John Gilroy (Labour) | Oireachtas source

I welcome the Minister of State's return to the Chamber and always look forward to him coming here because he has a particular fondness for engagement. His contributions are always very informative. There are so many issues facing the economy that it is almost impossible to think of how we could even address one of them in the six minutes allocated to us. I will speak to some of the many aspects of debt.

One of the many important elements to our economic difficulty is the fiscal deficit, which will approach 120% of GDP next year. That is extremely worrying. Figures are changing all the time in discussing what is a dangerous level of debt. It was traditionally thought 80% of GDP was very dangerous, and this figure has moved to 90% or even a third higher than that again. It represents a significant drag on the economy and everything we try to achieve. If we do not close the fiscal deficit, we will not take control of our own affairs. It is not possible to close the fiscal deficit easily with a mixture of inflation, reduction in spending and tax increases. The economy would not be capable of sustaining such measures. There has been much comment about the level of indebtedness in the country, of which public debt is only one element. Senator Michael D'Arcy referred to household debt, which is of a similar magnitude to public debt. Non-financial corporate debt has also been mentioned. I have heard a Member from the other House quoting combined figures leaving the economy on the hook for approximately ¤850 billion. That is not right as at least ¤300 billion of that is multinational corporation debt and there is no possibility of the State being responsible for it. Nevertheless, ¤550 billion in debt is substantial on its own and we must achieve some success in negotiating this figure down.

There are some welcome aspects to the direction in which the economy is going. This morning held a good example, as Bank of Ireland returned to the capital markets and secured ¤1 billion of money over three years at 3.2%. That rate is not great but it is a big improvement on the figure 12 months ago, which could have been ten percentage points above today's figure. On the European Union's response to the financial problems in the interbank and financial markets, they have seemingly stabilised, perhaps only temporarily, with ¤1.1 trillion of long-term refinancing options in two tranches, which is welcome.

However, this is not the solution because unless the intra-European financial markets work properly, we will not make the impact needed. The only way that can be done is to restore confidence, as Senator Quinn said. Restoring confidence at European level is important because the only way to fix the markets is to get private money flowing where public money is now flowing. Until that is done, there will not be a solution to this crisis. While it seems to have stabilised, a crisis, for example, if the Greek austerity budget had not passed on Sunday evening, would put the eurozone back in the melting pot again, which would have major knock-on effects for Ireland. It is important that what we do as a Government must first and foremost and single-mindedly be about restoring confidence.

The target 2, T2, liability against the Central Bank of Ireland is approximately ¤150 billion and while T2 is not harmful or worrying, it might point to continued underlying weaknesses in the economy. The Minister of State noted in his contribution that our balance of payments is positive and is not adding to our T2 liability. Is capital still flowing from the country through the banks? In what way are the T2 liabilities increasing? If these liabilities begin to reduce, that will be one indication that everything is heading very much in our direction at a macro level. The banks have reduced their dependence on the ELA to ¤45 billion this year from ¤130 billion last year, which is also promising. In addition, the return of Bank of Ireland to the markets is encouraging and these changes show the Government?s strategy is heading in the right direction in many ways.

Many challenges still face us, the greatest of which is securing a deal on the bank debt. Anything else we do will not make much difference if we do not secure a deal. What progress has been made in the negotiations on securing a deal on the Anglo Irish Bank promissory notes? They offer the best opportunity to secure a deal on the debt. While negotiations are taking place, I will be critical of the Government in one sense. There seems to be a lack of information or a lack of leadership on this. Commentators in all sectors of society and among the Government and Opposition parties are pointing to different strategies we should pursue. Should we burn the notes? Should we pay them in full? Should we restructure them? As a Government, if we offered a little more certainty about the direction we are taking on this, it might make the route towards financial independence for the State a little easier.