John Gerard Hanafin (Fianna Fail)

Yesterday we saw an example of the difficulties in the economy. Ulster Bank and First Active announced they were merging and seeking voluntary redundancies. Of the 7,000 employees on the island of Ireland they are seeking 750 redundancies — 200 in the North and 550 in the Republic. Branches will close or merge and the trading name of First Active will cease to exist. This is a classic example because these banks are owned by the Royal Bank of Scotland. RBS recently purchased ABN Amro which in turn purchased €20 billion worth of sub-prime mortgages. That is how the global economy is affecting Ireland severely. We are major traders and have one of the most open economies in the world. When there is a global downturn it will inevitably affect the Irish economy quite seriously. We trade 35% of all our exports between the US and the UK. In the last few years the euro has significantly appreciated against both sterling and the US dollar.

Despite the perfect storm this Government has found itself in, with hugely decreased income in a short time, it has reacted properly and with a measure of confidence. The Government has not attempted to cut back and create a difficulty. In other words, the last thing the Government wishes to do is turn off the light at the end of the tunnel. In fact, it has decided to spread over a number of years the decreases in expenditure that will be necessary.

I am glad the Government is examining all areas of public expenditure to identify where some of the €2 billion can be saved. One of the major areas of expenditure is public pay. I believe the public service will play its part and we will find savings of €2 billion. How can we get the confidence of world markets in such a short space of time? We have that confidence. Fitch's, one of the rating agencies, recently reinstated the triple A status of Ireland incorporated. We are a good group to lend money to. In ensuring that we continue to have some capital expenditure and that we do not just cut and slash, we are ensuring our future productivity and our future generally. We have had a budget deficit in only one of the past 12 years.

Unfortunately, we tend to forget that there will be a turn. We might look inward rather than outward and say that the world economy and our own will pick up. There are a number of positive signs already. We are now looking at interest rates that are historically low. In the UK the rate has not been as low since the Bank of England was established in the 1600s. The ECB rate is currently at 2% and could fall lower to 1.5% or 1%. In America, money is probably not even earning the return on inflation. Those facts, coupled with low oil prices and lower expectations, mean that we have deflation in some countries. Ireland has deflation of minus 2%. It is a good time to commend the Government because in the most difficult, most severe and swiftest downturn it gave a 3% increase across the board in social welfare payments for those who can least afford to meet the challenges. The same people are now seeing a real increase of 5% in their net incomes, due to 2% deflation. That is not to suggest that we do not have severe challenges ahead. Those challenges are being met and will continue to be met. The Government put us in a position to be able to meet those challenges because we have a low tax rate. We have one of the lowest tax rates in Europe, which gives us a particular edge in increasing taxation if needs be. We have a very low debt and, as a percentage of general government debt, we have the lowest in Europe. It is half the EU average when local government and other subsidiary debt are taken into account. We also put in place the National Pension Reserve Fund and, therefore, we are well positioned.

The Opposition parties did not do themselves many favours by refusing to support the nationalisation of Anglo Irish Bank. If one lives long enough, one will see everything.