Eugene Regan (Fine Gael)

The Minister for Finance, Deputy Brian Lenihan, stated that we should not focus on generalities but rather concentrate on the details of the Bill. Notwithstanding that this is Second Stage, it is appropriate to consider the general picture and to stand back from the detail. One can become lost in that detail. When, however, one steps back and considers what is the basic road down which the Minister is leading us, one realises he has effectively suggested there is no alternative. That is now the conventional wisdom.

NAMA was never properly debated before the Minister, in the wake of Peter Bacon's report, announced its establishment last April. A public debate did not take place. NAMA was put forward by the Minister and the Government and they were obliged to win the argument in respect of it, come hell or high water and notwithstanding the cost to the State.

The IMF indicated the banking sector here became too big for the economy. In such circumstances, the Government has decided to save the entire sector. Regardless of whether it is of systemic importance, no Irish bank will be allowed to fail. At a time when our public finances are deteriorating rapidly and when national debt is rising, we have been presented with intervention on a scale that is entirely disproportionate to the size of the economy. This is evident from the overall cost of NAMA when compared to that of United Kingdom's insurance scheme in respect of its banks.

Not only has a debate not taken place in respect of NAMA, but any alternative put forward has been rubbished. It has been stated there is no alternative and that the idea to establish a good bank is both rubbish and overly complicated. If one examines the redacted version of Peter Bacon's report one will discover that just before offering his conclusions he puts forward the argument that an asset guarantee approach, such as that which applies in the United Kingdom, would be preferable. Mr. Bacon states:

Notably, from the Government and banks' point of view: there is no initial outlay for the Government and therefore no impact on the fiscal deficit. For the banks, risk is transferred but equity capital does not require to be written down and the assets remain on their balance sheet and crucially, under their control. Conversely, in the case of asset sales the deficit of the Government is adversely impacted from the outset, since it must directly or indirectly purchase the impaired assets. For the banks sales of assets at written down values will adversely impact equity investors and may require them to recapitalise, as losses are realized upfront. Intuitively, these aspects alone tend to favour the guarantee approach over sale of assets.

In essence, Peter Bacon reaches a particular conclusion. However, on foot of the circumstances involved in Ireland, he reverses his thinking. I am of the view, therefore, that his conclusion does not follow his reasoning. Mr. Bacon chooses an option which raises the most problems for the Government and the taxpayer at a time when the economy and the public finances are in a perilous state.

It has been stated there are no options or alternatives and that NAMA is the only game in town. It is important we engage in constructive debate on legislation, particularly a Bill of this magnitude, that is brought before the House. It is somewhat late in the day but I must place a number of facts on the record. The Government is establishing NAMA within the parameters set down in a European Union framework document, namely, the Communication from the Commission on the Treatment of Impaired Assets in the Community Banking Sector, which was adopted by the European Commission in March. It states:

(11) More specifically, the budgetary situation of Member States will be an important consideration in the choice of management arrangement for assets subject to relief, namely asset purchases, asset insurance, asset swap or a hybrid of such arrangements. [As the Commission outlines, there are alternatives.] The implications for budgetary credibility may not differ significantly between the various approaches to asset relief, as financial markets are likely to discount potential losses on a similar basis. However, an approach requiring the outright purchase of impaired assets would have a more immediate impact on budgetary ratios and government financing. While the choice of management arrangement of impaired assets is the responsibility of each Member State, hybrid approaches whereby bad assets are segregated from the balance sheet of banks in a separate entity (either within or outside the banks) which benefits in some way from a government guarantee could be considered. Such an approach is attractive as it provides many of the benefits of the asset purchase approach from the perspective of restoring confidence in the banking system, while limiting the immediate budgetary impact.

(12) In a context of scarce budgetary resources, it may be appropriate to focus asset-relief measures on a limited number of banks of systemic importance.

The latter provides an indication as to why we are intervening in respect of all of the banks.

The document to which I refer is the European Commission's framework on government intervention to assist in restoring viability and credibility to the banks. It sets out all of the options and, like Peter Bacon's report, specifically highlights that the approach the Government has chosen is the worst possible one to adopt at a time when the country faces serious financial difficulties. It must be remembered that, regardless of the impact of NAMA, the national debt will rise to 100% of GDP within a year or two.

It is important that people realise that the debate on this matter has been smothered on foot of the Government's determination to insist on an approach which will doom the economy. The European Commission's document also states:

(38) Where the valuation of assets appears particularly complex, alternative approaches may be considered such as the creation of a "good bank" whereby the State would purchase the good rather than the impaired assets. Public ownership of a bank (including nationalisation) may be an alternative option, with a view to carrying out the valuation over time in a restructuring or orderly winding-up context, thus eliminating any uncertainty about the proper value of the assets concerned.

The notion of establishing a good bank to solve our difficulties is not, therefore, one exclusively espoused by Fine Gael. It is also to be found in the framework document of the European Commission. It is a concept which the Government refuses to entertain or discuss.

What we are debating is a framework Bill. The business plan relating to NAMA provides figures in respect of the anticipated cost to the State. That business plan is based on assumptions, some of which have already been undermined by valuations of, for example, the Irish Glass Bottle Company site of the Dublin Docklands Development Authority. It has also been undermined by the exposures in the High Court cases.

This business plan and the details of the subventions we are giving to our banks have not been approved by the European Commission and I have yet to receive any clarification from the Minister on our position when the legislation is passed. The Minister blamed protracted debate in the Lower House for causing a collapse in Irish bank shares last week. I fail to see how this is the case when whatever scheme is adopted by the Minister on foot of this legislation must be formally approved by the European Commission. There is an issue, therefore, with regard to the timescale. Once we have approval, we will then come back to these guidelines to see how the Government has dealt with the valuations and the divesting of assets of banks which are not essential to requirements and which would assist in the recapitalisation of our banks. We are dealing with the general framework here, but there is a long road to go yet before this is a done deal.

The communication I am speaking about states with regard to state aid procedures that member states notifying asset relief measures must provide the Commission with comprehensive and detailed information on all the elements of relevance with the assessment of the public support measures under the state aid rules as set out in the communication. Again the way to smother debate was to point out that the IMF, the OECD and the European Commission all approved the NAMA approach. Any other alternative was not to be considered. However, the Commission has not approved it. This communication specifically states that the design of the method of intervention is for the member state. However, that does not relieve the member state from the scrutiny by the European Commission or from adherence to EU state aid rules. Therefore, I anticipate many changes in the NAMA programme before it is finally implemented.

It is often said that everyone and all the authorities support the NAMA option. The Financial Times expert, Martin Wolf, when asked what about a bailout that involved the Government buying bad loans at higher rates said it was a very bad idea and he had always been against it. He said it was a concealed subsidy and a waste of money and that Government money could be used more effectively to capitalise the institutions in a direct subsidy rather than simply take away the bad assets, thereby leaving taxpayers with a large potential loss. Others whose opinions I and most people respect are not happy with the Bill, among them Joseph Stiglitz, Dermot Desmond, David McWilliams - if I may mention his name - and Colm McCarthy, adviser on public expenditure.