell of a gonc when they see the way the Labour Party intends to tax them out of existence.
I think it was in the beginning of 2003 that Mr. Dermot Gleeson, who was the Attorney General in the Government led by Mr. John Bruton, became the chairman of AIB. He took over from Mr. Lochlann Quinn, who stepped down around that time. Given that Deputy Rabbitte knows so much now about the mistakes that were made, it is a wonder he did not speak to his former Cabinet colleague about the moneys being given out by AIB. During Mr. Gleeson's chairmanship of AIB between 2003 and 2007, the total outstanding credit from the Irish banks increased from €160 billion to €380 billion. Why did Deputy Rabbitte, who knows everything about what went wrong, not take the opportunity to speak to his former Cabinet colleague, who was the chairman of AIB when things went so badly wrong? When the Deputy comes into this House, he lambastes everybody all over the place. He sat in Cabinet with the chairman of AIB, who led the bank when it was involved in reckless lending. It is wrong to say the Government made all the mistakes. I agree we made mistakes but I never heard in any of that time any Opposition spokesperson, from the Labour Party or from Fine Gael, say in this House that the banks were paying out too much money, that they were lending too much money or being reckless. The members of the Opposition have to take responsibility for having their eyes off the ball during that period just as much as the Government.
Yes. I wish to clarify that between 2003 and 2007, the outstanding credit from the Irish banks was increased from €160 billion to €380 billion, an increase of €220 billion. This was during the time when the former Attorney General, the Cabinet colleague of Deputy Rabbitte, was the chairman of Allied Irish Banks. I ask Deputy Rabbitte to answer my question. How come he did not say, "Dermot, what the hell are you at?"
I was aware that when the IMF and the EU were coming to town, this was a project about saving the euro, that it was not about a bailout. The first letter in the document circulated to Members today states:
Ireland faces an economic crisis without parallel in its recent history. The problems of low growth, doubts about fiscal sustainability, and a fragile banking sector are now feeding on each other, undermining confidence.
This letter is written by the Minister for Finance, Deputy Brian Lenihan, to Mr. Jean-Claude Juncker, Mr. Didier Reynders, Mr. Olli Rehn and Mr. Jean-Claude Trichet. If ever there was an example of the level of the crisis we face it must be this recent letter.
I was under the illusion that Ireland would get the interest rate on the three parcels of money, the emergency fund, the bilateral loan facilities and the IMF money, as making up the €85 billion but at no stage in the memorandum are we informed as to the specific interest rate. I would have thought this memorandum of understanding from a negotiation would state the specific interest rate about the facility that is to be given.
Like the invasion of Iraq, the bank guarantee scheme was based on a falsehood. The Minister for Finance informed this House in September 2008 that the problem with the banks was liquidity. This was untrue. The problem was much more serious. Certainly, in September 2008, the banks had a liquidity problem but the liquidity problems of the banks at that stage were merely a symptom of a much deeper malaise. That deeper malaise was a solvency issue. The bank guarantee of September 2008 has brought this country to its knees and contributed significantly to the wider financial crisis now threatening Europe. Things should never have reached this stage.
The warning signs were flashing amber as far back as summer 2007. In a recent article in The Irish Times, Mr. Michael Somers, the former head of the NTMA, referred to the fact that the banks had funding problems in August 2007. The collapse of Northern Rock in Britain in September 2007 was the first collapse of a retail bank in Britain in 150 years. That should have been a red light warning to all Irish banks, to the Financial Regulator, to the Central Bank and to the Government. Warning signs were to follow. All through the spring and summer of 2008, there were clear indications that the Irish banks were in trouble. This Government's banking policy has been a catastrophic failure in every respect. For more than a year, the Government ignored the clear signs. Its analysis and diagnosis of the problem was flawed. The bank guarantee and the bank bailouts which followed have cost €60 billion to date with another €25 billion on stand-by. All this money has failed to stabilise the banking system. Anglo Irish Bank, which the Minister informed us was of systemic importance, may cost the State €35 billion and possibly more. It is now no better than a beaten docket on the floor of the Fianna Fáil tent at the Galway races. Of course, it was the Galway tent school of economics that has brought this country to its knees.
For more than two years, this Government's banking policy has sucked this country deeper into the red. The Government now tries to present the bailout from the IMF and the EU institutions as a good deal for Ireland. It does not even deceive itself on this one. Yesterday, the soon to retire Minister for Justice and Law Reform, made it clear on RTE radio that the Irish Government was mugged and forced to take the money. This was the truth and not fiction. Even the Governor of the Central Bank has admitted that this was not his preferred option. This Government put the country's hand into the dog's mouth and had it bitten off.
If we are to get out of this economic mess, a crucial first step must be a clear recognition that the banking policy pursued by the Government has been an abject failure. Other countries have been forced to accept policy failures and a change of course. This has been the case with America after the Vietnam war, with Russia after Afghanistan, with NATO forces leaving Iraq. Britain has set a date for its troops to leave Afghanistan. We must do the same with the bank guarantee. A clear exit strategy is now required. The idea that an open-ended guarantee can exist in perpetuity will further the downward spiral in our economy.
We must also demand of the ECB that it assumes its responsibilities as lender of last resort. The Irish Government and people have carried the burden for too long and the burden must now be shared by the ECB and the bondholders and there must be a pan-European response. No one should underestimate the cost of this bailout, not just in cash terms but also the reputational damage done to this country. If Ireland is the last battleground in a campaign to save the euro, we need to know that EU partners have stood with us in that battle. We have paid a heavy price for this battle. Can we say that solidarity was shown to us, particularly from those institutions that stood back and allowed cheap money to flow into this country for more than a decade?
I hope that the dark sinister forces, be they from the hard left or the hard right, will not be unleashed on this country because of the difficult terms that have been imposed by the bailout. Has Europe stood with us as we face this challenge? That is the question I will leave for history to answer.
The Minister for Finance has stated he is shocked that the Opposition is opposing this deal and that there was no choice in the matter. He said that without this programme, our ability to fund the payments to social welfare recipients, the salaries of nurses, doctors, teachers and gardaí, would be extraordinarily limited and would be highly uncertain. He tells us we have no choice. This is the same Minister who stood in front of many interviewers and said the only reason we were going to the IMF and the EU for a bailout was to help the banks and that it was the fault of the banks. This is not true. The Government needs this bailout to run the country because it completely and utterly mucked up and got it wrong. The majority of this bailout, €50 billion, is to be used to run the country for the next three years. However, in its own plans, the Government maintains it requires €60 billion to run the country in the next four years. I wonder why the Government stopped short at the last €10 billion.
In 2014, a significant level of existing Government debt is due to be renewed and rolled over. What will happen then? The new Government will probably be still in office in 2014 and will have to find a lot of money to repay the debts this Government has already run up. It is not all to do with bailing out the banks.
Fine Gael's problem with this deal is not the deal itself which we know is inevitable because of the wasters in government. It is the cost of the deal and the interest rate of 5.8% which could go higher depending on market conditions. This rate is moveable. The Minister is surprised we are annoyed about the use of the National Pensions Reserve Fund. We wanted to invest the National Pensions Reserve Fund in projects which would create jobs and give a guaranteed rate of return to the fund. I refer as an example to the M3 motorway which goes through my county. That could have been built with funds from the National Pensions Reserve Fund thus giving a return to this country, not to business people in some other country. It could be also used in the production and delivery of gas, electricity and so on. These are guaranteed utilities - they will always be paid - so there is a guaranteed rate of return. What the Government is doing with the pensions reserve fund is to throw it into the black hole of the banks and say goodbye. It is "Goodnight, Irene". That is not what we want, and that is what we are annoyed about. We are also annoyed that there is no growth strategy; there is no strategy whatsoever to create jobs. Yet the Minister says we have the capacity to get ourselves out of this difficult situation. We have the capacity, perhaps, to pay the interest, at a major loss to many other projects. The opportunity cost will equate to fewer school classrooms and higher pupil-teacher ratios. Health services will get worse and waiting lists will become longer. Roads will fall apart. The snow will be needed to cover the potholes - that is how bad they will get. That is what will face this country when we have to pay out €10 billion or €11 billion in interest every year. That is just the interest, not the capital.
The Minister says we have the capacity. We can barely carry the cost of the interest, with serious difficulty, but where is the capacity to pay back the capital without some kind of strategy to create money in this country? This is a silly, stupid deal. The Minister claims that Ireland entered the negotiations not as a delinquent State that had lost fiscal control, but as a country that is funded until the middle of next year and a State whose citizens have shown remarkable resilience. He claims he went into this game of poker, as the Minister for Enterprise, Trade and Innovation, Deputy O'Keeffe, calls it, in good condition. If that is the case, why did he come out with such a useless deal for this country, which will break the hearts of many taxpayers over the years ahead? We cannot afford this rate of interest. Our counterparts in Europe wanted us to take a bail-out. That was our bargaining power, which we should have used to get a deal with much lower interest. Instead, we have one with an interest rate of 5.8% at least, and even more in some areas.
I welcome the opportunity to discuss the EU-IMF programme and the Government's national recovery plan in the House. The two, of course, are inextricably linked. As was outlined earlier, the provision of €85 billion of international financial support to Ireland is on the basis of a specified programme, the details of which closely reflect the key objectives set out in the national recovery plan that was published last week. As Minister for Enterprise, Trade and Innovation, I will focus my contribution on the areas of the plan that are most pertinent to our enterprise sector.
The plan has three critical factors. First, it provides certainty. It is an extensive document containing a detailed set of measures which will put the public finances in order, drive growth and support employment. Having read the plan thoroughly, one could not fail to be absolutely clear about the nature of the task facing us, the strengths we bring to that task and the actions we will take to achieve stability and growth. Second, the plan solidly establishes the credibility of our proposed actions as a Government and as a people. The plan has been endorsed by our international colleagues as a credible and appropriate set of actions to make the necessary savings of €15 billion and reach the broadly accepted deficit target of 3% of GDP. By introducing this plan, we have presented to the domestic and international audience a credible set of actions to bring us to where Ireland needs and wants to be. Third, our national recovery plan represents confirmation of our objective: enterprise- and export-led growth. As Minister for Enterprise, Trade and Innovation, I especially welcome the acknowledgment of and consequent commitment and investment to the enterprise sector. The capital investment of almost €2.2 billion in the enterprise sector and the maximum support and protection afforded to businesses throughout the plan are important, as are the measures to tackle high input costs for businesses, actions to remove barriers to employment, and enhanced job creation measures. All of these are, appropriately, included in the plan.
In addition to the benefits from improved infrastructure and the direct employment from construction, the new four year capital expenditure programme recognises the critical importance of the work supported by my Department and its agencies in achieving economic growth. This is obvious from the allocation of €2.2 billion to enterprise over the next four years.
I often hear people asking from where the investment, growth and jobs will come. The multi-billion euro investment by the Government in this plan means we will continue to win foreign direct investment, increase indigenous exports and tourist numbers, further our smart economy objectives and, most importantly, create 300,000 new jobs by 2016. It is expected that unemployment will fall to below 10% by 2014. Today we have further cause for optimism regarding growth, trade and employment. Activity in the manufacturing sector was steady in November, with output and the number of new orders rising. The NCB purchasing managers' index is rising, with new business boosted by a strong increase in new export orders.
New figures for redundancy claims in the first 11 months of the year show a drop of nearly 17,000, or 23%, on the number filed for the same period last year. Today's live register numbers show the lowest monthly total since December 2009. Although the live register has risen in November in each of the past five years, in 2010 we have seen the first fall since 2004 and the largest fall since 1999. The numbers are almost 42,000 lower than at the end of August. This is further evidence that the live register numbers are stabilising and that our targeted investment in growth to date is working, although there is still much to be done.
We will continue to invest for further growth under this plan. The IDA Ireland investment to embed, transform and increase the foreign direct investment base in Ireland in support of jobs and exports has been completely protected. The total sales of the companies concerned were €119 billion in 2009, while the value added by these firms was equivalent to more than 47% of GNP. Enterprise Ireland will receive a 7% increase in its capital allocation for activity in the area of science, technology and innovation. This increased funding will be used to put Irish companies ahead by enabling them to develop the important competitive advantages that innovation will deliver.
Under the plan, we will make multi-million euro investments to encourage collaboration between industry and third level institutions. This will include the allocation of nearly €8 million to create new high-tech competence centres that will undertake an industry-led research agenda. The target is to double the number of competence centres to 16 by 2015. The increased allocation to Science Foundation Ireland in 2011 sends a strong message, nationally and internationally, that the Government's focus is on driving the smart economy. This investment has been critical to the IDA's capacity to secure research and development investments, currently running at €500 million every year. The allocation will allow the commencement in 2011 of the projects approved under cycle 5 of the programme for research in third level institutions. It also supports indigenous companies that are reliant on knowledge for growth and job creation.
In addition to the significant investment in growth, jobs and innovation under the plan, it also sets out clear measures to improve our competitiveness further. These measures will reduce energy costs and drive down waste and transport costs. Under the plan we are committed to appropriate State investment in next-generation broadband where the market fails to deliver. There is also a series of actions to reduce the cost of professional services. Property costs will face increased downward pressure. With regard to Government-influenced costs, we will extend the 15-day prompt payment rule to the wider public sector, avoid increases in administrative charges, and fully examine the scope for reductions.
Since 2007, measures we have implemented have saved small firms almost €53 million in red tape overheads. We will expedite work to achieve the targeted 25% reduction in the regulatory burden on business, and we will minimise local authority charges based on the local government efficiency review group. Regarding labour costs, we will reduce the minimum wage by €1 per hour. I note that Fine Gael has signalled its intention to reverse this proposal, if it has the chance to do so. That would involve completely ignoring the research, which shows that a reduction in the minimum wage would result in an increase in employment in the medium term. It would also involve completely ignoring the needs of the sectors where the wage is most concentrated. We will review the other sectoral pay agreements including employment regulation orders, EROs, and registered employment agreements, REAs. I am determined to reform any agreement that constitutes another form of labour market rigidity by preventing wage levels from adjusting.
I welcome the labour activation measures set out in the plan. We have already provided 165,000 places this year to train and provide work experience for the unemployed. The enhancements in the plan are an important element of our overall approach to recovery and growth and will further ensure the proper functioning of our competitive labour market.
The plan has been especially successful in balancing new taxation measures. While taxation will contribute €5 billion to the overall €15 billion adjustment, this will be done in a manner least harmful to enterprise. Our competitive 12.5% corporation tax rate will not change. Our marginal tax rates will not disimprove and our tax wedge will continue to remain competitive.
The EU IMF programme and the linked national recovery plan are an important part of Ireland's path to growth. In addition to the upcoming budget, I urge Members to examine closely what it contains and to consider the certainty, credibility and hope it offers and to base to any assessment on these facts rather than short-term political considerations.
This document, which we received a couple of hours ago at the beginning of the debate, is a hospital pass. At the moment we are fortunate to have an exceptionally gifted generation of rugby players. However, this document is a hospital pass by this discredited Government to the next Government.
Let us consider the document. It is remarkable that the Ministers can come in here, one after another, and lecture us on the language used in debating the fact that the IMF is now running the country. The budgets are set out in this document for 2011, 2012 and 2013. They are in the document down to considerable detail. Let us examine it. Page 7 contains the budget for next year, page 10 contains the national minimum wage reduction, page 15 contains the budget for 2012 and page 18 contains the budget for 2013.
Deputy Fahey came into the House and lectured me, suggesting that if the Labour Party gets into government we might introduce a property tax. It is a pity he did not read his own document. Not only does it contain a property tax but in successive years there is provision for an increase in the property tax. Deputy Fahey is fearful that we might slap a tax on any of his properties but it is already here.
I am unsure what the next Government is expected to do. I offer a sample of the budget for 2012. We will take out €3.6 billion from the public finances, some €1,500 million of which will be in increased taxes. We will lower the personal income tax bands and credits. We will introduce a property tax. We will reduce the general tax expenditures. On the expenditure side, we will cut spending by €2.1 billion on what is euphemistically termed "social expenditure reductions" and we will reduce the number employed in the public service. That is what this document states. Although I use the term "we", this document was negotiated by the Government of the Minister of State, Deputy Roche, by Fianna Fáil, the IMF and the EU.
This is the document before me and it is all tied up. In case there is any doubt about it, let us turn to pages 22 and 23, which are fantastic. They are the monitoring pages. What happens if a Government should err? These pages set it down clearly. Every month, ten days after the end of each month, the Department of Finance will send all data on budget targets to our masters in Frankfurt and Brussels. Information on the main Government spending and receipt items will be sent by the Department of Finance weekly, every Friday. The NTMA is required to send weekly information on the Government's cash position with an indication of sources as well as the number of days covered on Fridays, reporting on the previous Thursday. It is no wonder the Minister of State, Deputy Roche, is quiet. I have not seen him this quiet in all my years in the House.
This document is a straitjacket. I doubt whether the Ministers of State, Deputies Roche and Mansergh, knew about it. Certainly Deputy Fahey did not know about it. He came in here and asked what would happen the middle class of Ireland if the Labour Party came into government and introduced a property tax, without knowing that the property tax is contained in the document and signed up to by the Minister, Deputy Brian Lenihan, and the Taoiseach, Deputy Brian Cowen. In case they were unhappy with bringing in the property tax, they make provision for it to be increased in subsequent years.
The new Government will be in a straitjacket and is getting a hospital pass from this Government. It seems to me the Opposition made a mistake and it may as well be admitted. My party considered a motion of no confidence in this Government some weeks ago when this broke. We decided, to use the hackneyed phrase, in the national interest not to proceed because the Government was about to publish a four year plan and it was in negotiations with the IMF, the EU and the ECB. We decided it would not be responsible. It seems to me we have made a big error and a mistake. We ought not to have let this Government carry out the negotiations with the IMF and the EU because it has given us a document that ties the hands of any future Government in this country for more than the next three years. We ought not to have permitted the members of Government to do so because they have gone, knowing they will not be here, and agreed to whatever was thrown at them.
Earlier, Deputy Burton dealt with the implications, as we see it, of taking €6 billion out of the public finances in this budget. I endorse everything she said in that regard. The Minister may correct me if he knows differently but my information is that the IMF agreed that to take more than €4.5 billion out of the economy in the coming budget would send us into a further tailspin in terms of growth and employment. Of course, the Government, always being one step behind the action, had already committed to €6 billion in cutbacks in the vague hope it would stave off the IMF and be able to source money in the markets at a cheaper price. It had already sold the pass but the markets responded by raising interest rates on bonds.
Deputy Fahey came into the House to wave around his written script and ask me why I did not intervene with the chairman of Allied Irish Banks when I saw the explosion in credit. His case rested on the fact that I had sat in Cabinet with an Attorney General who subsequently became chairman of Allied Irish Banks. Deputy Fahey demanded I answer this case. Will Deputy Fahey answer this? Why did his buddy, the Taoiseach, Deputy Brian Cowen, when Minister for Finance, not intervene with the chairman of Allied Irish Banks, especially as he had the figures and I did not? It was his job to supervise the regulation of the banking system. The question that must be asked is why did he not do his job.
This is an appalling day for this House. Our sovereignty has been yielded to others. We are stuck with a document that sets out inexplicit parameters for the budgets this House is expected to follow in the years ahead. The Government takes the position that this is not a matter for the House to approve or reject this document. How, in the name of heavens, can the Government maintain such a position? It thinks it can escape by permitting statements on the deal while claiming it does not require approval. On Monday, I set out my views why it does require a decision of this House.
I have also raised the long-term implications from the abuse of derivatives by the Irish banks. Yesterday, the Taoiseach sought to dispose of the issue by claiming Monday's interview by the Governor of the Central Bank, Professor Honohan, had cleared the matter up. It did not. Professor Honohan said the issue is now under control, which I welcome. That, however, does not tell us of the implications down the road with the legacies of covered bonds, credit-linked notes and the like.
It is a great shame the time is not provided in the House to go through the implications of this programme paragraph by paragraph. Never since we won our independence has a prospective Irish Government found itself in a position where the key decisions on social, fiscal and economic policy for the next three years are already made for it. Unless the new Government can re-negotiate this programme, it will be a prisoner of this bankrupt document and confined to a strait-jacket for the first three years of its term of office.
Dick Roche (Minister of State with special responsibility for European Affairs, Department of Foreign Affairs; Minister of State, Department of An Taoiseach; Wicklow, Fianna Fail)
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The Labour Party leader has made big play that he will renegotiate the document. The financial package that has been agreed with our EU partners and the IMF is a good deal for Ireland. It will ensure Ireland will have access to funds to maintain social welfare, the health service, the education system and other services. It will help to resolve the remaining issues in our banks. The package will provide funding for both actions at a lower cost than is available on the market and, accordingly, relieve the burden on Irish taxpayers.
The Opposition parties have sought to propagate the idea that they could have done a better deal for Ireland. To do a better deal, they would first need to be in agreement. The Opposition parties have such fundamental disagreements that it would have been impossible for them come to any agreement with international negotiators.
The facility that has been put in place accepts the basic strategies in the Government's national recovery document. That is why, as Deputy Rabbitte pointed out, that a great deal of the detail in the national recovery document is contained in this document. The Opposition disagrees, as it does from time to time with the Government, on some of the most fundamental aspects of the national recovery plan. What is remarkable is the level of disagreement that exists between the Opposition parties.
Dick Roche (Minister of State with special responsibility for European Affairs, Department of Foreign Affairs; Minister of State, Department of An Taoiseach; Wicklow, Fianna Fail)
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Sinn Féin's sole policy is to foment as much public anxiety as possible, to propose tax increases twice the rate of even the Labour Party and cut public expenditure by a fraction of that proposed which every observer suggests is necessary. As we see from the Northern Ireland Assembly, Sinn Féin is paralysed at the prospect of taking any hard economic decisions.
More surprising, however, are the extraordinary differences that exist between Fine Gael and Labour. A recent and very perceptive article in the Irish Independent compared Deputy Gilmore's position to that of the deluded emperor in Hans Christian Andersen's, The Emperor's New Clothes. Members will recall how in that tale the child went up to the royal carriage, looked in and proclaimed, "The Emperor is naked". Deputy Gilmore has no clothes – no coherent policies.
His position exposes a fundamental flaw not only for the Labour Party but for its potential allies in Government. The differences between Fine Gael and Labour on where they stand on issues of fundamental importance to this country are so vast that they are dangerous. They are so dangerous they will undermine the process of national recovery.
On the scale of the adjustment that is needed to bring the public finances under control, Fine Gael claims it should be €6 billion. Its finance spokesperson, Deputy Noonan, said on 10 November, Fine Gael has agreed that €6 billion should be a working target for the scale of the adjustment next year. Deputy Burton, the Labour Party spokesperson, however, took a different view and believes it should be approximately €4.5 billion. She castigated Fine Gael when she said imposing a cut of €6 billion would risk damaging the fabric of the economy. I am not one to argue with this.
Dick Roche (Minister of State with special responsibility for European Affairs, Department of Foreign Affairs; Minister of State, Department of An Taoiseach; Wicklow, Fianna Fail)
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A Cheann Comhairle, can I have your protection? I did not interrupt the last speaker.
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There is a critical difference between Fine Gael and Labour on the balance between cuts in spending necessary to reach the 3% figure. Deputy Gilmore, told the Dáil on 28 October he believed roughly a 50:50 balance between taxation and spending cuts was needed in the national plan. Fine Gael suggests the ratio should be 3:1.
On property tax, about which Deputy Rabbitte was getting into a tizzwazz, Deputy Gilmore told "Morning Ireland" it would be perverse to ask people to pay a property tax. During the building boom he favoured cutting stamp duty. In its New Politics document Fine Gael proposes broadening the tax base, with which I agree.
Fine Gael also proposes introducing a modest water charge. Deputy Gilmore prevaricated on this and told the Irish Examiner he was against water charging as water is a necessity - talk about stating the obvious - and that a flat household charge would be unfair.
If his party rules out all of the basic points that his potential partners in Government are proposing, where does it leave this country in the period ahead? The reality is that the Labour Party has ducked and dodged, and has avoided making any coherent policy issues. It comes in here with the kind of trite nonsense we have heard for the last five minutes.
Martin Mansergh (Minister of State with special responsibility for the Arts, Department of Arts, Sport and Tourism; Minister of State with special responsibility for the Office of Public Works, Department of Finance; Tipperary South, Fianna Fail)
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I, of course, regret that it should be necessary for this country to require EU-IMF assistance, but it has arisen due to circumstances beyond our control at the present time. With regard to the apocalyptic interpretation of these events, they depend, first, on an exaggeration of our sovereignty in the past - from 1922 to 1979 we were part of the sterling area with no control over our own currency - and, second, the degree of alleged loss of autonomous decision making in the present. In 1969 and 1976, Britain sought and obtained IMF assistance without any obvious long-term loss of either sovereignty or national identity.
While we have to reduce borrowing to under 3% of GDP within five years, we retain a considerable degree of latitude with regard to how we achieve this. We should be able to maintain, albeit on a significantly more economical basis, the vast majority of our public services. Financial assistance is essential if we are to keep these services going to pay cheques to pensioners, civil servants, farmers, suppliers and others.
We have protected two other bottom lines - the 12.5% corporation tax rate and the Croke Park agreement. One of the critics of our corporation tax rate, the former Welsh First Minister, Rhodri Morgan, wrote a letter to the Financial Times on 26 November claiming that: "Ireland's hyper-competitive corporation tax has enabled it to sweep the board when it comes to attracting high-profit, low-capital-spend, foreign direct investment in sectors such as software, pharmaceuticals and so on."
It is key to recovery through export growth and to have removed it would have undermined confidence completely in our ability to recover. In a negotiation it is not possible to make everything a fundamental priority. The National Pensions Reserve Fund, which was one of the best things Charlie McCreevy created - and which all the Opposition parties had it in mind to use, in part to fund their election policy platforms - has been drawn in. It could hardly be otherwise.
There are misconceptions about how negotiations are conducted by governments. In nearly all instances, detailed negotiations are in the first instance conducted by diplomats or officials. Recently, there was a quiet celebration - attended by my ministerial colleague, Deputy Roche - of the 25th anniversary of the 1985 Anglo-Irish Agreement. It was one of the major achievements of the Garret FitzGerald-led Fine Gael-Labour coalition. That negotiation was conducted primarily between senior Cabinet officials and diplomats on both sides, of course, under the direction of and subject to the final approval of the Taoiseach and the British Prime Minister.
Martin Mansergh (Minister of State with special responsibility for the Arts, Department of Arts, Sport and Tourism; Minister of State with special responsibility for the Office of Public Works, Department of Finance; Tipperary South, Fianna Fail)
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That is totally irrelevant to the point I am making. Mrs. Thatcher was reportedly not very happy with the result. In the present case the Irish authorities were negotiating with senior EU, ECB and IMF officials, subject of course to political direction, arbitration and approval. Principals - Heads of Government, EU Commissioners and Finance Ministers - generally hold themselves in reserve for consultation as negotiations progress. It seems to me that some criticism of the deal has been based on a misunderstanding of how negotiations are normally conducted.
Developments across Europe illustrate that Ireland is part of a wider drama across Europe, potentially relevant to financial and monetary stability in the developed world. Economists, bankers and other commentators may have an entirely different view on what it would have been right for Ireland to seek to do, for instance, concerning senior bondholders. Some of the discussion of this in recent months, both at home and abroad, has had a destabilising effect both on our situation and that of others. We urgently needed funding, while our partners urgently needed a plan for stability. We had to reach an agreement with agencies and partners that also had broader preoccupations and that had to calculate the knock-on effects of what they agreed with Ireland.
I do not believe that any alternative Irish Government could have achieved a better deal at this time, but if the next Government is subsequently able to negotiate improved terms and conditions, I wish them well. In my view, they will not be in an asylum or straitjacket, but will have to create their own margin of manoeuvre. Improving our public finances is the first step.
We received this EU-IMF programme of financial support for Ireland earlier this afternoon. I noted with interest last night that the Minister of State, Deputy Mansergh, said he was not aware of the details of this agreement. Now, however, he seems to be an authority on it. In one breath the Government is saying there was no political involvement, yet it seems to know everything about it.
Scanning through the requirements in the document, the Government has effectively put this country in the position of a schoolboy applying for pocket money. If he does not do A, B and C he will not get the funding. This is due to the Government's recklessness over many years, but in particular from 2003 onwards. Not only did it get the property bubble incorrect by inflating it through tax incentive schemes and not regulating the banks, but it has also compounded it with a series of measures on the banking crisis. This started with the bank guarantee scheme and followed on with NAMA and the nationalisation of Anglo Irish Bank.
In the period since this issue arose in September 2008, over two years ago, we have not seen one person from the banking system brought to book. We have seen no proactive measures to deal properly with the banking crisis. Where is the resolution regime the Government promised? When it brought in the bank guarantee scheme, it could have effectively put a temporary scheme in place and during that period brought in a resolution scheme for Anglo Irish Bank to wind it down. Anglo Irish Bank became the lightening-rod for this country in terms of international markets. They saw €30 billion going into a bank that was never going to lend a red cent. The IMF told Governor Honohan that it wanted to see the brass plate coming down off Anglo Irish Bank's door. Anglo Irish Bank is a symbol of failure and the Government's brass plate will shortly be taken down also. We need a new vision and a changing of the guard. If one has a bad workman, one does not continue to hire him.
Page two of the agreement refers to the National Pensions Reserve Fund, as follows: "The judicious use of our own existing financial resources (€17.5 billion) will also help ensure financial stability as we restore market confidence and return to durable growth." These are not the Government's own resources, however, they are the taxpayers'. The Government is raiding the piggybank of the National Pensions Reserve Fund and other reserves to put it into institutions from which taxpayers may never get a return. The Government has put the economy and the country in this position, yet it seems to have no shame. It questions what is happening now but takes no responsibility for having got us to this situation.
The Taoiseach should allow the budget to go through with immediate effect, as well as all the legislative budgetary measures to go through before the end of the year. He should then call a general election and let the people have their say. Many of the measures introduced under this plan would be coming through under the next Government's watch. The Government negotiated this deal, so it should be ashamed of itself given the poor quality of it and its repercussions for citizens.
There has been a lot of finger-pointing and hand-wringing over this deal. It is quite clear, even from the response of Government Deputies and Ministers, that there is an agenda, which will probably run up to the general election, to blame the European institutions and our European partners for the home-grown mess that the Minister and his colleagues have created.
Martin Mansergh (Minister of State with special responsibility for the Arts, Department of Arts, Sport and Tourism; Minister of State with special responsibility for the Office of Public Works, Department of Finance; Tipperary South, Fianna Fail)
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I did not do so.
Of all people, the Minister of State was particularly associated with Deputy Bertie Ahern, the architect of this country's downfall. I have heard the Minister of State defend him at some length. Were it not for his grossly self-serving political agenda of waste and expenditure in this country, we would not be in the mess we are in. If this Government had any respect for the electorate, the Parliament, or the people of this country, it would have involved Fine Gael and the Opposition parties in these negotiations. The Government would not have concluded a shambolic deal with the IMF without input from the incoming Government. That is an indictment and shows where the patriotism of Fianna Fáil lies. It shows where the commitment to this Republic stands.
I am disappointed that we have heard no talk of job creation. We have seen ridiculous, fantastic growth predictions in the four year budgetary strategy and we have heard many comments from Ministers over the past number of weeks in respect of growth. The growth projections for the next and the following three years are aspirational. There is no plan to generate that growth and no plan for job creation. The agenda of job creation has gone off this Government's agenda, with the logic being that it will not be the problem of this Government, but it is a national disgrace. The way this Government has tied the National Pensions Reserve Fund does a disservice to the country. It makes it impossible for future Governments to utilise those as part of a stimulus plan. This Government has not given any focus or attention to the enterprise economy and how we can stimulate job creation and protection in this country. The only good news I have heard is the assurance the IMF gave to Fine Gael today that we can propose the sale of State assets after the next election for investment in this country with a view to job creation. That is the only silver lining on this sad, sorry mess.
It is ironic that banks were given money but they were not regulated by the Government or the people who provided the money. Now the institutions that provide the money want to lend to the same banks so they can be repaid the money they provided in the first instance, with no responsibility attaching to the money. Ultimately, the taxpayer must foot the bill. The irony is that the same taxpayer entering a bank looking for credit is refused. Circumstances and conditions have been created by our banking system and the taxpayer is bailing out this system. Is it any wonder the public is so angry? No one believes this Government. In the initial stages, the bailout of Anglo Irish Bank was to cost nothing, then it was €4 billion, then €12 billion, then €35 billion. The bank bailout will amount to some €50 billion but some commentators suggest it could go as high as €80 billion. Who do we believe at this stage? All we know is that the money is going into a black hole and no one seems to be responsible. No one believes the proposals the Government is putting forward.
The policy on senior bondholders seems to be set in stone but I believe this will change in the years ahead because this country and the European Union cannot carry such a luxury. The Minister alluded to the National Pensions Reserve Fund. It was part of the Fine Gael policy to use the money but for a growth package, which the current Government has failed to include in any policy documents. Much of what is in the memorandum of agreement has been spoken about over the past number of years. The Government produces documents and talks the talk but does absolutely nothing.
I listened to Mr. Danny McCoy recently and he spoke about the emphasis on those growing the cake as opposed to those slicing the cake. For too many years in this country, those who sliced the cake had an input. There is a political tsunami on the way and I know that socialism and a move to the hard left is not the answer.
I thank the Ceann Comhairle for allowing me to speak on this urgent national debate on the EU-IMF programme for Ireland and the four year plan. Before I go into the detail of the measures, I will judge these matters on how the Government treats the unemployed, the low paid, people with disabilities, cystic fibrosis patients, carers, small businesses, senior citizens and the weakest sections of society. That is my agenda and that is the mandate I got from the people of Dublin North-Central. This debate should be about the issues and the people of this country. It is not about personalities and some of the recent personal attacks and abuse should have no part of Irish democratic politics. The focus of my criticism and dissent will be on the Government as a collective group, senior bankers and the fat cats who destroyed our country.
My vision for our country is a radically different alternative to the Government's plan, based on increasing investment on a sustained and substantial basis in order to promote growth, employment and fiscal stability. I will address these later. We must start at the top. All Ministers, party leaders, Deputies and Senators must show leadership in these difficult times. All wages and expenses should be cut immediately.
I am reminded of the lines Mercutio spoke in "Romeo and Juliet" when he was caught between the feuding families, when he said:
A plague o' both your houses! They have made worms' meat of me.
That is the feeling of many people in this country. Our political, banking, economic and financial institutions have made mincemeat of people. The problems facing the country are massive and it would be very foolish to minimise them. Irish people are the most generous and caring in the world and would totally embrace a recovery plan for our country if it was fair, just and if the sacrifices and pain were proportionate. It is unclear from the plan that they were proportionate.
As the Minister of State, Deputy Mansergh, has remained in the Chamber perhaps he can confirm his references to the 25th anniversary of the Anglo-Irish Agreement. Did the then Taoiseach, Charles Haughey, send the then Minister for Foreign Affairs to the United Nations to contest and campaign against the Anglo-Irish Agreement? I think the then Minister for Foreign Affairs was the father of the current Minister for Finance.
When the Haughey Administration came into government, it worked the Anglo-Irish Agreement. When the Minister of State was recalling the Anglo-Irish Agreement and praising that particular coalition Government, it might be historically useful for the Minister to confirm that Fianna Fáil campaigned and lodged objections against it at the UN.
That is Fianna Fáil for you.
When is the first review? From conversations with Mr. Chopra of the IMF and from this document, I understand the first quarterly review is due by the end of January. As my colleague, Deputy Pat Rabbitte, pointed out there is a requirement for weekly and quarterly reporting on an extensive basis-----
Did the Minister make any attempts as the principal of the negotiators to have the bondholders bear some responsibilities and losses in the banks? Did the IMF indicate that it was not opposed to approaches being made on that? Could the Minister confirm that it was the European Commission that was not willing to adopt such an approach and that the Government agreed that the bondholders should bear no share of the losses in the banks?
In these discussions, in terms of democracy in this country, did the Minister offer at any stage - it is absent from the document - to provide any mechanism whereby the people in the banks, the regulators, and the Central Bank who were in default of their duty, would face any accountability of any kind in this country either through fora in the Houses of the Oireachtas and appropriate committees or through other accountability mechanisms that exist under the Constitution?
There are very tight proposals to have financial stability ceilings. We are to be monitored on a quarter by quarter basis, and on a month by month basis. The document provides for a list of actions to be performed. The intention is to introduce a medium-term expenditure framework with binding multi-annual ceilings on expenditure on each area. That is to be introduced by July 2011 and the reference is to a structural benchmark listed on page 34.
This issue arose in a paper by-----
-----the Joint Committee on Finance and the Public Service. The Labour Party got legal advice on the matter. We were told that the particular proposal is likely to require a constitutional amendment. Has the Minister sought legal advice on the particular proposal as set out? Who in the country is supposed to vote for this constitutional amendment when it is put?
There were so many questions I am trying to catch up with them. First, it is not correct to state, as Deputy Burton suggested, that the Government is not imposing burden sharing on bondholders. It is very clear if Deputy Burton reads the report that this is one of the first steps that is being taken under the programme. It is an action for the first review, where burden sharing by holders of subordinated debt - junior bondholders-----
If we are going to have informed debate about these matters, let us not throw out references at large without any precision. Deputy Burton directly stated in the House a few moments ago that nothing had been done about bondholders. I have indicated that one of the first actions required in the first review period, which is a quarterly period - Deputy Burton inquired about that. The reviews are quarterly but the reporting requirements in regard to-----
Deputy Burton will notice that the most important elements of what has to be done in the first quarter is the budget and certain banking changes. They will be substantially in place by the end of January or at the latest by the end of February. That is the envisaged timescale. Let us not play with words.
The formal obligation however is in the first three months. The agreement is expressed as the first quarter of 2011. Clearly the budget in practical terms is the first instalment of the four year plan which has been endorsed in this programme. The budget is the decisive signal on the implementation of this whole programme.
On bondholders, first, having clarified Deputy Burton's inaccurate references to the fact that this programme contains no reductions for bondholders, which it does, and that the junior bondholders are subject to burden sharing in the agreement, she then asked the question about-----
-----senior bondholders. I am now turning to senior bondholders in answer to her question. Senior bondholders, in turn, have two categories. Some senior bondholders in the banks have obtained Government guarantees on the bonds in question, under the previous guarantee or under the eligible liabilities guarantee, ELG, scheme. There are guaranteed bonds and un-guaranteed bonds. It is important that we make this clarification.
The Government raised the issue in the course of the negotiations as to whether such un-guaranteed bondholders could be subjected to a discount. That issue was examined. The Government made a case in that regard. Deputy Burton asked about the response to that case. She should understand that the European Commission is the lead partner in the discussions. The IMF is there to assist, as is the European Central Bank. A common position is arrived at by the negotiating team on the other side. It is important to understand that. One cannot unilaterally come to an arrangement with the IMF. It does not make unilateral arrangements with European countries without reference to the European Commission with whom it co-operates in these negotiations. If there was a difference of emphasis between the different parties on the other side to the negotiation that is a matter they resolve among themselves. It is not a matter I can resolve. The position as communicated to me by the Commission was that were we to look at un-guaranteed senior debt a programme would not be possible. The European Central Bank was of the same view. Naturally the IMF look at all the options, as the Government did.
I am not convinced but, again, I will seek the opinion of the Attorney General on the matter. It seems to envisage a multi-annual framework. I fail to see how that infringes the Constitution. The four year plan does not infringe the Constitution.
On Deputy Burton's demand for accountability, there is a commission of inquiry in session under Mr. Nyberg.
I will if Deputy Noonan bears with me for a moment. On 29 November the Governor of the Central Bank stated in an interview on RTE's "News at One" that Anglo Irish Bank would be out of the system in a number of weeks. The Central Bank issued a clarification statement further to the Governor's appearance in which it stated, as outlined by the Governor, Patrick Honohan, that the Central Bank is working on a proposal agreed with the other authorities as part of the package of measures to submit a revised restructuring proposal in compliance with European Union competition law for Anglo Irish Bank. The objective is to submit and agree this by the end of January 2011.
This timeline has been agreed between the Irish authorities and the European Commission. Any wind-down of the loan book of Anglo Irish Bank would however be over a multi-year period, as in the current restructuring. These measures are designed to provide an orderly resolution for the future of Anglo Irish Bank in a manner that is consistent with European Union competition law and agreed with the European Commission. In summary, a revised restructuring plan for Anglo Irish Bank will be submitted to the European Commission early in 2011. The plan will outline the future for the bank, including the working out of assets. The revised plan will build on a number of elements in the restructuring plan submitted in October, but will take account of the discussions with the external authorities in recent weeks and the future restructuring of the banking system. Any working out of the banks' assets would need to be done over a period of years. A renaming of the asset recovery institution is under consideration.
Does the Minister agree that the next Government has been Shanghaied by this agreement? I will put it to him in more temperate terms. As the principal negotiator, what freedom broadly speaking does the Minister believe the successor Government will have to change the agreement, given how it sets out the parameters of each budget between now and 2014 and the rigorous monitoring of the Department of Finance, Central Bank and the National Treasury Management Agency, NTMA, by the authorities in Brussels?
We all hope the deal works and that we will turn this vicious cycle that is working against us, this perfect storm, the other way and create a virtuous cycle. I am concerned that it might not work. At what point after the three-month reviews will it be decided that the deal will not work and that its terms are insufficient? If there must be an orderly restructuring of our debt, what preparatory work has been done and at what point will that option be considered? At what point do we say that, despite having worked with the International Monetary Fund, IMF, and the European Central Bank, ECB, and done our best to deliver on this agreement, it cannot be done and we need to renegotiate and work towards a restructuring?
In all of the Minister's statements and his concluding remarks, he remarked that the growth projections of the ESRI and others were somewhat conservative. I do not agree. It is important that he outline to the House how he envisages the growth targets for the forthcoming period being achieved. Will growth be entirely dependent on exports? Why has no stimulus package for economic growth and job creation, which will be crucial for achieving the targets, been built into the agreement?
Does the Minister accept that we are a pawn in a bigger game, one that is about saving the euro? Does he not also accept that the markets have not been reassured by the deal because the contagion is spreading, seeing that even the spreads on Belgian debt are coming into the equation? Does he accept that the markets know the deal is not the end game in saving the euro, given the failure to burn the senior bondholders? They know the solution is either burning the bondholders or engaging in quantitative easing, that is, getting the printing presses going, which was the American solution. What will be the consequences of this deal for Ireland, given that our hands have been tied to it, when the ECB plays its final card of quantitative easing or burning the bondholders?
When and by whom was the external review of Irish banks undertaken? The Minister stated that an external review occurred in advance of the negotiations with the European Commission and the IMF. Will he comment further on the difference between his forecast and that of the European Commission, some 0.9% as against 1.75%?
I will try to deal with the questions instead of delivering a conclusion, as it will allow me to be of as much assistance to the House as I can. Deputy Rabbitte asked how much freedom the next Government will have in light of this agreement. It will have as much freedom as I have had since my appointment as Minister for Finance in May 2008. It is important to remember that, when one is borrowing at unsustainable levels, one must take certain decisions in the public interest, decisions which might not be popular in the political sense but are essential for the longer-term interests of the country. The practical options open to the country during the next four years would not have been any different were funding available to us in the markets than were we to adopt the programme. When the markets began to turn nasty, as they did in September, the Government immediately decided to formulate a four year plan. That plan was drawn up by the Government without any external advice. When external advisers arrived later in the year, they agreed our programme was the correct one. Even were market finance available to us, the next Government could not do anything substantially different from what is contained within the programme.
Of course there are differences of detail. As the Deputy's party has advocated, for example, it is open for the next Government to lean more heavily on the taxation side, although all international evidence suggests that attempts to make a correction through an excessive reliance on taxation are doomed to failure. The Labour Party proposal is for a 50:50 split between taxation and expenditure. This differs from Sinn Féin's proposal to do it all through taxation, which would be a recipe for a total economic collapse. The Labour Party's proposal runs contrary to most of the advice and literature on how to make a correction.
An idea advocated by some, although not all, in Fine Gael is that the bulk or an overwhelming preponderance of the correction should be done through expenditure reductions. Deputy Varadkar cited proportions of either 3:1 or 4:1. The idea that one could do this without an excessive reliance on taxation in the context of a low tax economy is questionable. A balance must be struck.
I do not accept that the freedom of the Government commercially speaking will be any greater or lesser as a result of this agreement. Arguably it is greater, since a security of funding has been provided promptly after a negotiation that took place under conditions in which the State was pre-funded for a certain period. It would have been most unwise for the Government to have allowed Ireland to drift into Greece's position, that is, heading into a funding wall next April or May. This is what the Greek Government opted to do. It dissolved its parliament in November, refused to face realities and left its socialist successors with the difficulty of addressing the country's problems. We opted not to do that. We did not believe it would have been in our country's best interests, nor did we believe that negotiating terms under those conditions would have resulted in a better conclusion than negotiating terms now.
Rigorous monitoring is essential and will help to focus public debate where it should be, not on the nonsensical solutions to our economic problems which I read about in the writings of various celebrity economists and which are occasionally echoed in the House.
We must be precise in our terminology. Under this agreement, the Commission and the authorities envisage we will have an orderly restructuring of subordinated debt, but not unguaranteed senior debt or sovereign debt.
Clearly, the comments of the German Chancellor in relation to sovereign debt, which have now been clarified, were not of assistance during the crisis to date.
As regards Deputy Creighton's call for a stimulus package, we are going to have to recognise that borrowing, in the order of 11.75% this year and 9% next year, is a very substantial stimulus, which we will have to refund through debt repayments in the future. It is not a stimulus in the banking system. Some €50 billion of the €67.5 billion borrowing involved is a direct stimulus to ensure the State continues to spend on the current and capital side. We have to face up to that basic economic fact.
Deputy Terence Flanagan asked about an external review. There was no external review prior to the conclusion of the agreement. However, in the preliminary discussions that took place between Governor Honohan and the Regulator with the ECB and the IMF, no evidence was produced to the effect that their assessment of the September announcement was inaccurate or that there were fundamental defects in it.
I have just stated that there was no external review. There was an external review, but it was not a formalised external review, so I just want to clarify that.