Martin Mansergh (Tipperary South, Fianna Fail)

I thank the Senators for their contributions on this important motion. I have been briefed on some of the points raised. I begin by making one or two general observations.

To remove the bank guarantee at this point would be folly. I am not sure any party in the House wants to do so. It is all too clear that this State and the eurozone as a whole are experiencing extreme financial turbulence. The Governor of the Central Bank has recommended to the Minister for Finance that the credit institutions (eligible liabilities guarantee) scheme continues next year. There is broad European consensus on the case for Ireland's banking guarantee, as set out explicitly in the euro group statement last night, which included a welcome for the measures taken to date by Ireland to deal with issues in its banking sector by guarantees, recapitalisation and asset segregation.

As stated by the Taoiseach today, the necessity for the bank guarantee arrangements was and is compelling. As the Minister for Finance stated when the scheme was originally extended, had the guarantee not been introduced we would scarcely have an economy not to mention a banking system. Funding for our banking system had all but dried up, which meant that there was a liquidity problem in the short term - other problems subsequently came to light - and the banks faced closure within days. Prolongation of the ELG scheme is a key element of the Government's response to the broader systemic challenges the banking system continues to face. As Senators will have been informed, the statutory instrument covers a period of one year. As 30 June next approaches, however, EU approval will have to be obtained in respect of the second half of the year because, in legal terms, the Union is only in a position to approve six-month extensions. EU state aid approval has been granted for the extension of the scheme to 30 June 2011. This follows on from the recent legal opinion from the European Central Bank, dated 2 November 2010, which endorsed the extension in national law to 31 December 2011 on financial stability grounds.

Heightened volatility in international bond markets will eventually abate. When this happens, it will be essential that the guarantee should remain in place for a period in order that the banks would be in a position to raise funding in the markets. The guarantee provides important protection for the savings of ordinary depositors. The guarantee of bank liabilities was an established part of the international toolkit for responding to systemic banking crises internationally. In the 1990s, Sweden provided a blanket guarantee in respect of bank liabilities. Other countries also introduced broad guarantees.

Recent figures indicate that since the onset of the crisis in 2008, the European Commission, under state aid rules, authorised some €3.6 trillion in guarantees. Some 12 guarantee schemes remain in force and it is expected that most of these will be extended into next year. The most recent figures indicate that some €147 billion of liabilities are covered under the ELG scheme. This equates to 4% of the amount authorised by the Commission. The figures to which I refer relate to the position up to the end of September. I was asked in the Lower House about developments since then. The figures for October will not be finalised until the end of this month. That is because a period of 20 working days from the end of the relevant month is required to finalise the figures. All the indications are that the liabilities have not risen above €147 billion and that the actual figure may be somewhat lower than this. Member states currently implementing guarantee schemes include Austria, Germany, the Netherlands, Portugal and Ireland.

The only substantive change being made relates to the extension, subject to Commission approval, of the scheme to 31 December 2011. Other consequential changes relate to drafting. I remind Senators and members of the public that retail deposits up to €100,000 are permanently guaranteed under the deposit guarantee scheme, DGS, which has no expiry date. Amounts in excess of this are guaranteed under the ELG scheme.

Several Senators referred to the involvement of outside parties. The Government has expressed its determination to work with its EU colleagues - particularly the ECB and the European Commission - and the IMF to address the issue of market turbulence and to identify where the risks for Ireland in the markets lie and evaluate how these can be dealt with. As a number of Senators outlined, there is a far broader picture relating to the eurozone of which cognisance must be taken. The latter has been the case since earlier in the year when problems affecting Greece were placed in sharp focus. As the Taoiseach indicated earlier today, talks will begin at official level in Dublin this week - with a delegation from the IMF, the European Commission and the European Central Bank - on the possible use of EU and IMF funding to deal with the banking crisis.

Many of those present in the Chamber, including myself, remember the 1970s and 1980s, when the IMF had a reputation for being draconian, especially in respect of the economies of South American countries. I had the privilege to attend the IMF's annual meetings in 2008 and 2009. It has been intimated that the director general of that organisation, Mr. Dominique Strauss-Kahn, could quite possibly be the Socialist Party's candidate in the next French presidential election. In that context, I wish to point out that much more attention is now paid to the social dimensions and effects of financial stringency than was, perhaps, the case 20 or 30 years ago.