Paschal Donohoe (Fine Gael)

I will focus on the point that has been made about the Department of Finance, the culture within the Department and the effect it might have had on the decisions that were made. I have two reactions to that. First, I note that some people have responded with a degree of worry or surprise to the fact the Department of Finance has an all-pervasive role in the decisions that are made relating to the allocation of money. That should not be a surprise. The Department is meant to be the guarantor of how money is allocated to Government Departments and how requests for additional money are analysed or met.

Second, with regard to the culture that might exist there, I am concerned about the trend that appears to be developing in terms of where responsibility sits. One of the main determinants, if not the most important, in affecting the culture within the public service or within members of a particular Department will be the Minister and the political culture and philosophy within the country at a particular time. If mistakes were made within the Department of Finance, or in any other State bodies, one of the main factors in driving that was the culture that existed in the country and in the Government at the time regarding what was going to be examined and, indeed, what was not going to be examined. It is, and must be, the responsibility of a Minister to set the direction for his or her Department and to give direction regarding the culture, atmosphere and the things he or she wants to be examined and not examined.

While I have no doubt that the process that is about to begin will uncover administrative mistakes and the difficulties that occurred, ultimately it was not public servants who decided there would be two, three or four people responsible for overseeing the stability of multi-billion euro banks. That decision was made by a Government. I recall that a previous Minister for Finance at one time refused a request for additional resources to be given to the Financial Regulator. The Government makes the decision on where resources will be given and where energy will be committed. While I believe it is appropriate to examine the role of public servants in this, I believe it only up to a point. Public servants are not elected by the people to fulfil a role; the Minister is. The Minister determines the culture of the Department and where resources will be allocated. In an effort to analyse what went wrong, I do not wish us to find ourselves in a situation where we undermine the role of political decision making and culpability in what happened.

I am focusing my comments mainly on the report from Mr. Regling and Mr. Watson and my second point relates to their comments on fiscal policy in the State in the run-up to this crisis. This is an area in which I have a particular interest because I am preparing a report for the European affairs committee on the Stability and Growth Pact and how it might change over time. There is a need to change how we evaluate budgetary performance not only in this country but across Europe. To illustrate that point, I will quote from the report:

For a long time, Ireland's overall fiscal policy was considered to be exemplary because the country achieved fiscal surpluses every year from the mid-1990s to 2006... However, the nominal budget figures mask an underlying deterioration in the fiscal situation after 1999.

It is vital, in order to learn from this mistake, to change how we evaluate budgetary performance both here and across the European Union.

Currently, most of the focus is on what is the nominal budget performance and what is the total surplus or deficit at any one point in time. It appears obvious that, in order to ensure the fiscal mistakes are not made again, we must look at two potential changes. The first one we must look at is whether we move to a situation where we track the structural budget deficit of either our country or the Europe Union. The second change we should look at is focusing on the cyclically adjusted budget performance at any one point in time. These figures may be a little more difficult to manage, they may be a little more difficult to track, but they do come out of EUROSTAT, the organisation that is meant to be evaluating impartially budgetary performance across all European countries. While this might be a dry area, at the end of the day one's political performance and how one evaluates how one is doing for one's country is heavily influenced by how one tracks and evaluates it. It is crucial that we change how we evaluate the fiscal performance of a country to learn from the mistake that this Government and others were congratulating themselves on a budgetary performance year after year at a time our budgetary performance was deteriorating. We must learn from that lesson to ensure this does not happen again.

This is a lesson that has salience well beyond what is happening in Ireland. In the discussions that are taking place on how we will change the Stability and Growth Pact, this is the direction that must be looked at. Otherwise, we will find ourselves again in a situation where at a time when a Government wants to spend money to deal with a recession it will be breaching the conditions of the Stability and Growth Pact or when it wants to cut back on spending because the economy is doing well, that will not be rewarded in terms of how it is measured.

Another point touched on in this report is corporate governance. This has been touched on on many occasions in discussions that have taken place here, but I found this report made a point that needs to be emphasised in this discussion. On the regulation of banks, they state there were specific and serious breaches of basic governance principles concerning identifiable transactions that went beyond any question of poor credit assessment. I want to make the point that the issues and the breakdowns we are dealing with are questions, not only of the breakdown of corporate governance but which are of a more serious level on morality, where we had people, either within the regulator's office or the banks, who not only were not in line with the light touch regulation in place at the time but were going a step beyond that. There were clearly decisions being made here that involved the concealment of information from the regulator. There were clearly decisions made where banks were looking to produce reports that did not reflect the reality of what was happening on their own balance sheets. This is something that must be considered just as much as any issues of mere corporate governance.