John Gerard Hanafin (Fianna Fail)

This Bill supports the Government action to allow for the investment of €3.5 billion in each of the two main banks, Bank of Ireland and AIB Bank. It also contains provisions to allow the National Pensions Reserve Fund to invest in line with its rules and regulations, while dealing with other transactions that may be undertaken within the State in which the State would have a vested interest. This arises from what happened in financial institutions where contracts for difference were used, which can affect the share price even though they are not share transactions.

In line with market reality worldwide, the Government took appropriate action to capitalise the banks, a necessary move. In light of the fact that banks across the world are having difficulties and governments are going around financial institutions with a cart, asking them to bring out their dead, we had no choice but to ensure the stability of our banks and we did so by nationalising Anglo Irish Bank and committing to ensure no systemic bank be allowed to destabilise the national finances.

It is good for business and the National Pensions Reserve Fund that we have recapitalised the banks. The return on investment, of €16.2 billion, in the National Pensions Reserve Fund from its establishment in April 2001 until the end of 2008 was 0.9%. The average return for managed pension funds in Ireland was -1.5% so not only did we have a low return but we were lucky to get anything at all because it was well managed in the circumstances.

We are getting a guaranteed 8% return from the banks on preferential shares, with an option to take a quarter of the bank and the right to appoint directors and a say in how the bank is run. We could not have made a better investment. What is the point of having a National Pensions Reserve Fund if it does not support the Irish economy? Any investment, equities or otherwise, that is held by the National Pensions Reserve Fund should be brought home. Similarly, companies that trade in Ireland should bring their funds home. We would then have full capitalisation of the banks.

I suggest that instead of borrowing in the home market as a Government, we should borrow abroad, thus ensuring the funding that might otherwise have gone into Government bonds would go into the banks, further enhancing our banking system. Had we not undertaken this investment, providing capital for the banks and putting in place the terms and conditions that ensured money would be released into the economy for business, social and environmental enterprises, it would not have happened and the recession would have become a self-fulfilling prophecy because the banks would have ensured their own stability and cut back on lending.

Banks that are owned abroad, such as Ulster Bank and First Active, which are owned by Royal Bank of Scotland, have debts by virtue of their take-over of ABN Amro. This provides proof of the international nature of economics and shows that we are not operating in a vacuum; a bank that owned a bank that bought a bank got into trouble. Royal Bank of Scotland, which owned Ulster Bank, which bought ABN Amro, could not lend in Ireland because it lost so much money when it bought ABN Amro.

The Government is acting correctly. This is good for the National Treasury Management Agency. The return is more than adequate at 8% and makes good business sense.

There was a suggestion that hedge funds are betting against the Irish economy. If this is true, it is essential. There is no doubt that the Irish economy was being down-played, to say the least, by financial commentators, especially — to be very straight about who it was — the City of London. Some of those financial people were down-playing and bad-mouthing the Irish economy. If anybody is taking a position against the Irish economy in the contracts for difference, we should know about it. We should remind ourselves that we have an undertaking from the European Central Bank, as well as the paymasters of Europe, the Germans, and the head of the Bundesbank that they would support the euro and the Irish economy. This is all positive news in light of the fact that the ECB will lower interest rates by 0.5% this week and possibly by another 0.5%. The reality is that people will be asked to make sacrifices, including paying extra taxation. However, if the cost of mortgages has significantly decreased, with the cost of electricity, heating and other outgoings, bar tax, it will be a softer cushion for when that inevitable increase in taxation takes place. It is also good for the Government. We have a very low debt and continue to have a low debt within the EU. If one includes the National Pensions Reserve Fund and cash balances, we are down at approximately 20%.

Our small open economy has been one of the first to be hit by the global downturn, but it will also be one of the first to recover. This has been pointed out by Mr. Trichet, the head of the ECB. That is why I am happy to commend this Bill to the House. Funds should be at the service of the people and if there is a national emergency, of course we should use the National Pensions Reserve Fund to assist the nation. That is exactly what has been done. When faced with stark choices the Government has made the tough decisions and will continue to do so. The necessary decisions should also be measured by those who will come on board, such as the social partners. As soon as we take the necessary decisions, the social partners should be regarded as having assisted us in a time of emergency and therefore we should move quickly to reinstate any loss when the international economy turns around.

There are positive signs but it may be too early to tell whether they will affect the Irish economy. Some of the economies in the Far East are growing, such as China's. In addition, the price of oil is very low and the cost of money is coming down, while inflation is very low. There are positive signs, including lower expectations. With that in mind, I hope that not only in the future will this Bill be seen as having been emergency legislation, but also that it will be seen to have had a beneficial and positive effect on the National Pensions Reserve Fund. Between 2001 and 2009 the total return on that fund was 0.9%, which is regarded as a positive return. We are guaranteed 8% on our €7 billion, payable either in cash or ordinary shares. We also got a €30 million arrangement fee. For those reasons the legislation is necessary, positive and timely.