Paschal Donohoe (Fine Gael)

I welcome the Minister of State. This afternoon's meeting between the party leaders featured strongly on the Order of Business this morning when Senators from all sides welcomed the talks. It is vital the political system responds to the unprecedented economic times in which we find ourselves. I hope this afternoon's discussions will help create confidence in the measures being taken to address the current crisis and send out a positive signal to those outside the country on whom we rely to fund our public services. My party will play a constructive role in these discussions because the national interest is at stake.

As Senator MacSharry and I have repeatedly stated, the inability of the State to borrow on the bond markets at an affordable rate is a grave challenge. We all have a role to play in addressing this problem and ensuring the country is in a position to borrow sustainably in the coming years and reduce the amount it needs to borrow.

I was a struck by a number of comments made by the Minister of State. Unlike him, I am not a French history enthusiast and know much less about the subject than I used to. Whenever possible, however, I take time to read Irish history and I like to study those periods in our history that may have relevance to our current circumstances. In recent weeks, I finished an excellent book by UCD economist, Professor Tom Garvin, entitled News From a New Republic. The book is about Ireland in the 1950s, the conditions in which people lived and the atmosphere in Leinster House at the time. One of the themes running through it is that the significant decline in economic growth and living standards in that decade led many people to the conclusion that independence was not working. A different approach was required if Ireland was to avoid national paralysis. Individuals from across the political spectrum and the public service, including Seán Lemass, TK Whitaker, William Norton and Gerard Sweetman from the Fine Gael Party, challenged the negative view of the country's future and set out to create conditions that would enable Ireland to restore its position. Their approach resulted in the economic success the country experienced in the latter part of the 20th century and early years of this century.

The prevailing mood among commentators must be punctured. We need to have confidence that Ireland has a successful future in store. The steps needed to ensure better days lie ahead must be taken now. This is deeply relevant to today's debate because one of the elements required relates to the treatment of those who were responsible for the country ending up in its current position. I note and approve of the time the Minister of State spent commenting on developments in Irish Nationwide Building Society. Much of the current discussion has focused on the role of Anglo Irish Bank in bringing the banking system to its knees. Given that Irish Nationwide Building Society accounts for only a fraction of the banking system and is much smaller than Anglo Irish Bank, the requirement on the State and taxpayers to inject €5.4 billion in capital is the most outstanding example of mismanagement, reckless behaviour and reckless corporate governance in recent banking history.

The Minister of State also referred to the former chief executive of INBS and his bonus. We have seen many different faces of capitalism in recent years. I am reminded of comments made about a businessman in another era who was described as the worst face of capitalism. The worst face of capitalism was demonstrated by the behaviour of a certain individual who claims his duty was to his building society, one which is now owned by the people, and has not yet given any indication that the bonus he received will be returned.

The Minister also referred to the need to review the legal and constitutional mechanisms in place for dealing with circumstances such as those I have described. I cannot think of a better example to illustrate the reason this needs to be done. I draw a parallel with the work done by the Criminal Assets Bureau in seizing the wealth and assets of those who inflict great evil on society. The financial cost imposed on society by those individuals is but a fraction of the financial cost imposed on the nation by those in the banks. We need to adopt the philosophy behind the Criminal Assets Bureau when tackling individuals such as the person to whom I referred. If possible, the scope and competence of CAB should be extended to encompass the role of individuals in the banking sector. If that is not possible, we need to move in a similar direction to ensure those who brought the country to its knees pay a price for doing so.

I wish to comment on a number of points relating to the banking guarantee scheme, some of which were touched on in the Minister of State's contribution and others which were not. In a debate that has gone on for so long and that is of such importance, it has become difficult to come up with something new. However, I wish to comment on some information on the period that led up to the instigation of the banking guarantee scheme that came into the public arena recently via the Committee of Public Accounts, as well as some recent information that has emerged on the role of promissory notes and the cost they will impose on the Exchequer.

I remember the night on which the banking guarantee scheme was introduced into this House. It was in fact a very dramatic morning because Members debated it through the night and as the Minister for Finance, Deputy Brian Lenihan, was making his point, the sun was rising behind him through the window on that side of the Chamber. While all Members were hoping this was the dawn of an era in which such difficulties could be put behind them, little did they realise it was only the start of it. I spoke on behalf of my party that evening and one point I made was that Fine Gael was acting in good faith, based on what it was hearing from the Government and on the difficulties being faced by the banks. A point then made by Fine Gael, to which I wish to return, pertains to the sheer breadth of inclusion of debt this banking guarantee scheme brought in. This brings one into the arena of the roles of subordinated and senior debt and the differences between the two, as well as the legal obligations this could create.

However, I refer to the report published by the present Governor of the Central Bank on the guarantee scheme and the resolution put in place to deal with it. The point is made that the inclusion of all forms of debt into the banking guarantee scheme "complicated [the] eventual loss allocation and resolution options". It goes on to state that it "pre-judged that all losses in any bank becoming insolvent during the guarantee period - beyond those absorbed by some providers of the capital - would fall on the State". As someone who supported the scheme based on the information to hand at that time, it appears the inclusion of so many different forms of debt under the umbrella of the banking guarantee scheme at the very least has greatly complicated the job of the present and future Governments in ensuring the burden of loss and the difficulties the banking system now has created will fall equally on everyone involved, that is, bondholders, investors and the taxpayer who Members seek to represent.

As I was preparing for this debate and considering this theme, I had an opportunity to review briefly some documentation that was made available to the Committee of Public Accounts regarding the period leading up to the implementation of this scheme. One indication that emerged from these documents is that the precise form of the guarantee, and the associated breadth of debt inclusion that was introduced into the House that night and which has been supported over the subsequent two years, was not recommended to the Government by its then advisers, Merrill Lynch and was not recommended for inclusion in any of the documents that were made available to the aforementioned committee by any senior civil servants at that time.

I refer to one great question that remains to be resolved and that as someone who voted for this scheme I have a great interest in understanding. What was the rationale at the time and what is the rationale now for the breadth of inclusion of the debt that the banking guarantee scheme developed? The Minister of State must agree that the options for resolving this issue at the least cost to the taxpayer have narrowed considerably on foot of this decision. While this point is being raised at a political level, it will be important to find an answer to this question for fear that we get into similar difficulties at some point in the future. While I hope this will never happen again, the lessons learned should be made public and should be acknowledged.

My final point relates to reports that are beginning to become available regarding the stance of hedge funds on debt and the action the Government might take in that regard. I acknowledge The Daily Telegraph is a newspaper that frequently abandons the need to be impartial in respect of this country. However, an article appeared in that newspaper on 30 September last which indicated the possibility of hedge funds taking legal action against the State - I believe there also is the possibility of another prominent business person in the United Kingdom so doing - were the Government to take action regarding subordinated as opposed to senior debt. I would be grateful were the Minister of State to indicate whether this is the case and whether it is a matter for which the Government has been preparing. I conclude by stating that the spirit of an organisation such as the Criminal Assets Bureau and the work it does would go a long way towards restoring the confidence of people that those who led us into this mess will face the consequences.