Marc MacSharry (Fianna Fail)

I join Members in welcoming the Minister of State. I am pleased to have the opportunity to make some brief points on the Credit Institutions (Eligible Liabilities Guarantee)(Amendment) Scheme 2010. Recent years have been difficult for Ireland and the House will have substantial time tomorrow to debate various aspects of the performance of the economy, the future, what we think has been done wrong or right and what else needs to be done. The Minister of State has dwelt in some detail on the technical aspects of the motion. We are aware that the blanket guarantee ends tonight. The new amended scheme will guarantee all deposits until the end of December. It does not cover bonds. Longer-term bonds are already part of an extended liability guarantee scheme. The European Commission has approved this scheme, stating it is an adequate means to remedy a serious disturbance in the economy and, as such, is compatible with the special state aid rules put in place at the beginning of the global financial crisis. This has been borne out by Professor Honohan's report. Many people have been quoting from his report and the fact there was an obvious substantial need for a blanket guarantee at the time. According to the report, had we not done this, our banks would have run out of money within a matter of days and would have been forced to close their doors. The closure of all or a large part of the banking system would have entailed a catastrophic, immediate and sustained economic disruption.

Professor Honohan gave his opinion on the extent of the guarantee and other academic economists would have said it was too vast at that time. It is easy for academic economists with the benefit of hindsight to say we could have allowed a potential default to have taken place but I am pleased to echo the sentiments of the Minister for Finance, Deputy Brian Lenihan, the Minister of State, Deputy Mansergh, and others in recent days that default is effectively unthinkable and would do nothing to enhance our reputation abroad.

I refer to the recent comments by an eminent former European Commissioner, Peter Sutherland. He commented on the Financial Times article which sparked much debate by saying that its comments were flawed in theory and very dangerous. He said that the amount that could be saved by a default would be very limited, perhaps in the region of €5 billion. He suggested that such a move by a country as small as Ireland and with such an open economy would surely precipitate a funding crisis for both the sovereign and the banking system as a whole.

While there has been much debate about why a blanket guarantee was issued two years ago, the main reason for doing so was to ensure the banks had access to funding in the world markets. The Minister, Deputy Brian Lenihan, was asked specifically by Deputy Michael Noonan in the Lower House whether he believed an issue of solvency was involved and this point was made by Senator Twomey. The Minister was focused very much on the fact that it was an issue of liquidity. All of the debate on 29 September was on the fact there were serious difficulties with liquidity in Anglo Irish Bank. It did not become clear there were major flaws in the capitalisation of the bank until further investigations and reports examined the situation in more detail, such as that by PricewaterhouseCoopers. At the time the Minister and the Government were not appraised that the issue was primarily one of solvency or capital. Deputy Noonan may have said there was anecdotal evidence to the contrary but we can echo the Minister's comments in the Lower House that if anyone has information suggesting there was a deliberate attempt to provide incorrect information at that time, the information should be brought to the Garda Síochána as a matter of the utmost urgency.

Default is not an option. I attended a meeting of the Joint Committee on Finance and the Public Service last week. One would presume the Opposition wishes Ireland to be a test case for default. I do not know if Senator Twomey was in attendance at the committee meeting. The Minister said there seems to be a school of thought among some academic economists and elements of the media that defaulting is a good thing to do and that we should see how it will pan out for Ireland. Quite rightly, the Minister made crystal clear that Ireland is not prepared to be the test case so the world can assess whether default can happen without a detrimental impact. Peter Sutherland highlighted the impact would be detrimental.

In response to the amendment proposed by Senator Twomey, the Minister made it clear that, while the amendment will not be accepted, a statement will be made on this issue tomorrow. While one cannot default, one can negotiate. I expect there will be some movement possible on the €2.4 billion of dated subordinated debt.

I support this extension of a net three or four months. In response to Senator Twomey's point, we are hopeful that the banks will then be in the position that they do not require this guarantee to secure funding. We must deal with issues over the next two days, including Anglo Irish Bank. Perhaps there will be some indication on AIB because once the Anglo Irish Bank situation is finalised, in terms of the unacceptable, intolerable, maddening overall cost of Anglo Irish Bank, we must focus on AIB. While we had encouraging signs in terms of raising capital through the sale of its Polish interest, perhaps there is some disappointment at the breakdown in talks with Banco Santander and other interested parties in its US operations. As soon as we have more clarity on Anglo Irish Bank, tomorrow afternoon, we must consider AIB.

With two senior bidders for the EBS - Irish Life & Permanent and a consortium of private equity players, including Cardinal Asset Management, there are grounds for some optimism in the endorsement by international equity players in the banking strategy here. It displays confidence in the future. Over the next number of weeks, it is of vital importance that we display this to the world, which had expressed such confidence through the markets in the measures taken here in terms of fiscal rectitude, trying to rehabilitate the banking system, facing up to the difficult mistakes made in the past and capitalising the banks with the establishment of NAMA. We need to reassure the markets of our determination to deal with these problems in an authoritative and definitive manner. Following the work of the next couple of days, we must ensure various personnel from the NTMA, the Central Bank, the Minister for Finance, Deputy Lenihan, and the Minister of State at the Department of Finance, Deputy Mansergh, engage in an international roadshow to assure the markets we are capable and determined to deal with these difficulties in a decisive manner.

Senator Twomey mentioned that no one has been arrested or prosecuted with regard to the mess we are in. We have due process in this country and I am confident due process will provide us with the pound of flesh we require to satisfy the justifiable anger we saw when a man tried to drive through the gates of Leinster House this morning. I do not condone it but I understand it because we must provide the public with some peace of mind in that regard. That may involve a change in legislation and some change in the law. It is unacceptable that frightened old age pensioners are watching television in the evenings and hearing that if they do not pay their television licences they could face a jail sentence or a substantial fine while in the next news bulletin we see major players in this mess arriving back in Dublin Airport from a family holiday. I agree with Senator Twomey that it must be addressed.

I fully support the guarantee. It continues to be another step in the right direction. Tomorrow will be a big day in the context of the banking situation, bringing closure and certainty to the Anglo Irish Bank situation. There is more to be dealt with in AIB. I am confident that, with the Minister ably assisted by Deputy Mansergh and others, we can achieve that.