Mary White (Fianna Fail)

Professor Patrick Honohan, who was recently appointed as the Governor of the Central Bank, has said that "with its fiscal, competitiveness and banking crisis, Ireland is among the most severely affected countries in the global crisis". Our banking system has been on life support since 2008, when the Government announced a two-year guarantee of the liabilities of the four Irish-controlled banks. The share prices of the banks fell immediately and Anglo Irish Bank was nationalised within days. By the end of April 2009, it was generally expected that the State would take a large equity stake in the two main banks, AIB and Bank of Ireland.

Although international pressures contributed to the timing, intensity and depth of the Irish banking crisis, the underlying cause of the problem was domestic and classic. The growth of the Celtic tiger over almost two decades was admired all over the world. Until 2000, that growth was secure, led by exports and underpinned by wage restraint. Between 1986 and 2000, wage restraint helped to generate an unprecedented era of full employment. As a result of surging numbers of births, improvements in life expectancy due to a higher standard of living and immigration, the population of Ireland increased by almost 17% between 1996 and 2006. A domestic crisis arose after 2000, however, when wage competitiveness deteriorated. By 2008, hourly wage rates in Ireland had raced ahead of those in competitor countries. When measured in a common currency, this country's rates were up to 36% greater. While the loss of wage competitiveness ultimately undermined employment expansion, that was masked by the construction boom. Among the triggers for the property bubble was the sharp fall in interest rates after Ireland joined the euro.

I do not doubt that by borrowing from abroad, Irish banks fuelled the boom, especially from 2003. They exposed themselves to funding and solvency pressures. Competitive pressures on the leading banks to protect market share among Irish-controlled retail banks resulted in reckless and feckless expansion. Funding for banks became particularly challenging after the collapse of Lehman Brothers in September 2008. The result was a severe banking crisis that undermined the Irish banking system at home and abroad. Commercial activity has almost been brought to a standstill as a result of a lack of finance and credit provision.

We are aware that the Irish banking system is in crisis. The key challenges that have been identified and broadly agreed on relate to credit provision and bad loans. NAMA addresses these challenges in so far as it reduces uncertainly about the balance sheets of the banks. Banks receive bonds that can be cashed at the European Central Bank. Most importantly, banks must focus on lending to small and medium size enterprises and households. The objective of NAMA is to strengthen the balance sheets of the banks, thereby reducing uncertainty over bad debts. It will ensure the flow of credit on a commercial basis to the real economy, which must be the main focus in ensuring Ireland can capitalise on the worldwide recovery that, according to some indicators, is already under way. The Irish economy, while suffering major damage as a consequence of the recession, could return to a period of quite rapid economic growth once the world economy enters a recovery phase. Over the past six months, there have been increasing signs of a return to more favourable conditions.

To return to my initial point on competitiveness, bearing in mind that the unemployment rate is 12.5%, I would like to refer to Dr. Whitaker who, at the Lemass International Forum in Dublin during the summer, stressed the need to restore competitiveness to the Irish economy. He stated:

[W]e cannot afford to forget that we will benefit from a global economy only if our goods and services are competitive in price and quality. The greater part of our income as a nation comes from exports of goods and services, so incomes and jobs are vitally dependent on competitiveness.

I wish the Minister of State, Deputy Mansergh, every success in his Ministry. He has been close to the Government over many years and I am sure he concurs with me that while we have been through many crises and know the present one is the worst, we will come out of it.