John Gerard Hanafin (Fianna Fail)

I would like to hold accountable what Opposition Members are saying. They have made certain claims about the banking crisis. Even the spokesperson here today claimed that during the last term in the Dáil he outlined how we had a property bubble. That being the case, why in 2007 did he support the Fine Gael manifesto that proposed the complete abolition of stamp duty, which would have thrown petrol on the fire of a property bubble? Of course there is no answer to that.

The reality is that the world economy dictates most of what happens in Ireland. I welcome that because for years we have prepared this economy to be the third most globalised economy in the world. If one takes out the city state of Singapore, and the special administrative area of Hong Kong we are the most globalised economy in the world. That has stood to us for a long time because we have been able to export, earn and increase the quality of life and standard of living of the people in this country. Of course I am very proud of the work my party has done in ensuring we were an export-led economy. I am also very conscious that in many cases and in particular with the banking crisis, we imported a crisis.

There is no doubt we could have handled whatever difficulties we had here. We could have opted for a reduction in the construction industry. Many of the workers would have gone back home to eastern Europe where there is now a boom of sorts. We would have had to redirect spending towards capital projects, including roads, rail, a terminal at Dublin Airport and ports. That would have managed the economy at that time. That was expected and spoken about. However, the world economy and the world financial markets were in very severe danger 18 months ago. There was a real crisis in the financial markets. We were probably very lucky to have in Ben Bernanke somebody who understood the difficulties that might arise at an international level and handled the difficulties accordingly. He had knowledge of how the Great Depression was mishandled with all the wrong steps taken and how the Glass-Steagall Act stopped trade, protectionism took hold and banks were allowed fail. That is an interesting concept, allowing a bank to fail. To allow Lehman Brothers, which represented just 4% of the US GDP, to fail was considerably different from allowing Anglo Irish Bank, with €75 billion on deposit and more than half the Irish GDP, to fail. It is and was recognised by all involved, including Alan Dukes, that it was essential that we bailed out Anglo Irish Bank. It was a systemic bank to the Irish economy.

I am very conscious that European events and European banks were also among those that fell, the effects of which reached across here. For 17 years I worked for a building society that became a bank, First Active. I know the Minister of State will be pleased to hear that everything was working fine when I left in 1999. Notwithstanding that, to show how globalised the market is, First Active was purchased by Ulster Bank. Ulster Bank was purchased by the Royal Bank of Scotland. As we all know the Royal Bank of Scotland purchased ABN AMRO, which had €22 billion of non-performing debt. It was part of the sub-prime lending that nearly brought down the Royal Bank of Scotland. We are no different from the UK or America, but we have handled our banking crisis well. When we are held accountable not on the basis of knee-jerk reaction or soundbites but by what actually happened, the Government took responsibility and did its job well. The first thing we did was to underpin the banks by giving the guarantee, an action followed by the rest of Europe, which has proved to be one of the main reasons we maintained our economy.

Although we have a higher budget deficit than Greece, we are being praised for how we managed our economy and the Greeks are calling in the IMF. An opportunity is being presented to us with the world economy now expected to recover. There was a mini recovery in the markets earlier in the year which fizzled out because it was not believed to be sustainable. The current recovery is believed to be sustainable and we will benefit significantly from that. Particular banks coming out of the critical list are reaching recovery. We have now seen banks successfully complete fund raising and have paid significant moneys back to the State. I would like to see that continue into the future. In my opinion AIB, Bank of Ireland and Irish Life & Permanent are fully in recovery. There is no doubt that Anglo Irish Bank and the Irish Nationwide Building Society will need assistance for some time. We were all very disappointed at the mismanagement in the banking sector and the lack of regulation. Perhaps we should seriously look again at the level of regulation that was allowed to happen and ensure that never happens again. Light regulation was not the answer to the Irish banking situation. The strong regulation we have now with the direct involvement of the regulator in the insurance and banking industry can only be for the better in the long term. It will ensure solid businesses and solid banks. Of course we know the capital tier ratios, which the banks are now expected to hold, have been significantly increased. The requirements are for 8% tier 1 capital ratios, 7% of which must be held in equity. That being the case we will have well capitalised banks.

There is no point in us talking about why the banks are not lending to SMEs when the next day we see in the newspapers that 30% of SMEs are already not repaying the loans they have. It will take this recovery that is on the way. It is a very real recovery. The ESRI and the Central Bank of Ireland predict that the economy will begin to grow in the second half of this year. The ESRI predicts that in 2011 gross national product will grow by 2.75%, while the Central Bank of Ireland predicts it will grow by 2.8%. We can now look again with a different eye at the opportunities that are presenting. Of course China will race ahead at 9%, 10% or 11% this year. Ireland needs to look to the BRIC countries of Brazil, Russia, India and China to fully exploit the growth taking place in those countries. We note that exports have increased by 16% since December 2009. This is in the middle of a recession. If sustained, that increase could create 20,000 new jobs next year and 45,000 the following year.

More importantly, having studied finance and economics, I know of a simple equation that has not been lost on me. If somebody pays €20 million for a field outside a small provincial town on which no building will ever take place, while that person has lost that €20 million, somebody got €20 million. It did not leave the country; it is on deposit. There are vast sums on deposit in the State and once people feel comfortable again in their jobs, the economy and the future, they will start spending again. If only 10% of the money on deposit was moving in the economy, we would not have needed the budget we had in December. That is a significant figure. When the good times come round, they lift all boats. All sectors benefit and corporation and income tax, stamp duty and VAT all increase, in the same way they all decrease in a recession but expenditure stays the same.

What must we do for the future? We must continue what we are doing with the banking sector, we must speak confidently about the future of Irish banking because it does have a strong future, which has been borne out by the fact that Irish banking shares are increasing again and Bank of Ireland has recently been successful in raising funds. I have no doubt AIB will be successful in its fund raising when it sells its assets in the US and Poland to ensure the Irish market is well capitalised. The State is also ensuring the banks are starting to lend to SMEs. That lending will be significantly easier when the environment in which business works has been improved and that improvement is taking place. That is the reality.

Regulation has been a problem. We now live in a global economy. The purchase of ABN AMRO by a bank in England caused banks here to stop lending. We must have detailed security at European level and ensure our trading partners have strong regulation. Such strong regulation must specifically focus on those banks that are of systemic importance or lend in such a manner. I am thinking of derivatives, which are very dangerous. In Société Générale in France, €5 billion was lost. That was not a white collar crime that had no consequences. People lost their jobs. The banks should have an "own skin" involvement in any trade; they do not just lose someone else's money, they lose their own money. They should be heavily regulated and the amount they must have on deposit has recently been increased.

That is what makes me think we are going about this the right way. We have been correct in our attitude to the banks so far. It has not been easy but we have done the right thing and it will stand to us. We are moving out of the recession and that can only be good news for Ireland.

This morning on the Order of Business I referred to the pensions that were being claimed in Westminster. I should have referred to the allowances that were being claimed. A reference was made to people claiming pensions here who were not entitled to them. It is difficult to talk about a situation when that particular party was not in a position to speak about anyone else when he was claiming allowances he was evidently not entitled to.