Aideen Hayden (Labour) | Oireachtas source

I welcome the Minister to the House. As a number of colleagues have said, this Bill follows the enactment of the European Stability Mechanism Act in 2012. To some extent it is a technical measure dealing specifically with recapitalisation of banks and the retroactive recapitalisation of financial institutions. That may or may not be something that Ireland can engage with and I fully understand that the Minister is confident of that fact.

I will start with some of the current issues concerning the state of the European economy. In recent times it has been evident, particularly when one looks at the volatility of European stock exchanges, including significant losses in recent weeks, that we are far from being out of the woods in terms of the crisis in Europe. Generally speaking, although our own performance has been significantly better, the reality is that Ireland's own recovery will be under threat if we do not see a wider recovery within the EU.

The European Central Bank has indicated that it will take further measures to stimulate the European economy, but some economists have said the ECB has gone as far as it is able to go in real terms. The markets have already priced in any further action the ECB could take. I am raising this issue because the measure before us is important. The debate in this House is very much focused on its retroactivity and particularly its application to Ireland, as the Minister has said.

I note that a memo from the European Stability Mechanism confirmed it would be retroactive, although it would require mutual agreement. Some cold water has been poured on the idea that we could achieve mutual agreement on a retroactivation application for Ireland, given that there is a certain pessimism that Germany would agree to such a move.

I have a concern about our current shareholdings in AIB and Bank of Ireland. Perhaps the Minister can answer this question. If we were to engage in the retroactive application of the recapitalisation instrument for Ireland would that mean we would have to dispose of our shareholdings in those financial institutions? I am asking that because there is significant evidence, particularly with Bank of Ireland and, to be fair, with AIB also, that those financial institutions are turning the corner. I wonder to what extent it would be prudent for us to retain our shareholdings in those two financial institutions.

Others may not share my view but I am particularly aware of the fact that a similar situation arose over 20 years ago when we took a shareholding in AIB under another coalition Government. We then retrospectively discarded those shares, but had we held onto them the country would not have been in the situation it found itself in in subsequent decades.

I have another reason for wanting to maintain our shareholding in both AIB and Bank of Ireland that relates to the situation facing the ordinary people of Ireland in terms of our financial future and their access to financial support.

We have changed a good deal since the 1970s. We no longer have building societies or the level of finance available from local authorities, for example, to people on low incomes who want to secure mortgage finance. A serious debate remains to be had in the country about the future of our banks and the banking sector and how ordinary people on middle and low incomes are going to do business in future. Far better for that debate to be had while we retain our shareholdings in the two banks. I am concerned that a recapitalisation of the moneys invested by the people in these banks could leave us in a position where we had less control over the future of banking in the country.

Another aspect of all of the debate relates to the future of the euro area and the recapitalisation provisions of the European Stability Mechanism generally speaking. I was rather struck by the fact that the Minister clarified that the instrument will not be used for the winding up of institutions. I was reminded of an article I read recently in which a German economist, Professor Sebastian Dullien, warned that banking union would be unable to cope with any systemic crisis in the eurozone area unless the winding up of failing banks could be financed via the European Stability Mechanism bailout fund. Are we going far enough with this mechanism? He also went on to query the amount of funding that would be available through the mechanism which, I understand, is capped at €60 billion, although I could be wrong.

Of more concern to Ireland, perhaps, was that he raised the questions of whether this measure would be levelling the playing field for countries such as Ireland. He took the view that if problems were to loom in the Irish banks we would have to reckon with what he termed a bail-in of creditors and investors. He argued that we might not be considered a threat to the European banking system generally speaking. His comments were rather pessimistic. He argued that we would not be in a position to bail in our banks given our current financial situation and that investors in the European banking system generally speaking would know that. He also argued that, for example, Deutsche Bank would have an advantage over Irish banks. I am unsure whether that is realistic and something we should be taking seriously or whether the Minister is confident that the recapitalisation measures are sufficient to cover Ireland in the event that any of our banks were to suffer from a crisis because of the fragile position of the European economic area generally.

It is a great credit to the Minister - we have not seen him in the House since the budget - that as a country we are in a position to go forward. Part of my concern about the country holding shares in our principal banks is that it is the ordinary people of Ireland who have paid the price for the financial crisis. It is wonderful that we have turned a corner but I would hate to be in a position in ten years time to have to say that we did not take the right actions or do the right thing to ensure any potential benefit to the people, such as by retaining these shareholdings.