Marc MacSharry (Fianna Fail)

I join others in welcoming the Minister of State to the House. I am pleased to have some brief moments to make some points on the proposed emergency funding for Greece. As Senator Alex White remarked today, given our economic crisis it would appear to be a most unusual topic of debate. However, I disagree with Senator White that he would prefer to be discussing Ireland. The ramifications of what happens in Greece are very significant for Ireland. The crisis in Greece poses the most significant challenge yet to the single currency and the goal of economic unity across the Continent. To use one of the banking terms of the past, it is too big to fail in the context of our currency. Greece owes the world €300 billion and if it were to default, there would be very significant implications for many of the major banks in the world which are on the hook for much of the money. A default would reverberate throughout the globe in a major way and it would have a great impact on us. The UK owns one fifth of Greek bonds and there is no question that if Greece does not manage to deal with its issues in the same way and manner with which we have set about dealing with ours, then the future is bleak indeed. However, we have no reason to believe that under the guidance of the EU, such a process will not begin this week following the ECOFIN meeting of recent days.

We have heard many comments in the media regarding Greece's public finances, including that there is a dire financial crisis, that it was dishonest in how it managed its finances, that it will be very difficult to avoid a tragedy and that it was mess of its own making. A general election in 2009 introduced a new government which came to power only to find its predecessors had effectively lied about the real state of the country's finances. The country had gone on a spending spree. It hosted the Olympic Games very proudly in 2004. In a bid to win power and votes, political parties filled the public sector and this eventually led to debt of some €300 billion. There is a 12.7% budget deficit, more than four times the EU limit. Greece must sell €53 billion of its debt this year to avoid the intervention of Europe and it must reduce the deficit by 4% of GDP in line with EU rules. The relative cost of insuring debt against its borrowings is €33.50 per €1,000, more than double our cost which is less than €15 per €1,000.

As the Minister of State, Deputy Mansergh, has outlined, last night eurozone finance ministers imposed a 28-day deadline on Greece, during which the country must demonstrate its austerity measures aimed at cutting its vast deficit from 12.7% to 8.7% of economic output this year in respect of yield of returns. The finance ministers and ECB president, Jean Claude Trichet, stated it would be unwise for them to discuss publicly any measures the EU may employ if Greece were to fail to meet its four-week deadline. There is no question the Irish must be supportive of Greece and of all measures to bring the situation into line. While one cannot speculate on the future of Greece's economy, we must reflect on the impact it may have on us. The uncertainty surrounding the financial health of Greece is a reminder of just how fragile economic recovery may be. However, we can take comfort in the positive international reaction we have received in respect of our budgets and the steps we have taken on our path to recovery. The Minister of State, Deputy Mansergh, has outlined these and it is imperative that Greece begins a process that is at least akin to ours.

Simply put, had we not made the cuts in December's budget and taken other measures dating back to 2008, eurozone finance ministers would probably be in Ireland now, a prospect for which no one would wish. Last week an EU commentator, David Marshall, remarked that the Irish had taken a lot of pain and he was supportive of what we have done. He suggested we got our retaliation in early, recognised things were going very badly, took a lot of pain and cut wages, which is exactly what Greece must do now. He further suggested we should not relax because we have only started this process but that previous decades have shown that Ireland can knuckle down. This is what we have shown in recent months under the stewardship of the Taoiseach, Deputy Cowen, and the Minister for Fiance, Deputy Brian Lenihan, in particular. Many commentators have noted that while difficulties remain in Ireland, the worst of its woes are probably behind it, and this is attributable to the political will that is lacking in several of its neighbours. This was a view from the Wall Street Journal in December 2009. Several other international commentators acknowledge that Ireland is taking the appropriate steps.

I wish to make several points in respect of the single currency. Obviously, ECOFIN will determine whatever measures should be taken and Greece must bring its public finances into order. It was encouraging to note that, according to an opinion poll, some 70% of the Greek public was aware that public sector wages should be reduced and that the country must cut its tape to measure. Notwithstanding the protests on the streets that we have seen in the international media in recent weeks, I believe it has the public will to make progress and it is to be hoped its Government will do the same.

I hold concerns about some issues to which Senator Norris referred on the Order of Business in respect of Goldman Sachs and the need for some level of international regulation in lending to countries and in international banking. There is an incentive for major banks such as J.P. Morgan and Goldman Sachs to spot the difficulties nations are having and design derivatives for them to window-dress their actual financial circumstances to mislead others. This has undermined the strength of the euro in recent days and certainly undermines the European Union. There were suggestions Italy had engaged in this practice. From 2001 Greece forward sold its future lottery receipts and airport landing fees, which is a disgrace. It was also wrong. It was on foot of doing so that Greece joined the single currency.

Derivatives can be very useful instruments but they become bad if they are used as window-dressing, as they have been in this instance. I am encouraged that the Greek Government, having been approached by Goldman Sachs before Christmas, declined to enter into such agreements. However, it points to the fact that if we are to avoid a recurrence of the catastrophe in financial markets in recent years and the economic downturn that has affected so many countries, we have a responsibility to sign up to a set of basic regulations, otherwise we will be one step away from the next crisis. As with the world of crime, the world of banking always has the potential to design derivatives to hide the next financial disaster. That is what we have seen in Greece. I would like to believe the developed nations of the world will sign up to a set of regulatory reforms to govern lending to governments. However, I have not seen much evidence of this to date, be it under the auspices of the World Bank, the IMF, the United Nations or another organisation. The Financial Times stated in recent days that if a government wanted to cheat, it could. We must try to prevent this to the maximum extent.

As we overcome the crises in Greece and perhaps other countries, we must be cognisant of the future management of the eurozone. As I said a number of times in the House, Ireland was very lucky to be in the eurozone in that it saved us to a great extent, but there was a flaw in the sense that we were experiencing growth of 8% and 9% year on year with money available at a rate of 2%. That fed the frenzy in Ireland somewhat. It is a weakness within the system that although Ireland constitutes only 1% of the eurozone economy, interest rates will not be affected if inflation is featuring throughout the eurozone but not here. As we begin to see the eurozone economies recover in the next year or so, interest rates will begin to rise. However, at that time our employment levels will not have had time to recover to the same extent. These are flaws that need to be contemplated by ECOFIN and the ECB because while there were and are many benefits to our being involved in the euro, which I certainly desire, there are also weaknesses. I am not putting forward solutions, as better minds than mine can come up with a better way to proceed.