Billy Kelleher (Cork North Central, Fianna Fail)
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On behalf of the Government, I welcome the opportunity to contribute in the Seanad to the statements on the recent IMF and OECD reports on the economy. Given the prevailing economic environment, the analysis and policy prescriptions set out in these reports have received widespread coverage and were the subject of a Dáil debate last week. This is entirely appropriate as it raises understanding of the scale and complexity of the challenges the nation is facing. Discussing the reports in both Houses also provides an opportunity to clarify some of the issues which have arisen during this discussion so far. In particular, it allows us to put on record the endorsement of these influential international organisations for the policies the Government is pursuing.

The OECD analysis of the economy was published as part of a normal forecasting exercise for all the OECD member states. Its forecast is for GDP in Ireland to contract by 9.8 % this year, which is the most pessimistic projection for the economy to date. Leaving aside the scale of the contraction, nobody would disagree with the OECD that the economy is in the midst of a severe contraction, reflecting a correction in large domestic imbalances, which is being compounded by the global economic and financial crisis. Two further aspects of the OECD analysis should be highlighted. First, given the scale of the adjustment so far, the OECD takes the view that the underlying economic imbalances are unwinding rapidly and this could add more strength to recovery than anticipated. Second, the OECD is projecting large contractions in other advanced economies. Economic activity in the euro area is forecast to decline by -4.8%, -4.3% in the UK and -2.8% in the US. While we take no comfort in this, it points to the negative impact from the deterioration in the external climate, so that some improvement in domestic conditions can be expected when the global economy improves. As is the normal practice, every year or so economists from the International Monetary Fund conduct an in-depth analysis of the Irish economy. The recent report was a balanced and realistic assessment of the economic, fiscal and financial challenges we are facing. Crucially, the report endorses the policies being pursued by the Government. It says that in the two areas that matter most - the healing of the financial sector and the correction of the budgetary situation - the Government has moved in the right direction. As we all are aware, the fund is a rigorously independent organisation, with a considerable economic expertise, so the endorsement it provides for the actions being taken by the Government carries considerable weight internationally.

In terms of the economic outlook, the IMF is projecting that the Irish economy will experience a cumulative fall of 13.5% between 2008 and 2010. While this received widespread coverage, informed commentators recognise it is broadly of similar magnitude to the earlier forecast made by the Department of Finance in the April supplementary budget. Attempts have been made in some circles to link our present economic difficulties with earlier Government action. The reality is that virtually nobody anywhere foresaw the nature and scale of this global recession, which as has been pointed out before is the most severe in post-war Europe. Some people have attempted to portray the report as critical of budgetary policy in recent years. Clearly, policy must be formulated on the basis of information which is available at the time. In this regard, previous IMF analyses, as well as analyses by others, showed that fiscal policy was broadly appropriate at the time. Hindsight, as we all know, has 20:20 vision.

In terms of the current budgetary situation, the IMF report commends the Government for its actions to resolve our fiscal difficulties, pointing out that the approach and elements of Ireland's budgetary plans are appropriate. There is a broad welcome for the fiscal measures which have already been taken, including initiatives to curb public sector costs. One of the key elements of the Government's approach to deal with the current economic challenges is to restore sustainability to the public finances. In this regard, the supplementary budget in April set out a multi-annual consolidation plan for the public finances in order to bring the general government deficit to 3% of GDP by the end of 2013. This is the Stability and Growth Pact limit. It should be noted, therefore, that this approach has also been welcomed by the European Commission.

As Senators will be aware, a substantial number of concrete steps have been taken by this Government to reduce the public service pay bill through a reduction in the numbers employed. The initiatives to achieve this include a freeze on the recruitment and promotion of public servants, the introduction of incentivised early retirement and a career break scheme. In terms of pay, the review body on higher remuneration in the public sector has been asked to undertake an examination of the remuneration of higher level posts in the public service. Part of the remit of the review body is to take account of the pay of comparable posts in other countries with similar economic and political systems, particularly those in the eurozone. The Minister for Finance has publicly indicated that the report of this review body is to be completed by the end of September. These measures represent a comprehensive set of actions to reduce the cost of the public sector wage bill and to supplement the introduction of the average 7% public sector pension levy and the non-payment of the terms of the latest pay deal. Measures to reduce the public wage bill will, of course, be complemented by public sector reform. The Government has adopted the recommendations in the report of the task force on the public service, Transforming Public Services, which sets out a framework for what amounts to a radical transformation of the public service. It has recommended specific actions over set timescales which the Government has agreed to implement.

While the IMF report commended the Government for its actions to date to bring sustainability to the public finances, it also emphasised that these actions need to be sustained. In this regard, the fund has highlighted that further fiscal consolidation efforts should focus to a greater extent on expenditure reduction, as opposed to revenue raising. The Government is keenly aware of these considerations. Earlier this week, the Minister for Finance received a copy of the report by the special group on public service numbers and expenditure programmes. The Minister will consider its deliberations before bringing it to the Government where the analysis and recommendations it contains will provide a framework to help identify economies which can be made on the scale necessary to ensure that the public finances are restored to a more sustainable path. The group's conclusions will be considered on an ongoing basis in the context of preparing estimates of expenditure for 2010 and later years.

One of the key priorities identified by the IMF in addressing our current economic difficulties is the stabilisation of the financial sector to ensure it can discharge its vital role in credit provision to the real economy. Before addressing some of the points made by the IMF, it is important to provide some context to the rationale which underpins the Government's interventions to stabilise the banking sector. At a fundamental level, the banking system is at the core of a functioning economy and needs to be maintained in the interests of the economy and society at large. The Government's approach to tackling the financial crisis has been structured and considered at all times. The Government has demonstrated its commitment to prevent the failure of any systemically important financial institution. Over recent months, the Government's priorities have been to prevent the collapse of liquidity to the banking system; where necessary, to maintain and rebuild the capital position of systemically important banks; and to address the issue of confidence in asset quality of the banking system. The introduction of the bank guarantee scheme was a necessary urgent measure to ensure the banks had sufficient liquidity to operate on a day-to-day basis. If this action had not been taken at that time, there would have been a serious threat to the overall financial system. In the circumstances, the Government had to fully address the systemic risk in an urgent and effective way. The bank guarantee scheme was the best way to do that.

We continued our support through the nationalisation of Anglo Irish Bank and the recapitalisation of our two largest banks. Every country in the world has had to take a number of different measures in response to the evolving banking crisis. This is what the situation has demanded. The €3.5 billion recapitalisation of Bank of Ireland and AIB and the more recent capital injection into Anglo Irish Bank have indicated this country's strong resolve to stand behind systemically important banks in the interests of jobs, the economy, the country and society as a whole. NAMA is a further and crucial step in resolving the banking crisis as it will deal with uncertainties about asset quality, in particular those relating to land, property and associated loans on the banks' balance sheets. As long as this matter is not addressed, there will be question marks about the banks' ability to play their part in the restoration of economic growth. The IMF states that the Government has responded to the crisis in the right manner. It says that, along with ECB facilities, the bank guarantee has helped the banks to obtain market funding and stabilise the banking system. It also notes that the Government is willing to provide additional capital, subject to EU approval and an appropriate return, to important banks.

In the report, the directors of the IMF registered their support for the Government's proposals to restructure the financial sector and establish NAMA. Further, the IMF commended the speed and scale of the initiatives taken by the Government to counter the severe shock to the financial system. The IMF report notes that the estimates of the losses faced by the banks vary. It also provides its own estimate. However, the IMF has made it clear that its estimate was not based on a detailed accounting assessment of the banks. It was based, with adjustment, on the wide range of estimates already in the public domain and arising from a high level review. The IMF report notes the importance of getting the legislative and operational structure for NAMA right and of ensuring the agency is up and running as soon as possible. The establishment of NAMA has been a key priority for the Government. Preparations for the establishment of NAMA continue apace. Recently, a number of expert advisors were appointed to advise the interim managing director and Government in the drafting of the NAMA legislation, as well as the practical preparations for the operation of NAMA. This expert advice will enhance the drafting process and help to ensure the agency is up and running without delay. The legislation establishing NAMA will be published later this month and will be brought to the House for debate in September.

Many commentators seem to be suggesting that the wholesale nationalisation of the State-guaranteed banks is an alternative to an asset management agency approach. It has also been suggested in some quarters that the IMF favours nationalisation, but that is not the case. The IMF sees it as possibly being necessary in certain circumstances. The Government does not accept that the nationalisation of the entire Irish banking system will be the short-term panacea many people envisage. As has been previously indicated, the Government believes it is important, where possible, for the banking sector to have a market presence and operate within market disciplines and constraints. The Government's objective is to ensure the lending needs of the real economy are met. A commercially focused banking system, which includes banks having a market presence and operating within market disciplines and constraints, is best equipped to achieve this aim. In itself, nationalisation will not address any of the problems faced by the banks. Many of the difficulties relating to managing impaired loans, cleansing the balance sheets of the banks and dealing with legal challenges will also arise in the context of a nationalised banking system, perhaps even to a greater extent. It should be noted that no country is currently adopting a policy of wholesale bank nationalisation. There is no immediate reason for Ireland to adopt such a policy. If Ireland were uniquely to proceed down that route, it could, from an international perspective, be very damaging to Ireland's reputation and attractiveness to international investors. Importantly, this would not be limited to the provision of funding to the banking sector but could affect international investment more generally into all areas of the economy. Nationalisation is something the Government believes should be avoided if possible. We acted in the case of Anglo Irish Bank to nationalise it when it was clear this was the right option in the circumstances of that specific bank. However, the minister for Finance has made it clear in the past that if any further capital injections are required from the State for either of the two main banks, these will be in the form of equity capital which would have the effect of increasing State ownership of the two banks although we are hopeful that this will not be necessary.

Overall, therefore, the Government has taken a number of significant steps to protect and restore the financial system in the sole interest of protecting the economy and the Irish people. It is clear that the IMF endorses and supports that broad framework of our approach. It is also clear to me that the actions taken to date have helped support the financial system and it has not been satisfactorily demonstrated that any other proposed option would have been better.

Before finishing, I would like to say a few words about competitiveness. Both the IMF and OECD reports identify enhanced competitiveness as crucial to a restoration of economic growth. In this regard, the Government is implementing measures which will ensure that the economy is in a position to take advantage of the global recovery when it emerges. For instance, notwithstanding the deterioration in the public finances, the Government is maintaining capital investment at relatively high levels by European standards. These investment programmes will help to eliminate bottlenecks, reduce costs and enhance the attractiveness of Ireland as a location for foreign direct investment.

The Government also continues to invest in education at all levels to ensure we have the skills demanded by our increasingly knowledge-intensive economy. The Government remains committed to providing a pro-enterprise environment and to maintaining our relatively low tax burden on business.

Enhanced competitiveness is recognised as a key feature of the smart economy strategy launched by the Taoiseach which sets out our agenda over the next few years on how we are to re-orientate and reprioritise the business of Government to achieve the goal of building a more competitive economy that will help underpin our future.

The Government remains committed to implementing measures that continue to support the smart economy through investment and incentives to reach a research and development target of 2.5% of GNP by 2013. Ireland has already trebled economy-wide expenditure on research and development over the last decade to around €2.5 billion. In this regard the recently increased tax credit for research and development is seeking to encourage the promotion of sustainable areas of economic activity and growth.

In addition, the flexibility of our economy, a function of the many pro-business reforms implemented in recent years, has improved our capacity to adjust to the new economic climate. There is considerable evidence that labour costs are responding rapidly. Regardless of what some may say, wages are falling in the public sector also. In addition, figures published yesterday show that consumer prices continue to decline, supporting real incomes and improving our competitiveness position.

In summary, we are facing tough challenges and to succeed we must continue to pursue appropriate policies that will position the economy to benefit from the global recovery when it eventually emerges. The Government is acutely aware that businesses, families and almost everyone in our society is being affected by the deterioration in economic conditions. What we are attempting to do is to ensure the burden of adjustment is spread evenly and that the deterioration in our living standards is minimised.

The analysis undertaken and published by external agencies in recent weeks is clearly useful, and confirms that we are moving in the right direction. I look forward to the contributions from other Senators.

The IMF report was discussed in the Dáil last week and it was a useful debate. In the context of making contributions, if Senators are referring to the IMF report, I urge them to cite the detail as opposed to dwelling on some of the perceptions put out, probably by people who had not read the report. It is well worth reading and in general it gives a positive endorsement of the Government's policies in what are clearly very difficult times. We all know the challenges, but importantly from a public representative's viewpoint, they are most visible in terms of rising unemployment, with the ensuing difficulties for families, individuals and society at large. While we speak about facts and figures we must always be conscious that behind them are individuals who have lost their jobs.

The Government is acutely aware of the situation and is trying to introduce policies to ensure that training and upskilling programmes are in place for those who have lost their jobs. It is crucial that we do not allow the situation to drift into chronic long-term unemployment. That is one of the major challenges facing Government, to ensure we do not again experience the long-term unemployment norms that persisted in the early 1980s.

The challenges are there. The Government is resolute and determined to bring forward polices that are right, if not necessarily always popular. In the interests of fairness, any adjudication of the policies being pursued to date in the key areas of bringing stability to the financial sector while addressing the budgetary deficits, will reveal that the Government is on the right path. It may be unpopular but we are trying to ensure the burden is carried by as many as possible. At the same time we must ensure the most vulnerable are not left behind.

I look forward to the Seanad contributions. Incidentally, the perception that Dáil Éireann is rising today and we are all off on a jolly holiday for months, as portrayed by sections of the media, is simply not the case. The Government will be working, as will the committee system, I am sure. More importantly, the policies we have outlined in the context of the Supplementary Estimates in the budget in April and equally the drafting of the NAMA legislation which will be before the Oireachtas in September, are key critical components. We shall be working on them throughout the summer, for fear that those who might not believe us think we are all off on holidays, in what is clearly a very challenging time for everybody in Ireland.

Liam Twomey (Fine Gael)
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With the permission of the House, I wish to share time with Senator Eugene Regan.

I do not know whether the Government has learned anything as regards what is actually happening in this crisis. There was an unbelievable episode around 15 months ago, in March 2008 I believe, where the Government announced it wanted to give itself pay increases of between 12% and 14%. At the time while it was not as clear as it is today that the economy was in trouble, it was obvious that there were problems coming down the track.

The then Taoiseach, Deputy Bertie Ahern, and the then Minister for Finance, Deputy Brian Cowen, were about to splurge out and give themselves another increase on the recommendation, they said, of the Civil Service pay review body. It was so outstandingly stupid that the only credit one could give Ministers at the time was the fact that they did not actually pay themselves the money, because it was just unreal. The Minister of State, in his speech is trying to make out that people are taking lines out of the IMF report to have a go at the Government. It must be remembered that before the IMF report was published it would have passed through a number of hands in Government Buildings to ensure it contained nothing glaring that would embarrass the Government. It quite clearly states that this place was run by a bunch of lunatics between 2002-07. Government policies have basically banjaxed this country and put us in a worse position. It is stated quite clearly throughout the report that the Government overheated the economy and that we are suffering one of the worst contractions in GNP by comparison with the rest of the world. This Administration has made a mess of it.

The fact the Minister of State can talk away, as if there were only minor problems to be dealt with, is misleading the people. They should know that this is serious. The financial sector is a serious worry, for example. If the IMF said the deficit was €35 billion and this was read by civil servants in Government Buildings who did not contradict the report, then it is a fair indication that this figure is being accepted by Government as a true estimate. The public finances remain a serious concern, and day to day spending in the public sector has increased this year, not contracted. The Government is still not prepared to publish the report of an bord snip nua, so that we may see what it is planning to do. There is a €20 billion deficit in our public finances.

I do not believe it is right that the Minister of State is attempting to palm us off with the assertion that the Government will be working over the summer. There is a serious need to inform the people as regards how bloody serious this problem is. They have lost confidence in the Government and understand the essence of this report to the effect that we have dismantled our economy. It was the Government of the day which did this. One remembers the former Taoiseach, Deputy Bertie Ahern, kept going on about the fact the economy was flying, because there was an election coming up in 2007. The executive summary in the background to this report says that since the start of the decade, especially from 2005-07, easy credit fostered a property bubble, bank exposure to property lending soared while reliance on wholesale funding intensified. It says wages rose rapidly and international competitiveness was compromised.

When people write these reports they do their best not deliberately to embarrass the Government, but throughout this report the finger is pointed at bad government. The first thing the Government must accept is its role in dismantling our success. The report clearly states that the real Celtic tiger that was driven by competitiveness, increased exports and increased foreign direct investment survived from 1989 to 2001. That was the real success of the Irish economy. After that, bad Government policies dismantled the Celtic tiger and left us in this situation.

The Government was warned time and again. I have a number of extracts from speeches Deputy Bruton made from 2004 right up to before Christmas constantly pointing out to the then Minister for Finance the dangers of his actions. Deputy Bruton showed that Government spending was outpacing growth in the economy. Economic growth was already focused on a property bubble and taxes that were unsustainable in the long term. Those were the sort of issues Government Ministers knew about. A number of people were pointing out this problem, not just Deputy Bruton.

When people collected their SSIAs in 2007 approximately half of the people used that money to pay off debts and get their credit back in line because they knew something difficult was coming down the line. It seems the Government members were the only people who did not know what was going on. I do not know if it was arrogance, stupidity or if the Government was plainly misleading people, but that is what happened. The Minister has to let us know what will happen next. He must also accept the blame. He cannot say this is just a global economic correction. Ours is a massive 13% contraction in the economy from its peak to where it will be next year.

In time we will know where people's standards of living are back to. It has been pointed out that the average Irish household has lost €150,000 in value. The Minister is correct that for some people it is even worse than that. They have lost their jobs and homes and he has shattered their futures because of the messing that went on in Government Buildings when then Taoiseach, Deputy Bertie Ahern, and then Minister for Finance, Deputy Cowen, were running this country. The Government still refuses to acknowledge there was a problem. That arrogance and the fact that it cannot accept its role in this, is the reason people want the Government out of Government Buildings.

That is some of the history of it, but now we must say what we will do next. That will be incredibly difficult. The Government must cut back on public expenditure and broaden the tax base to tax people more. Unfortunately, with the economy contracting so quickly we are going into a deflationary cycle. If that takes hold we will be in an unbelievable mess and we run the risk of having someone come in and make these difficult decisions for us. That is why the Government must publish the report of the special group on public service numbers and expenditure programmes, SGPSNEP.

I mean no disrespect to the Minister of State, Deputy Kelleher, but that is why the Minister, Deputy Brian Lenihan, should have come in here this morning to talk about this. We need to have some idea of what is going on inside his head and where he is taking us over the next 12 months because the decisions that will be made in the next six to 12 months are crucial. It is only reasonable that the two Houses of the Oireachtas should know what is going on.

It is stupid to ask what the Opposition will do because we do not run this country yet and it does not matter to the Irish people what we want to do or might think about doing until an election is called. Because the Government has gone into bunker mentality, there will be no general election for a couple of years, as it keeps telling us. It does not matter what we think for the next two years but it is extremely important we know what the Government members are thinking so we can have a proper debate on it.

There is a need to control public finances and we want to know what the Government will do. The IMF report says primary expenditure, meaning expenditure by Government, must be reduced by the equivalent of approximately 9.5% of GDP. It also points out that the Government must increase taxes by the equivalent of 3.75% of GNP. The Minister has given us no indication how the Government will achieve that between 2009 and 2014. The essence of his speech should have been pointing out what the Government will do.

The Minister mentioned Government reform in his speech. Government reform has been talked about since 2001 but the Government needs to accelerate the reform he is talking about. The amount of reform between 2001 and now has been almost negligible. There has been very little reform, in fact we have seen an explosion in the number of people and costs in the public service and it has not delivered the increase in productivity one would have expected from the sort of cost involved.

The Government is just talking about what it will do. I have seen nothing concrete from the Minister of State, Deputy Kelleher, or any senior Government Ministers so far about what they are actually going to do. So far it is all bluff and bluster. This is why the Irish people are growing more and more tired by the day of what the Government is up to. The Government must first come clean and admit its mistakes and its role in destroying this economy. It then needs to quickly publish what it will do.

The Governor of the Central Bank came out on the day of the local elections giving us the impression that there were green shoots in the economy. Either the Governor suffers from the same delusions the Government suffers from, or he is too close to the Government and is not impartial. The rate of decline in the economy is slowing, but it is still declining. This report would have been shown to the Governor of the Central Bank before it was published and he would have known these figures. If senior people in the civil and public service and the regulatory bodies, who are supposed to be impartial, are acting as mouthpieces for the Government that is a serious concern for how this country is being run.

That is why people talk about cronyism, people being too close to each other and the Government having been around too long affecting its judgement. If that is going on, this country will end up in a worse state than it is. Our economy remains susceptible to damage from other external shocks. When all this settles and we reach 2010, the people of Ireland will be shell-shocked when they think back to where they were and where they will be next year. The Minister and his Cabinet colleagues are giving them no indication whatsoever of where they are going, but are fooling them.

It will be extremely difficult next year and there is a need for more honesty and truth as to where our economy is now. People are on strike for a 10% pay increase because they are listening to Ministers saying things are not as bad as they are. This IMF report should be read by everybody. It is pretty straightforward and easy to read but it is damning of the Government and frightening for our future.

Eugene Regan (Fine Gael)
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What emerged when this IMF report was published was that the Taoiseach and the Minister for Finance took a different view on it. The Minister for Finance was quite pleased that all the blame was laid on the Taoiseach for his management of the economy. Now we have the SGPSNEP, which is to follow up on what the IMF recommends in fiscal consolidation. We have a difference of view between the Taoiseach and Minister for Finance with the Taoiseach not wishing to publish this report and get on with implementing the measures identified therein and the Minister for Finance in favour of publishing it, as implied in the statement from Deputy O'Rourke that it should be published. Perhaps the Minister of State will clarify if there is a split between the Taoiseach and Minister for Finance on this issue.

I have another question for the Minister of State which I signalled earlier in the week in regard to the manner in which the Minister for Finance has procured legal advice services in respect of the bank guarantee scheme, the National Assets Management Agency, NAMA, and its operation. It is quite evident that the firm engaged by the Minister and the Department, Arthur Cox, has also been engaged by the National Treasury Management Agency, NTMA, the Bank of Ireland and developers who will be involved in the NAMA operation. As I indicated previously, developers are considering moving to this firm because they believe it has the inside track on how the Minister for Finance is thinking and is intent on implementing NAMA. This type of political patronage and cronyism, which has the sense of insiders and an inside track, this lack of independent advice, untrammeled and uncomplicated by the same people acting for other interested parties and the apparent - in my view self-evident - conflict of interest in this type of arrangement raises concerns about the approach of the Minister for Finance in regard to this particular area. I ask that the Minister of State to clarify whether be believes there is a conflict of interest in the Minister procuring advice from the same law firm that is advising all of the major participants in the NAMA rescue operation.

Ivor Callely (Fianna Fail)
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I welcome my colleague, the Minister of State, Deputy Billy Kelleher, to the House and the opportunity to contribute to statements on the OECD and IMF reports at a time when Ireland is trying to respond adequately to its greatest challenge ever.

This is a time for sound and solid decision making, when knowledge, experience and innovation are a necessity and we cannot afford to try a little bit of this with a little bit of that. Leadership of Government and the decisions we make in these Houses will determine our future, the quality of our lives and the opportunities for our children. From discussions I have had with my colleagues in Government, including the Minister of State, Deputy Kelleher, the Taoiseach and Minister for Finance, it is clear there has been careful consideration of our exposure and assessment of the extent of our problems as a small open economy. There is clear recognition that we need to correct the position in which we find ourselves and in this regard priority has been given to three areas, public finance, the stability of our banking sector and competitiveness. There is no doubt there will not be any gain without pain, a pain we are currently experiencing. Arising out of the careful consideration and assessment carried out by Government, decisive decisions have been made and a multi-annual programme of expenditure reductions and taxation measures has been set out.

The reports before the House today commend the Government on its actions to date. I listened with interest to the previous two speakers. Senator Twomey read into the record extracts from contributions made by various Ministers during the past five years. What a joke and how sad that he had to resort to pulling lines from previous contributions, perhaps even out of context, and sought to put them up in highlights saying a particular Minister said whatever on a particular day. If that is where we are going, God love us.

Liam Twomey (Fine Gael)
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Where did I say that? The Senator is making it up as he goes along, which is stupidity.

Ivor Callely (Fianna Fail)
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Senator Regan indicated there was a difference between what the Taoiseach said and what was said by the Minister for Finance. To those who wish to go down the track of the blame game, seeking to catch Government out by throwing a banana skin here or there, I say, "keep at it".

I believe the public recognises the seriousness of the situation we are in. There are people who are engaging in the blame game and pointing the finger saying "It was them". However, I will bring this debate a little wider than the national issue while recognising that there is a national issue. I believe we do not need the reports before the House, although it is encouraging that the IMF report in particular sings from the exact same hymn sheet as the Government, which is commendable and should be recognised, endorsed and highlighted.

The International Monetary Fund report refers to the global shocks and states that Ireland's position was especially vulnerable and that the impact on us will be sizeable. It refers to the rapid progress on bank restructuring and states that the Irish authorities have taken important steps to stabilise their financial systems. Interestingly, it states that the proposed National Asset Management Agency, NAMA, is potentially the right mechanism to separate the good from the bad assets. We all know we are in uncharted territory in terms of NAMA and whether it will do what we hope it will do. In this regard, we would all wish to have a crystal ball. What gives me hope is that when we set up the National Treasury Management Agency, NTMA, a number of years ago we were not then sure how it would work. We, as politicians, have failed to congratulate the NTMA, through Mr. Somers and his team, in particular Mr. McDonagh, who have done tremendous work in that agency. I believe NAMA will be as successful as the NTMA. That is my view. The IMF report sends out the clear message to those players not on the Government benches that the Government decisions to date have been correct.

I say to Senator Twomey, whom I appear to be upsetting a little, not that that worries me, that the Fine Gael fairytale response-----

Liam Twomey (Fine Gael)
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Not really. I am not bothered either.

Ivor Callely (Fianna Fail)
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I would like to read the following into the record: "A capital injection of €2 billion to the banks would give them a figure of the order of €40 billion borrowing capacity" and in terms of default, "default on the bonds would not do any damage to our international financial reputation". Were one to put such a proposal to anybody in business, anyone with a knowledge of the financial markets, the word "fairytale" would crop up fairly quickly.

On the other hand some of the other people involved on the Opposition benches such as those in the Labour Party simply favour total nationalisation of all our banks. I wonder if the general public is fully au fait with and aware of these opposing views compared with a coalition Government that has uniformity and policies that have been commended by international organisations. Let us pause on that for a moment. We have a group of people in opposition with opposing views, some of which just do not add up; the equation just does not figure. On the other hand we have a group of people in government who have policies that are being implemented and commended. Rather than getting bogged down on differences-----

Liam Twomey (Fine Gael)
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What happened to the economy?

Ivor Callely (Fianna Fail)
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-----we should make progress on issues on which we agree. I am pleased to note the Opposition recognises the need to correct the public finances, stabilise the banking system - albeit its view is different from that of the Government - and restore our competitiveness.

The current crisis is obvious and is being given the high priority required. The crisis is a serious challenge facing not just Ireland alone, but countries across the globe. I believe the world financial crisis was caused by overstretching financial liberalisation, lack of appropriate regulation and lack of oversight of financial markets. The world economy is in severe recession which has serious political and social consequences. Given the global nature of the crisis, I believe an international co-ordinated response is essential in order to alleviate the strains on societies and to prevent similar crises. The financial crisis is a security concern that can lead to widespread insecurity. A sense of urgency in national governments in implementing an effective and co-ordinated approach to recovery is urgently warranted. Governments face insecure populations as unemployment increases and standards of living decrease leaving the position ripe for rising crime, labour strikes, protectionism and revolutionary ideas to be sown. Political and economic nationalism are also likely. The financial and economic crisis may also have a gender specific impact, particularly on women as they are often first to be laid off. National governments already implementing various measures to reverse the financial and economic downturn lack a common response. That is particularly noticeable in the transatlantic response.

The co-ordination of financial and economic policy is implemented on an ad hoc basis and often in the narrow interest of individual states. The origin of this crisis is seen as regulation failure. Greater supervision of financial institutions is the answer. The crisis has its roots in misguided deregulation policies in the United States. I do not mind the Opposition spouting on about different governments in the 20th century. The reality is that the current crisis is global and has its roots in the United States. The US authorities have recognised their failure in certain financial regulation policies and have pledged to correct them. Europe has acknowledged the need for increased financial regulation and I identify a lack of co-ordinated European fiscal decisions.

While the United States and United Kingdom spending plans are likely to create debt and currency problems in the future, many are praising them as the necessary first steps. I recognise that the G20 conclusion took positive steps to alleviate the effects of the financial crisis, particularly in establishing the financial stability forum to co-ordinate regulation globally and to give a stronger role to the IMF in lending to distressed countries. The G20 also reached agreement on making additional moneys available in trade credit to importers and exporters. Another proposal was the Stiglitz initiative creating a new global economic council to set the agenda for global financial and economic policy. It also proposed a new global reserve system to regulate-----

Paddy Burke (Fine Gael)
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The Senator has one minute remaining.

Ivor Callely (Fianna Fail)
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There are dangers of protectionism and nationalism. I would have concerns in this regard. I believe the future effects of the crisis and the final position remain to be seen. Both sides of the Atlantic have introduced sweeping reform packages, intended to stabilise only their economies. Companies that have been given bailouts are likely to be more open to do business since they have greater resources thereby putting others at a disadvantage. Government influence in business decision making will grow since governments are buying up large parts of the private sector. Solutions to the current crisis should involve the following: job creation; providing unemployment benefits where needed; developing alternative industries that will spur growth and diversity, which we are doing in Ireland; and infrastructure spending which will positively impact on countries as it will address critical projects and create jobs. It is especially clear that greater oversight and regulation are necessary. A combination of financial regulatory tools is likely to continue to form the solution.

I am pleased to see some of the steps being taken regarding the banking sector. I again take the opportunity to put on the record that we have a banking sector in serious difficulty. A code of practice was introduced following the injection of the stimulus package for the banks. The code of practice on mortgage arrears is in place and organisations such as MABS are assisting. On the other hand there are serious problems with the levels of support for and credit available to small and medium enterprises. The code of practice is not being applied. Banks have failed small and medium enterprises. There is no authority such as MABS for them and support is only available to those businesses affiliated to ISME. The UK is establishing a new agency. I am sure others will share my view that the Minister should consider introducing an agency to complement MABS to solely look after small and medium enterprises, ensuring that the code of practice and the other issues the Minister worked out on the day regarding the availability of additional credit facilities, etc., are being implemented.

While I welcome some of the work being done on pay - we know what is happening in the public and private sectors - only one banker's salary was really exposed, which was that of the chief executive of Bank of Ireland. For the credit manager who has authorisation to lend more than €1 million, I wonder has his or her salary been impacted in any way.

Paddy Burke (Fine Gael)
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The Senator must conclude.

Ivor Callely (Fianna Fail)
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I will take the opportunity of discussing this with the Minister at greater length. I have serious concerns as have many Members of this House. We need to do something regarding the banking sector in Ireland.

David Norris (Independent)
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I wish to share time equally with Senator Quinn.

Paddy Burke (Fine Gael)
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Is that agreed? Agreed.

David Norris (Independent)
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Perhaps you might indicate when that barrier has been reached so that I can break it.

This is not a tsunami and is not an inevitable naturally occurring phenomenon. It is man-made and there must be a way out of it. It is a mirror image of the 1929 crash, of which people of my generation heard but have not experienced, and that is worrying as we are back in the same situation. However, there are some positive developments. In addition to its report on Ireland, the IMF produced a report on Wednesday indicating that the world economy was starting a recovery but that it was likely to be weak and we might hit the double bounce situation rather than having a sustained economy, and that would be extremely worrying.

There is obviously an attempt by Government to spin the IMF report, which is, by and large, neutral.

Billy Kelleher (Cork North Central, Fianna Fail)
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No.

David Norris (Independent)
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Yes, there is. The other side is spinning it furiously in the opposite direction. I am not interested in that but I am interested in one fact, that in none of the contributions so far, by the Minister of State, Government speakers or Opposition speakers, has there been any mention of the moral parameters which led to this crisis. This has been instigated by greed, folly, gambling, stupidity and all these things which the western cultural tradition should have warned us against.

I find it unusual that I am in agreement with His Holiness Pope Benedict XVI. It is interesting that he recently issued an encyclical, Caritas in Veritate, Charity in Truth, in which he rejects unbridled market capitalism and the unregulated market, describing them as thoroughly destructive in their abuse of the system. He indicates that every economic decision has a moral dimension and looks for forms of redistribution of wealth. This is not what I expected to hear from the Pope but I very much welcome it. One of the deficiencies in the report is that, while it contains a good deal of facts, some of which are disputed, and a good deal of economy theory, there is no recognition of the fact that this difficulty was created through means that were grossly immoral and there is no recognition of the need to re-establish a moral parameter in which profit is not the only motivating consideration. The Pope suggests international regulation and he makes the good point that "the conviction that the economy must be autonomous, that it must be shielded from "influences" of a moral character, has led man to abuse the economic process in a thoroughly destructive way", and he is right.

We heard Margaret Thatcher say that there was no such thing as society, there is only the economy. Other people have said that naked greed is good. People engage for short-term profit, not the long-term perspective of business that, for all their faults, the Victorians did, with their paternalism and attempt to take care of workers, employers such as Cadbury and Guinness and those sorts of people, but this has all been lost.

I have been saying this for some considerable time, but I was interested to read a report in one of today's newspapers about the Nobel prize-winning economist, Professor Amartya Sen from Harvard University. I heard him speak on radio this morning. He gave a lecture yesterday, entitled "On Global Confusion". He suggested that what we need is a new capitalism. That makes it all the more disastrous that the Americans and conservative religious elements, including the Vatican, conspire to destroy that extraordinary and unique experiment in Nicaragua where they were attempting to pick the best out of capitalism and communism and bring them together without fear of ideological label in the interests of humanity.

It is interesting that Adam Smith is often promoted as an advocate of the free market system, yet Professor Amartya Sen quoted a sentence Adam Smith wrote at the start of his first book in 1759 as follows: "How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it." Professor Amartya Sen said that we have to go beyond merely the profit motive.

The same extends to this notion of competitiveness and competition. It is tragic that many people confuse competition with competitiveness. Competition does not always lead to competitiveness. We need think only of the disaster of Eircom where it was spun out to the capitalist moguls to be asset-stripped and then flung back. Now we have a disastrous telephone system. We have access to phones only because of mobile telephones, for which Eircom has no responsibility.

The Minister of State recognises the difficulty and he quoted some of the facts. The IMF indicates that the forecast is that Ireland will contract by 9.8% this year. That is twice the European average. That is a dangerous situation for us to be in and it is extremely worrying that this should be the case. The Minister of State spoke about addressing that by cutting the public service. There is some suggestion there may be tax increases. The IMF indicates that it is much preferable to cut expenditure than to increase taxation. I very much hope that this suggestion will be followed by the Government.

The Minister of State referred to the special group on public services, which has a long name but is known as an bord snip nua. There has been considerable criticism, including from those on the Government benches in the Dáil for not publishing this report. I am in favour of transparency and accountability but, from a tactical point of view, the Government would be mad to publish it. This is a document that was intended for the information of Cabinet to inform decision-making, it is not a report to be picked over by the press at this stage. We should have access to it subsequently, but in its initial phrase this is a report to be used to inform Government decision-making. I have no difficulty with the fact that we are not privy to its exact recommendations because the minute the report hits the press, if the Government thinks that the squeals from the old age pensioners, farmers and other groups were loud, it had better get ear plugs because there will be a scream that would outdo Harry Porter, once this report hits the fan. From a tactical point of view, the Government is perfectly right not to publish it.

There is talk about radical transformation of the pubic service. A former Minister for Finance, Deputy McCreevy, made a complete dog's dinner of the pubic service with his lunatic introduction of the decentralisation programme and we are still paying the consequences of that. It is these kinds of haphazard unplanned decisions that got us into this mess. Ministers, including the Taoiseach, are now attempting to correct matters and they are taking some courageous decisions - most of the decisions the Government has taken are ones the Opposition would take if it were in government. However, the Government has great difficulty in terms of credibility because the personnel in office are the same personnel who presided over the bubble.

The IMF report is clear. It states that Ireland was perhaps the most over-heated of all advanced economies. It predicts a lost decade for Ireland, that we will not recover until 2017. At Christmas, we will have 500,000 people unemployed and, naturally, people will blame the Ministers who are members of the Government that helped to overheat our economy. The IMF estimates that the total loss in our banking system will be €35 billion for property developments alone. The worrying aspect of that is that there is a possibility of a domino effect where this will extend into other sectors of the economy. Our rate of unemployment is 11.9%, 413,500 people are unemployed and we now have the second highest unemployment figure in Europe. That is worrying.

I am a neutral. I do not take any comfort from the Government's misery because it is shared by the entire country. There is some small evidence of green shoots. I am surprised that the Government did not mention that in the midst of all this wretchedness and decline in the banks - personally I would let a number of them go hang - our manufacturing exports have increased. This is the kind of hope we need to hang on to. The country needs a bit of hope. We must continue to invest. I was pleased that the Minister for Transport, Deputy Noel Dempsey, gave an assurance the metro will go ahead. That will provide not only useful infrastructure but also employment.

It is very important that we do not dehumanise economics, that we understand that it is a moral not just a technical failure. Unless we address the moral issues we will not get back to the situation we were in. Perhaps we should not get back to precisely the same situation because it was the springboard into this mess.

When this crisis has been addressed, and even while it is being addressed, we must look at the elephant in the room, which is population. That is what is driving every single problem, the extinction of animal species all over the planet, global warming, resource wars, the using up of fossil fuels and the basic problem of water shortages. If we do not put those things in moral perspective and learn to share and to respect this planet, we will be everlastingly in this cycle of misery and unhappiness.

Feargal Quinn (Independent)
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I thank Senator Norris for sharing time with me. I welcome the Minister of State, Deputy Kelleher, and I welcome the opportunity to have this debate. The OECD has predicted an economic contraction of 10% this year. The IMF has warned of a 13.5% contraction between 2008 and 2010, as the Minister of State outlined. The IMF report was highly critical of the Government for stoking the property market in recent years and implementing unsustainable increases in public spending. What I found most interesting about the IMF report was that when it talked about other countries it used adjectives but when it talked about Ireland it used superlative adjectives. Other countries were "high", we were "the highest". Other countries were "poor", we were "the poorest". Other countries were "bad", we were "the worst". It is interesting to note that every time there was a reference to this country, superlatives were used.

Those two reports are damning towards the policies we adopted during the boom years. The IMF report, for instance, spoke of the so-called "output gap" - I did not hear that term previously - at the height of the construction boom in 2007, at 7.1% of GDP. That is a measure of the extent to which economic activity at the time was boosted beyond what was sustainable by a bubble, or alternatively a measure of the scale of overheating. Estimated output gaps of that magnitude are unheard of. In short, the IMF said Ireland was facing the worst - again, a superlative - economic downturn in the developed world due to the property bubble of recent years. That is to talk about the past, but it is worth bearing in mind that two years ago the IMF estimated that Ireland's output gap would amount to just 0.2% of GDP in 2007. That was tantamount to saying that there was no bubble and no problem and that the structural budget would end the year in surplus, to the tune of 0.7%, which was tantamount to saying that fiscal policy was prudent. That is what it said then, and it is demonstrated how wrong it was in its analysis of the situation.

I am not alone in thinking that much economic forecasting and analysis is not scientific. There are many economic theories that are just that - theories - and they have no relevance to the real world. I am drawn to a quote by George Bernard Shaw who said: "If all economists were laid end to end, they would not reach a conclusion." Senator Norris referred to humanising economics. I assume he believes that economists are human, in spite of the criticisms they receive.

That begs the question that if the OECD and the IMF did not properly warn against our looming financial crisis, what external body was there to caution us with some degree of authority against economic mismanagement. I do not believe that this is an excuse for those who were leading the country into the chaos. The Taoiseach said that his regret is that he did not manage to predict that such a seismic shock to the world economy was going to happen, and neither did anyone else. Deputy Bertie Ahern also recently rejected suggestions that policies implemented when he was in power have contributed to Ireland's economic crisis. How can we go on like this? There must be some degree of responsibility from our leaders so that we can move on.

I was particularly struck by the IMF's analysis that we are losing the race for foreign direct investment. That worries me because I did not realise that was happening. The United States is our overwhelming source of foreign direct investment and in the short term we cannot hope to diversify from that 80% dependence. We must pay heed to the IMF's view that recent Government initiatives, such as incentives to attract high value FDI inflows, will have to be continued if we are to better our position as a small island economy dependent on international improvements. There is not a sufficient understanding of the importance of that factor to the country. We must also remain encouraged by the recent moves of a number of companies, including Accenture and the Australian building materials giant, James Hardie, to domicile in Ireland for tax purposes. Other companies have done the same in the past year. It is clearly a huge benefit to us if we can encourage such companies to locate here.

The IMF reports that Ireland has become the most expensive place to do business in the eurozone and it has the highest wages. In 1997 wages were approximately €22,000 a year, which was broadly in line with the eurozone average. A gap of €12,000 has since opened up, as Irish wages soared to €35,000 by 2007. A key factor was generous increases in public sector wages. If Senator O'Toole were present he would have something to say about benchmarking, of which he was very proud, but which is now receiving a lot of blame. The IMF indicated that the recent trend towards wage reductions should bode well for Ireland. It is vital that we continue that trend if we are to have any chance of regaining our competitiveness.

Domestic demand in the first three months of 2009 was down by a massive 15.5% on the same period in the previous year. What is most surprising is that on the one hand the domestic economy is in a state of unparalleled collapse but on the other hand the export sector is performing quite well. It is out-performing all but two of the 30 member countries of the OECD, according to that organisation's latest statistics. That is our only real source of optimism at the moment.

Dan O'Brien wrote in The Sunday Business Post recently:

Services exports counts a lot for Ireland compared to other countries because of the unusually high proportion of services in total exports, at almost 50%. In most economies, goods are far more important than services. In the euro area, for example, export values of the former are almost three times greater than the latter. If the much-heralded international green shoots are to appear, exporters - and services exporters in particular - will be able to hitch their wagon to the global locomotive. Only then is there hope that the Irish economy can be dragged out of the very deep hole into which it has fallen.

We must do something to address the problem. The question to the Minister of State is whether we have the courage to do it. I read today that in the marketplace - supermarkets and other stores - prices have come down because of competition. Food prices have reduced by 3% and textile prices by 12%. At the same time public service costs are increasing. I refer to transport costs such as for buses and trains. Will the Minister of State indicate whether we have the courage to do what is necessary?

Dan Boyle (Green Party)
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These reports, especially the IMF report, are neither a ringing endorsement of Government policies nor a crib sheet for the Opposition parties to say that things would be so much better if only they were in government. The reality is that the reports show the seriousness of our current economic position, one that was brought about by international factors that are affecting all other economies with which we compete, and a combination of flawed policies in the past ten years that are contributing to a worse situation in this country.

Much is made of some of the statistics that are mentioned - for example, the 13% decrease in the value of the economy - but, as with all statistics, we must take into account what we are measuring and from when. The reality is that the Irish economy grew faster and higher than all the other competitor economies. While growth deductions of 4% and 5% are the norm in other economies, those economies also grew by a similar size in the period when this country was out-performing them. We are talking about a situation where the economic adjustment we are all experiencing will probably bring us to the levels we enjoyed at the start of the decade.

How we achieve that as a country will have devastating social consequences. The role of Government and the political system is to make sure these can be ameliorated as much as possible.

The most recent economic statistic published was the inflation figure for the year ending June 2009, showing that prices have fallen by 5.5%. This has happened at a time when all other costs, particularly wages, have not adjusted. Those costs have adjusted in the private sector but when we talk about controlling public expenditure, this is an important statistic we must bear in mind in terms of the difficult decisions that must be made in the Estimates and for what will be a difficult budget in December.

In recognising the seriousness of the situation, I hope other political parties will acknowledge that reality. I have often heard the talk of how these events were presaged before the last general election and we should have known what was coming down the line. I did not see that in any of the party manifestoes for the 2007 election. The Labour Party manifesto stated that Ireland has a successful economy and the figures from both Fine Gael and Labour predicted continued growth of 4.5% year on year from 2007. The Green Party was the only party to foresee that there would be economic changes in the period ahead. We got little thanks for being such Jeremiahs.

Economies go in cycles and we have the misfortune as a country, irrespective of who is in Government, to be involved in the adjustment of an economic cycle more serious than anything we have seen in 80 years. How we adjust to this will be a measure of our economic prosperity in the future.

I fear that what was good about the economic success, the confidence of Irish people thinking they could transform and achieve through entrepreneurial ability, is now under threat and I appeal to the Opposition not to contribute to that downward spiral. The media is also engaged in such activity because the more we talk ourselves down, never mind who bears political responsibility for the situation, the less likely we are to get out of it in the shortest possible time.

That is where reports like that of the IMF are valuable. They point out that Ireland continues to have a strong economy and that the things that must be done are being done. If there is any lesson in the report, it is that if there was a change of Government today, the exact same policies would be pursued. I cannot hear anyone in the Opposition denying that. Our public expenditure deficit and the structure of the economy are what they are and the measures we can take are only a combination of controlling public expenditure, increasing taxation proportionately and being able to borrow in the most effective way. That third area will dictate our future economic prosperity and growth.

There is a feel of the 1980s about where we are at the moment, with the re-emergence of high unemployment and the willingness to emigrate, if there was somewhere to emigrate to. We even have Marian apparitions, on tree stumps instead of moving statues. I do not want to go back to the 1980s, we have come further than that in the last 25 years and we have the capacity now to learn from what we gained from economic success, even those hard lessons about rewarding and acknowledging the wrong people while failing to spread wealth equally. We also know, however, that we have the capacity to bring about a better Ireland. We can only do that by acknowledging the strengths that are found in this report.

We must deal with some factors now that did not exist then. We are a member of the euro and cannot adjust interest rates or the money supply. Ironically, because of our membership of the euro, our financial systems are more secure because of the support of institutions such as the European Central Bank. We must talk about this issue as we focus on our role as a member of the European Union.

NAMA is the best option available to us. We have thrown darts across the Chamber as to the motivation of NAMA but I had the privilege of listening to Bo Lundgren, who was a member of the Swedish Government, who spoke to the Joint Committee on Finance and the Public Service and to the Institute of International and European Affairs. He explained how they approached their banking crisis in the 1990s. Regardless of what certain economists have written in our newspapers, the approach was not unlike what we are experiencing and what we are proposing. I would like the debate to be conducted in those wider, more honest terms.

We have a situation in our banking services that, while it is drawing away funds that would be better used in building the economy and meeting our pressing social needs, must be dealt with first because without a proper financial engine the economy will not be able to function in future.

I do not deny there are people in financial institutions who were corrupt, whose personal greed has brought us to where we are and who should pay a price for that. I am as frustrated as many people that action has not been taken until now or quickly enough but I am confident that action will be taken. We need other cultural change and when people talk about institutions being developed and the use of solicitors' firms for the benefit of developers, I feel angry. The situation with bad planning, however, has been contributed to by more than one political party and because of that the responsibility must be shared. County councils with members from several political parties have contributed to decisions that have benefited individuals and have been to the detriment of local communities.

Unless we are prepared to change those cultural aspects of our political system to bring about a better economy, informed by reports of this nature, we will be slower to recover and people will lose out as a result.

Alex White (Labour)
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It is true that the reports from the IMF and the OECD are neither a ringing endorsement of the Government's stewardship nor handy crib sheets for the Opposition to attack the Government. Senator Boyle may be right about that but the problem is that when the reports were published, particularly the IMF report, they were accompanied by the sort of press releases the Government issues at such times suggesting that they constitute a ringing endorsement of Government policy.

That was exactly what we got when the IMF report was published. In the Minister of State's speech, he welcomed the opportunity to have this debate because it gives an opportunity to put on record the endorsement of the Government's policies and the endorsement it provides for the action it is taking. It includes some endorsements of what the Government is doing but the extent to which we should fall to our knees and thank the Government for taking action in this unprecedented crisis is another matter. The Government is not entitled to come into this House and seek congratulations for doing the job it is paid by the people to do, for taking steps to turn around this crisis that is partly of their making.

I am adhering to the call from Senator Boyle for restraint in this debate by saying the crisis was only partly of the Government's making but it was of its making to a considerable extent. This was pointed out in the IMF report, which the Minister is so quick to characterise as an endorsement of the Government's position. The Minister asked earlier that while we debate the IMF report, we refer to it, and I propose to do so. I do not intend to paraphrase the report at all but will quote directly from it lest I am accused, as others have been and as some have done, of spinning it.

I will talk about the future, because that is what we are all interested in, but we cannot look to the future unless we are honest about how we got to where we are. Senator MacSharry is a good colleague in this House who often uses the phrase: "We are where we are." That covers a multitude. It is easy for a Minister or someone else to say it, but how did we get to where we are? This is part of the analysis required to see how we get away from where we are. In addition, it is not a matter of where we are in the sense of spreading the blame; it is about where the Government has brought us. We must reword that handy little catch-all phrase which is used mainly by Government spokespersons and apologists in an effort to dissuade us from considering how we got to the state we are in.

The IMF report states:

[D]azzling growth and buoyant public revenues prompted tax reductions and expansion of public expenditures that have proved unsustainable. Various commentators and the IMF in its Article IV consultations did warn that the seemingly-unstoppable growth masked serious imbalances, including the fragility of public finances.

This is a direct quote and not an attempt to paraphrase or put a spin on anything. The report states that the IMF analysis "shows that after strong growth between 1987 and 2001, which earned Ireland the moniker of the 'Celtic Tiger,' potential growth had steadily eroded". Here, the IMF is telling the Government that growth had started to erode from 2001. This is the report the Government is so anxious to tell us constitutes an endorsement of its policies. The report goes on to state: "Analysis by OECD staff, consistent with the results from the Kalman-filtering approach, concludes that Ireland was perhaps the most overheated of all advanced economies." I will not burden the House with the detail of the Kalman filtering approach which is an econometric model. Again, these are the words of the IMF report itself.

While the report does say the Government is getting its act together and addressing the issues, as any sovereign government must, the Government cannot get away from the fact that it is seriously responsible for what has occurred. Senator Boyle made a point about local authorities and planning, with which I agree. However, it is not the case that my party, for example, never raised these potential abuses and excesses. We drew attention to then repeatedly throughout the late 1990s and in the earlier part of this decade. We repeatedly introduced proposals, which the Government derided, both in this House and elsewhere, in an attempt to address the spiral of land speculation and rising house prices which we thought to be, and which turned out to be, unsustainable. We raised this repeatedly but the constant refrain was that we were getting in the way of progress. We were told this was what was always heard from the Labour Party because it was against progress, expansion and building.

Of course we need our construction industry and we need houses, but the excesses and abuses that went on were there for people to see. There were people, not just in my party but elsewhere, including in the Green Party, who pointed out these excesses and, in some cases, the corruption that was, unfortunately, going on. We can now see the effects of this. Such failings and breaches of the law are not victimless crimes, as we can now see with our own eyes.

The area in which there has been maximum spin with regard to the IMF report is that of banking and the National Asset Management Agency, NAMA. The Government is introducing the NAMA proposal and we are coming back in September to deal with it. It is important we all state that it is in everyone's interest that the banking system is dealt with and that we get the right result. As politicians, we will argue about the means that are adopted and try to scrutinise as best we can the proposals introduced by the Government, but the outcome we all want for ourselves, for our children and for future generations is an economy that is working properly - which we clearly do not have at the moment - and a financial system that is functioning to give people loans and fund small businesses, households and so on. It is an absolute requirement in any economy and I want to see it restored. Anything I say or my party says, whether supportive or critical of the Government, is dedicated to that end.

We talk, for example, about a period of temporary nationalisation. It is a tactic of the Government that when it wants to criticise the Opposition it rephrases the Opposition's policy and then criticises that. The Government has repeatedly criticised those who would call for wholesale nationalisation of the banks. The Minister of State was at it again in his speech today, saying that some commentators - I do not know whether he mentioned the Labour Party - are calling for wholesale nationalisation of the banks. Who has called for wholesale nationalisation? My party has not called for that. It has said, backed up by many independent commentators from the left to the right of the political spectrum, that there is a strong case to be made at this juncture for temporary nationalisation of the banks.

Let us not forget what we are talking about - the IMF report. What does the report actually say about this issue rather than what the Minister seems to want it to say? It has been invoked over and over by the Minister as being against nationalisation, which is not the case. The report talks about insolvent institutions and the approach of closing, merging or temporarily placing them in public ownership. It states:

[T]here have been numerous instances (for example, Japan, Sweden and the United States), where a period of public ownership has been used to cleanse balance sheets and pave the way to sales back to the private sector.' Having taken control of the bank, the shareholders would be fully diluted in the interest of protecting the taxpayer and thus preserving the political legitimacy of the initiative. The bad assets would still be carved out, but the thorny issue of purchase price would be less important, and the period of price discovery longer, since the transactions are between two government-owned entities. The management of the full range of bad assets would proceed under the NAMA structure. Nationalization could also be used to effect needed mergers in the absence of more far reaching resolution techniques.

That is a paragraph setting out a commentary on the usefulness of the nationalisation approach. The report continues, and I will quote it all in case I am being selective.

The authorities [that is, Ireland] prefer that banks stay partly in private ownership to provide continued market pricing of their underlying assets. They disagreed with the staff's view[.]

In other words, the Irish Government disagreed with the IMF, which is what is meant by "staff". There is nothing wrong what that. I disagree with elements of the report as well. Why can the Government not admit there is a disagreement between its approach to the issue and that taken by the IMF? It is fine to differ and the Government should not try to cover up the disagreement. The IMF report states:

They [the Irish authorities] disagreed with the staff's view [the IMF staff] that pricing of bad assets would be any easier under nationalization. They were also concerned that nationalization may generate negative sentiment with implications for the operational integrity of the banks. Staff emphasised nationalization would need to be accompanied by a clear commitment to operate the banks in a transparent manner on a commercial basis. In particular, nationalized banks should be subject to the same capital requirements and supervisory oversight as non-nationalized banks. And, a clear exit strategy to return the banks to private operation would be needed.

Why are Ministers indicating in many public comments the position is otherwise?

In the months ahead we will need to debate the steps the Government has taken and will be required to take in the autumn. I am sure Senator Hanafin, who is waiting to speak, will address an issue he raised previously regarding the role of the Opposition. It is worth addressing the question of what the Opposition is required to do. The Minister of State at the Department of Finance, Deputy Martin Mansergh, who is frequently in the House for debates on the economy, addressed it a couple of weeks ago. I was entirely in agreement with his view which to some extent put Senator Hanafin right on the issue, although I do not mean that in a patronising sense. I understood the Minister of State to be disagreeing with the Senator.

Some people appear to believe the role of the Opposition is to produce a budget and a long list of proposed cuts before the Government does so. This is an entirely unrealistic and absurd view of the role of the Opposition. I fully accept, however, that the Opposition must act responsibly and cannot simply reject every item on the Government's list of proposals for its budget. I also accept that the Government, having presented its proposals, is entitled to ask the Opposition what measures it would take if it were in Government. However, it is unrealistic at this stage of the budgetary cycle to ask Opposition parties, whether Fine Gael, the Labour Party or others, to produce a list of cutbacks - Senator Hanafin wanted us to outline cuts of €20 billion - in circumstances in which the Government is struggling to identify what it will do to secure savings of €4 billion or €5 billion. Unfortunately, as my time has expired, I am unable to continue in this vein, as I would like to have done.

John Gerard Hanafin (Fianna Fail)
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In future decades, an analysis will be done of the boom and people will be asked how they managed events. Some time ago, the Government indicated that the property market was overheating and the issue would have to be addressed. The Oireachtas discussed steps that would be taken to manage the downturn in property and construction related industries. At the time, we anticipated job losses of 70,000 but we expected many foreign workers would return home to meet increasing demand in the construction industry in countries such as Poland. A soft landing was widely expected but at that point we were hit by the international crisis.

The Government will be asked what was our best day and what action we took to ensure the economy remained solid. Our tax wedge was the lowest in the OECD, we invested in the National Pensions Reserve Fund and our national debt was low. Our best day, however, was the day we prevented the Opposition from removing stamp duty. Opposition parties and the media told us we should have been doing X, Y or Z at that time. They consistently called on the Government to abolish stamp duty and offer more candy to the children at a point when such a measure was unsupportable. They tell us what we should or should not do even though the action they proposed at the time would have fuelled the fire.

Liam Twomey (Fine Gael)
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The Senator is the candy man.

John Gerard Hanafin (Fianna Fail)
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The Opposition parties expected economic growth rates of 4% and advocated increased public expenditure. When they lecture the Government and tell us we got the country into this mess, they are wrong. The recession was caused by an international crisis arising from the refusal to support the banks in the United States and the subsequent collapse of Lehman Brothers as well as the debt bubble. The Government had plans to manage a soft landing. This expression is not new to the Opposition because it, too, was preparing for one.

We must now deal with a difficult situation. Unemployment is rising and the Government must tackle a difficult fiscal position. It has already managed the banking crisis. If the two main Opposition parties had been in power at the time of the banking crisis, they would have taken diametrically opposed positions on the issue. Perhaps they took those positions simply because they were in Opposition. When one is required to take decisions, one must act responsibly and deal with the world as it is rather than as one would like it to be.

We are experiencing a severe contraction in the economy and a large domestic imbalance must be corrected. How will we return to sustainable growth levels that will enable us to create further employment? We must secure the banking sector, as we have done. When we introduced the bank guarantee we ensured the banking industry remained solid. At the time, the Opposition questioned our approach. Within a short period, however, other European countries copied our approach to ensure their banks were provided with the security and solvency necessary to remain viable.

The Government has to address a severe reduction in revenue. When sorrows come, they come not as single spies but in legions. When the economic downturn commenced not only was confidence affected with the result that people stopped spending but revenue streams declined across a large area, including income tax, corporation tax, stamp duty, VAT and other more peripheral taxes. At the same time, expenditure requirements remained stable, which obliged the Government to produce a plan. It is this plan the IMF and OECD have endorsed.

The Government's plan is to reduce expenditure and increase income to reach the 3% gross domestic product borrowing requirement by 2013. We could have taken a populist route but chose instead to put the State first. The hammering the Fianna Fáil Party took in the recent local elections brought to mind the events of 1014 when Brian Boru, having won the battle of Clontarf, paid a huge price. In the same way, my party paid a huge price for doing the right thing by the nation. We have acted quickly and have chosen not to defer hard decisions. This will stand to the country in future. In other words, we are putting Ireland first. Every day, we hear what should or should not be cut. I welcome Senator Alex White's comments referring to the fact that I do ask questions about this regularly. However, when I hear the Opposition Members asking "What are you doing about the cuts or closures?", I ask them what they would have done. How would they bridge the €20 billion gap? That answer is never forthcoming.

Liam Twomey (Fine Gael)
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Neither is the Senator's own answer. He does not know what the Government is going to do either.

John Gerard Hanafin (Fianna Fail)
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It was appealing at the time when I heard the Minister of State, Deputy Mansergh, say it is not always the Opposition's responsibility to come up with the answers.

Liam Twomey (Fine Gael)
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Yes, he is right.

John Gerard Hanafin (Fianna Fail)
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There is no doubt that in real terms the Minister of State is with the angels. He has a very high order of things and what he does is commendable.

Liam Twomey (Fine Gael)
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It is the Government's responsibility to come up with the answers but it has not been able to do that.

Ann Ormonde (Fianna Fail)
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Senator Hanafin without interruption.

Liam Twomey (Fine Gael)
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My apologies.

John Gerard Hanafin (Fianna Fail)
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I am just a politician, however, and I get on in the world I live in. I do admire Deputy Mansergh significantly for that. However, when I hear Opposition Members talking about cuts it is obvious that they are playing politics. If they were in government they would be doing exactly the same thing.

Liam Twomey (Fine Gael)
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How does the Senator know? This guy is a genius.

John Gerard Hanafin (Fianna Fail)
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When the Opposition talks about 20,000 job cuts in the public service, I can guarantee that it will not specify where or what services will be cut. We are faced with a very difficult situation and are dealing with it strongly. We have recapitalised the banks and are looking to new areas of future growth. The very things that brought us prosperity are still in place for the future. The world economies will pick up before ours because we are in a more difficult economic situation than the others. Notwithstanding that, however, we are taking all the decisions now. We are not deferring them, but are making them now so that Ireland will recover and we will have a stronger country at the end of it. We must become more competitive, so our aim is to grow and have a better economy. When asked in future what we did in the recession, people will say that we did our best and got through it quickly.

Paschal Donohoe (Fine Gael)
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I have no doubt that in years to come when people ask what the Government did about the great recession that gripped Ireland, historians will write that the Government caused most of it. I heard Senator Hanafin criticise the performance of the Opposition, but the Government will not produce its own plans until October at the earliest. Despite the fact that it has received Mr. McCarthy's report, the Government will not publish it or make any decisions until later this year. It is rich for anybody on the Government side to accuse the Opposition of not making decisions, when the Minister for Finance has openly acknowledged that he has no intention of doing so either until the end of the year.

The IMF report is helpful because it allows for a forensic analysis of the status of the economy, as well as the role played by the Government and other parties in getting to where it currently stands. It reminds me of yesterday's debate on the Lisbon referendum. I said then that the guarantees to the Lisbon treaty that we will ask people to vote on are written with wonderful clarity in simple language. The clarity of the guarantees is one response to the justifiable criticism that the Lisbon treaty was too complicated to read. The same can be said of the IMF report in that its language is clear and its points straightforward.

I want to focus on three points that have not been raised so far in the debate. They go to the heart of many of the points that Senators Hanafin and Callely made. I want to look at what the IMF report has to say about what the Government is doing on expenditure control, levels of public debt and the establishment of the National Asset Management Agency, NAMA. I will begin with the latter point. There is a certain kind of politician who is worried about what the public thinks about him now and what his historical legacy will be. There is such a politician in my constituency - the former Taoiseach, Deputy Bertie Ahern. Everywhere I go in the constituency there are plaques stating that a hospital, door or window was opened by Bertie Ahern, T.D. I wonder if the same plaque will be found on the NAMA offices. I really do not think so. If there is to be any memorial or tribute to the record of the 2002-07 Government it will be the National Asset Management Agency. Tragically for our country, that agency will be around a lot longer than Ceaucescu's bowl or any tribute that President Sarkozy is looking to set up to himself. NAMA will be a recognition of the near lethal way that Government managed our economy. If Deputy Bertie Ahern does not put a plaque on the NAMA building, I will be tempted to do so myself. I will be like an Irish version of Banksy, hanging up plaques-----

Ann Ormonde (Fianna Fail)
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To yourself?

Paschal Donohoe (Fine Gael)
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-----to allocate the responsibility for creating NAMA to the former Taoiseach.

The IMF report has quite a bit to say about the implications of that agency. The phrase used is as follows: "If well managed, the distressed assets acquired by NAMA could, over time, produce recovery value to compensate for the initial fiscal outlay". The report adds that when the Irish authorities were pressed for the total amount of financial loss they believed the Irish banking sector would produce, they could not give the IMF that figure. That means either that the figure is not available or that the authorities chose not to furnish it to the IMF. I think the former explanation is more likely.

The best analysis of the likely balance sheet for NAMA has been produced by Constantin Gurdgiev and Brian Lucey of Trinity College. They make the point that the assets need to be purchased by NAMA at a discount of between 27% and 50% in order to produce a zero loss for the taxpayer, given the likelihood of bad loans. That puts into stark contrast the size of the problem created by Fianna Fáil's pumping up of the property sector during that period in office. That is the extent of the memorial that will stand as a record of that Government's period, and it is a millstone that will hang around the necks of generations to come. Let us bear in mind that when NAMA is established it will be the largest agency of its kind anywhere. Therefore, the value of the bad loans NAMA will have to manage will be greater than that of any other such agency in Denmark or elsewhere. That figure says everything about the scale of mismanagement of our economy.

The IMF report has some interesting things to say about public expenditure control. It examines the deficit figure the Government says it will produce by 2013 and ponders what is likely to happen, based on what the Government has done so far and how the economy performs. It says it simply here: "The staff's baseline implies stronger expenditure consolidation than that currently projected by the authorities to reach their goals." This means that the planned cuts and tax increases will have to be even larger than the Government is currently claiming, in order for the Government to reach its own goal. The report goes into some detail about how that will be. It states that primary expenditures will have to be brought down by 9.5% of GDP, which is far ahead of anything the Government is claiming at the moment.

We are told to believe that if the Government manages to implement its plan, our economy will spring forth like a newborn infant, with the high level of debts removed from its neck and with an ability to grow like any other economy. Again, this report has very pertinent and worrying things to say about that. It states that public debt will stabilise at relatively high levels. It analyses the size of the structural deficit that our country will still have if and when the global economy recovers. Structural deficit deals with the kind of public debt levels that will exist if our economy begins to grow again. It states that following the April 2009 supplementary budget, the structural deficit will still remain at about 11% of GDP. Even after all these measures have been implemented, our debt as a percentage of our national income will be far above 10%.

When we sit back and ask what exactly is it that this Government has achieved, we can point to the global economy and other mitigating factors. However, it is a plain, simple fact that things in our country are far worse than they should be, and that our economy is in a worse state than it should be. If we compare our economy with equivalents such as the Spanish economy, we can see that they are able to pump additional money into their economy due to prudent and smart moves they made. The cutbacks they have had to make have not been as harsh as those we unfortunately need to make. They are in a position which should see their economies return to growth quicker.

I make all these points and speak about the need for a plaque to be outside the National Asset Management Agency, stating that it was founded by Bertie Ahern TD. If he decides that he will not do it, I will do it on his behalf.

Nicky McFadden (Fine Gael)
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The bottom line is that the IMF is an influential international body and we must take heed of what it is saying. For a very long time, Deputy Bruton rang the emergency bells and asked that the Government not be complacent, and said that there was a serious crisis about to happen. His words fell on deaf ears. The Government is taking credit for the good bits of the IMF report, but sadly it would not listen to Fine Gael and to Deputy Bruton when he rang the emergency bells so many times.

What worries me is that it is the ordinary honest person that will suffer, as 500,000 will be unemployed due to this serious recession. The IMF report makes it very clear that Ireland is suffering the worst recession of all the advanced economies. That is a fact, but my colleagues on the other side of the House have not pointed to that at all. The IMF also points a finger directly at the Fianna Fáil and Green Party Government, especially Brian Cowen, who was the Minister for Finance at the time, and states that we have the most overheated of all the advanced economies. Long before the crisis struck, the public finances had developed a serious structural weakness, and this is stated on page 21 of the executive summary. It is not very positive for the Government at all.

Senator Hanafin spoke about a soft landing, but I do not think that a soft landing occurs when 500,000 people become unemployed. The report also states that we should not be increasing taxation, yet this Government has put up to €500 on public service pay in the form of a levy, but does not have the guts to call it a tax. People are not able to pay their mortgages and must cut their spending. That is not a sign of a soft landing either.

Fine Gael have always claimed that taxpayers should be protected. We are still very concerned about the way NAMA has been constructed. We fear that taxpayers will end up bailing out the banks, and that they will not be protected. Fianna Fáil protected the golden circle, consisting of the banks and the Mr. FitzPatricks of this world, the property developers, big businesses and senior public servants. The IMF acknowledged this as well. We must remember the philosophy of the Government. I remember Brian Cowen saying to young families in 2006 that the exorbitant house prices were based on sound fundamentals. We can see this is nonsense when we read that 12 houses were repossessed in one day last week. It is the saddest thing to see one's home taken away because one does not have enough money to pay for a mortgage.

The amalgamation of the 11 health boards into the Health Service Executive has been an absolute debacle. Professor Drumm stated that 3,000 backroom staff did not actually know what their jobs were. Senator Hanafin asked how Fine Gael would make cuts, but we would ask public servants for redundancies, and we have been saying that repeatedly. There are people out there who would be happy to take voluntary redundancy, and the HSE is the biggest drain on our economy.

There is a network of cronyism within the public service and a cosy relationship between Ministers and senior civil servants, developers and bankers. This recession may be a high price to pay for it, but if that culture is obliterated and gone forever out of our country, that will be a good thing. The only way that this will happen is when Fianna Fáil is out of government, and I look forward to that day.

I am concerned about whether there will be money to pay social welfare benefits and to pay the public service. That is the bottom line for me. The IMF has warned that unless we cut expenditure, that is what will happen. It is a pity there are not more people here to debate this worthy topic.

Pat Moylan (Fianna Fail)
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I remind the Senator that I prefer Members to refer "the Taoiseach" rather than to "Brian Cowen".

Nicky McFadden (Fine Gael)
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I am sorry. I meant to refer to "the Taoiseach".

Pat Moylan (Fianna Fail)
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I fully understand.

Larry Butler (Fianna Fail)
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It is important to debate issues like the IMF report and the economy in general. The IMF has focused our minds on what we have to do in the next budget. It has made it clear that the Government is doing the right thing and has the right policies. The IMF has said that NAMA is the right vehicle for doing the job that is needed in the banking and finance sectors. It is important that a body like the IMF has said the Government is doing the right thing and pursuing the right policy. We have taken some support from the important announcement made by the IMF, which is not an international body that takes sides one way or the other. I like the fact the IMF's reports are down the middle. We will continue to implement the policy that is in place. I suggest that we should park the IMF report for a minute, however, to contemplate where we should go from here.

I wish to comment briefly on the important policy we are pursuing in respect of the banking sector. We have taken the right decisions to put the economy on a proper footing. I will refer separately to the guarantee policies, the recapitalisation of the banks and the cuts in the public sector. As I said on the Order of Business, the Davy report that was published this week revealed that 85% of our bonds that were put on the international market have been sold. The international markets have made an important statement. People in this House who have banking experience etc., have criticised the Government's policies over recent years. I am no longer prepared to take that.

Fine Gael proposed to establish an illusionary bank for €2 billion and to borrow €40 billion to recapitalise it, until it learned that the European Central Bank would not fund such a proposal. The IMF report did not give any credence to that proposal. It gave little credence to the option of nationalising the banks, which should only be considered down the road, according to the IMF. As a result, Fine Gael's banking proposals are totally off-side. It no longer has a banking policy. The only country that sold a bigger percentage of its bonds is Greece, which sold 87%. We sold 85% of our bonds. The money accruing from these policy bonds has been borrowed, in effect, for between five and ten years. That is where the real rating comes in, even if Standard & Poor's, Moodys and other rating agencies have downgraded this country's rating. When one puts one's bond on the market in the international marketplace, people decide whether to support it as a good bet on the basis of whether they think what one is doing is right for the economy. That is the important thing.

I hope the previous speaker, who has left the Chamber, is watching on her monitor because I intend to set out how we should deal with the economy over the next three years. She said Fianna Fáil will be out of power soon, but I suggest she should not hold her breath.

Pat Moylan (Fianna Fail)
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I ask the Senator not to refer to the absence of other Members of the House.

Larry Butler (Fianna Fail)
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I did not use any names. I referred to "the previous speaker".

It is important to acknowledge the grave situation of those who are unemployed. Over the next three years, we need to give them some sort of hope for the future. The way forward involves looking after such people as best we can, for example by making supplementary welfare payments. It is even more important to get them into training, education and other forms of upskilling. Perhaps they would prefer to get involved in community work than sit around. These are key issues. I do not think it would cost us much more to put in place a scheme of community work for these people so that they would be gainfully employed doing various things for the community. The many professional people who are unemployed, including solicitors, might be in a position to offer community advice. Accountants could help community organisations with their books. It is vital for us to ensure that certain skills are more beneficially used.

It is important to bear in mind that the Davy report stated that the Government's approach to banking is the correct one. It is important to listen to such people. If we were to take on board the Labour Party's proposal to nationalise the banks, we would have to consume all their debts. I want to know how the Labour Party has been able to balance that proposal with its intention to change the situation regarding the NAMA debt. I do not see any benefit in the nationalisation of the banks. The Davy report mentioned that some bonds have been sold on an auction basis, or a syndicate basis, which means private money is coming back in. Why would one not want to keep that system going? The same thing applies in the case of shares. Why would one take away the option of selling shares in the banks? Of course one would not want to stop more money from coming into the Exchequer. The share prices of the banks have increased substantially since they were recapitalised. We can see a paper profit in that investment.

Paddy Burke (Fine Gael)
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The Senator must not have looked at the share prices in the last couple of days.

Larry Butler (Fianna Fail)
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Bank of Ireland's share price, which went as low as 55 cent, has increased to almost €1.50. I admit there has been a substantial increase in paper profit. I have examined the IMF report and read all of the important priorities dealt with in it. We are dealing with those priorities in a professional manner, as we should. It is important to have the support of people on the other side of the House. They have been supportive.

Fine Gael has been much more supportive than the Labour Party as regards what we have been doing about the banking system in terms of ensuring that it works efficiently and for the economy.

Paul Bradford (Fine Gael)
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I am glad of the opportunity to say a few words on this economic debate, and I welcome the Minister of State, Deputy Dara Calleary. it is appropriate that he is here for this economic analysis because in his first and interesting portfolio in government he has certain economic responsibilities. His job was previously held by the Minister of State, Deputy Billy Kelleher. We often joked with Deputy Kelleher in the past that as Minister of State with responsibility for labour affairs, he was not unduly taxed in the sense that there were very few strikes and unemployment was not top of the political agenda. All of course has changed over the past 12 months. The latest statistics show that the number of workdays lost through strikes has, sadly, increased dramatically and there has been a dramatic increase in unemployment, which is what this debate is all about.

In theory we are commenting on the OECD and IMF reports, but we could make the same contributions without any reports because it is no longer possible to see cranes on the skyline in our cities or new cars on the roads. What we see are lengthening queues outside social welfare offices, and those few snapshots indicate the current state of the economy. I have some sympathy for the plight of the present Taoiseach, Deputy Cowen. The case for the prosecution, of course, can be made to the effect that he presided as Minister for Finance during a few crucial budgets where policy, unfortunately, was misdirected. Students of politics and history who will write the reviews, however, in 100 years, will put one person at the centre of all that is now wrong with the political economy, namely, the former Taoiseach Bertie Ahern.

Since 1997 when the Administration changed, the Governments in power have had access to unprecedented resources and had a unique opportunity to do the right thing for the country and the economy. There was the opportunity to resolve economic difficulties, create long-standing wealth and sort out infrastructural problems as regards roads and in health and education. The tragedy is that the last ten years were very much a wasted decade and the problems that existed in 1997 as regards the lack of school places and hospital beds as well as poor road, rail and transport infrastructure generally still remain, notwithstanding that billions of euro were available. Shockingly inaccurate and incorrect political and economic choices were made, and that is most disappointing of all.

Now we must ask ourselves where to go from here, and the statistics are very bleak, with unemployment heading for the 500,000 mark, enormous pressure being put on the public finances, the rate of job creation dropping alarmingly and business confidence going through the floor. General economic confidence, too, is at a low ebb. Now the Government and indeed all of us must face the enormous challenge of trying to respond and regenerate confidence.

From the political perspective, in the aftermath of the local elections, the public has already cast its judgment on the current political establishment. It is only a question of when the electorate has a chance to vote and cast out the Government. It does not really matter now what the Government does, from a political perspective, because it will be summarily dismissed in the next general election. However, it is crucial for the Government, regardless of how much time it has left, to try genuinely to do the right thing for the country and take the fundamentally difficult but necessary decisions required to turn the economy around.

Public sector reform must be very much at the heart of Government thinking in coming months. We may, perhaps, see the publication of the McCarthy report. In a sense, while this would be interesting, it will not tell us anything significant that we do not already know. We have to accept that we cannot sustain the current levels of public spending. No country, whether the Republic of Ireland or anywhere else, can continue to spend €60 billion per annum when its income is not significantly more than half of this. Tough decisions will have to be taken.

I asked earlier in the week that the Seanad might have a series of debates in the autumn where we could interact with the social partners. The point is often made here and in the other House that as a result of the social partnership model which has existed since 1987, very little economic debate has taken place within the Oireachtas and decisions are taken elsewhere. I would like to see leaders of the unions, industry and agriculture as well as the leaders of the alternative economic pillars in society presenting their cases in the Seanad and outlining their views, objectives and fears. It is necessary for us to keep putting on the record the stark statistics which face us.

Contributions have been made over the last week or ten days, particularly in relation to the electricians' dispute, reflecting both sides of the argument, sometimes with emotive language, which does not always help. However, we cannot remove ourselves from the reality of the fact that as a country and a society we are overpaying ourselves, and that cannot continue. There is need for change. It is happening already in the private sector, but there needs to be profound reform and amendment at the public sector level.

It is difficult and presents a political challenge for all of us, particularly the Government, but it is urgently required. Take the health service, for instance. Almost every other day a Senator will raise a health issue from his or her area. This shows the health service is not working and yet it is costing the taxpayer billions of euro and employing roughly 116,000. This is one area to which we shall have to give detailed political consideration.

As regards the broader public sector, at present there are dozens of social welfare offices across the country where the volume of claims is such that staff are unable to keep up to date in processing them because of inadequate numbers. In other State offices, however, there are obvious signs of surplus staff, so we need to talk about flexibility and the possibility of moving people interdepartmentally. That should be happening seamlessly and not require months of debate. The whole area of public sector flexibility and reform must be very much at the top of our agenda. The public sector plays a crucial role in the economy. Some union leaders criticise my party, in particular, from time to time for our views on public sector reform. However, Fine Gael holds the public sector in the highest regard, as the party which founded the State and put a very solid public sector in place, recognising its value and importance. We certainly want to work with it, while always recognising the urgent need for reform. The percentage of taxpayers' money that is required daily to fund our public sector is not sustainable and will have to be reduced. Therefore reform and reduction will have to be part of our political debate. I wish the Minister of State well in his very crucial portfolio, because, sadly, over the next few months, particularly during the winter months, we will inevitably see major job losses, industrial doubts and difficulties, and it must be approached in a mature fashion. If the Government can project an image of certainty, strong will and a plan for the future, there will be some degree of public acceptance. That is very important because the future of our economy is in grave doubt and we need to redress it and give people some hope and confidence.

Terry Leyden (Fianna Fail)
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I welcome the Minister of State, Deputy Calleary, to the House. I wish him continued success in the Department at a very challenging time. I had the honour of serving with his father, former Deputy Seán Calleary, who was a Minister of State with me in Government, and he acquitted himself exceedingly well in the Departments in which he served.

I welcome this opportunity for a calm debate on the OECD and IMF reports on the Irish economy. Very positive contributions have been made to this debate. The IMF document is very comprehensive and we can selectively quote from it. On page 3 it states:

As the global turmoil has unfolded, Ireland has benefited from the safety provided by its membership in the eurozone. This has allowed it to avoid the currency pressures that typically accompany financial crises. Moreover, access to ECB financing has been an important source of liquidity for the banking sector. However, since the possibility of adjusting through the depreciation of its own exchange rate is not available, further wage reductions will be required to restore competitiveness and growth prospects.

The Irish authorities have moved with resolve to counter the severe economic and financial shocks - that resolve will need to be sustained.

The report supports the establishment of NAMA. The reports are realistic and appropriate.

During the past two weeks I have mentioned and gone through the manifestos of Fine Gael and the Labour Party and I have got a copy of Protecting the Progress: An Agreed Agenda on Tax and Jobs, the joint Fine Gael and Labour manifesto that was issued before the last general election. I raise this in the context that two years ago nobody predicted the slump in the world economies, particularly through the demise of Lehman Brothers, Fannie Mae and Freddie Mac. All those financial troubles that occurred had a major impact on this economy.

In its 2007 manifesto at the last general election, Fine Gael sought to sell its wares through a lucky bag of slashing stamp duty, cutting taxes, abolishing excise duty and introducing further tax reliefs. I sometimes wonder where Fine Gael was thinking of sourcing funds to keep the country going at that time. Fine Gael gave no indication of difficulties arising in the Irish economy. There is a type of retrospective rewriting of history in this regard and somehow Fine Gael is now saying it told us so. Fine Gael did not tell us so in 2007.

Paddy Burke (Fine Gael)
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Senator Leyden should go back to some of the budgets. It is on the record of both Houses.

Terry Leyden (Fianna Fail)
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On page 91 of the manifesto Fine Gael stated: "The projected capital balance in the Economic and Budgetary Framework is identical to Department of Finance projections for 2007-2009 and for the entire period reflects our commitment to the spending targets set out in the National Development Plan 2008-2012." I hope Senator Burke is not saying Fine Gael was trying to mislead the Irish people in 2007.

Paddy Burke (Fine Gael)
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Senator Leyden should listen to Deputy Bruton's speeches in the Dáil and to the financial statements in the Seanad in the budget speeches of recent years.

Pat Moylan (Fianna Fail)
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I will not entertain interruptions. Senator Burke will have his chance to speak.

Terry Leyden (Fianna Fail)
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The Cathaoirleach will have to control the Leas-Chathaoirleach on this occasion. I am sorry it is hurtful. I know the truth hurts, but I will continue. These are the statements that were made.

Paddy Burke (Fine Gael)
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Much like the economy in the past 12 months.

Terry Leyden (Fianna Fail)
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I should balance my comments, which I hope I will. Fine Gael did not have the intellectual prowess to formulate its economic framework. It did not have Deputy Lee then. There is "post-Lee" and "pre-Lee". Fine Gael has Deputy Lee now and I wish him well in his political career, however long or short it will be. Fine Gael and the Labour Party brought out the document Protecting the Progress: An Agreed Agenda on Tax and Jobs. The Labour Party had its separate manifesto as well as the shared one. On page 4 the joint manifesto states: "The tax resources that the Department of Finance expects from economic growth will be sufficient to finance the improvements we need to make to public services and infrastructure." Will somebody from that side of the House point out where in that sentence there is an indication that the Opposition had the faintest idea of what was about to occur? I make those points because there is a feeling abroad, and sometimes in the media, that Fianna Fáil went into that election and did not protect the future.

Paddy Burke (Fine Gael)
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That is exactly what happened.

Pat Moylan (Fianna Fail)
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This is statements on the OECD and IMF reports, not statements about parties.

Terry Leyden (Fianna Fail)
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The Minister of State, Deputy Kelleher, outlined the exact Government position on that and I will not re-read his entire statement or go further into all the details of this report. I am trying to build up to the important point of my contribution by giving the backdrop.

Paddy Burke (Fine Gael)
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Senator Leyden is trying to rewrite history.

Terry Leyden (Fianna Fail)
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I also looked up Fianna Fail's manifesto, which was very interesting. On page 29 it states: "All commitments made in this manifesto are dependent on our country's continuing prosperity."

Paddy Burke (Fine Gael)
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Senator Leyden is being very selective.

Terry Leyden (Fianna Fail)
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That was a fairly good prediction of what the future held. On page 29 it states: "We will deliver this country through any downturn with healthy fundamentals intact." On page 31 it states: "Under the heading of budgetary policy, we advocate a 'sound budgetary management' based on the principle of 'retaining the flexibility to deal with any future shocks'."

Paddy Burke (Fine Gael)
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This is more than a shock.

Terry Leyden (Fianna Fail)
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That is a fair assessment of where we were. Our manifesto was dependent on continuation of economic growth. Nobody in the Opposition predicted a downturn in the economy. That is the backdrop to what I will say about the IMF and the forecasts.

We are fortunate that this country is in the eurozone. That is why, on 2 October, people who have read the IMF and OECD reports will say it is vital that we continue in the heart of Europe and work with the rest of the 26 countries in the EU, that we can work our way out of this crisis into a far better future because we are in the EU. If we were not in the EU, we would be in the same position as Iceland. Iceland is not in the EU but it will apply for EU membership. Its economy has totally collapsed. If we did not have the support of our colleagues in Europe, we would be in far greater difficulty than we are today.

There should be a far more united approach by all parties to tackling the economy. In the autumn, very hard decisions will be taken regarding the Colm McCarthy report that will be presented to the Government next week. People are very fearful about what will be considered in that report. I agree with calls from Deputy O'Rourke and others that, when the Government has considered this over a period of time, it should be published in full to allow the public to consider the options. Then there should be consensus between the major parties, Fine Gael and Fianna Fáil, and the Government parties, including the Green Party and former Progressive Democrats, to form a united approach on the future of this country. I would require much more time to go into this matter in detail.

I compliment the Government on its work. When I was Minister of State with responsibility for trade I travelled the world on behalf of this country in an attempt to intensify our trade. We must produce more and do so in a more competitive manner, thus expanding our product sales abroad.

I hope the Government will consult the parties opposite, Fine Gael and Labour, to achieve consensus on what cuts will be necessary during the next two years. If by some misfortune - a misfortune it will be - a general election is called and the Fine Gael and Labour parties get into Government, I can assure this House the IMF will be running this country because that Government will not be able to borrow-----

Paddy Burke (Fine Gael)
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What about the misfortune of this Government? We now have more 500,000 people unemployed.

Terry Leyden (Fianna Fail)
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Fianna Fáil-led Governments have the ability to borrow and the ability to repay. That cannot be said of an Opposition that is in capable of governing the country.

Pat Moylan (Fianna Fail)
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I call Senator Burke.

Terry Leyden (Fianna Fail)
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I hope I am not being divisive.

Paddy Burke (Fine Gael)
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I welcome the Minister of State, Deputy Calleary, to the House and take this opportunity to wish him well in his portfolio. While I have had an opportunity to do so when in the Chair, this is the first occasion I have had to do so from the floor of the House.

I welcome the opportunity to speak on the IMF and OECD reports. I wholeheartedly agree with previous speakers that the report of an bord snip nua should be published. People have a right to know what is in that report. Having read it, perhaps they will better understand the situation in which we find ourselves. I agree with Senator Leyden that we must be at the heart of Europe. If not, emigration will be the only option for the majority of people in this country although where they would go I do not know. It is important we support the Lisbon treaty thus ensuring we remain at the heart of Europe, a debate we had yesterday. I believe the Irish people will make the right decision in the forthcoming referendum.

The IMF report contains three firm statements: we have lost a decade and it will be 2017 before recovery takes place in this country, gross domestic product in Ireland will fall by 13.5% between 2008 and 2010, and Ireland was perhaps the most overheated economy of all advanced economies. These are stark statements about our economy and how it has gone down the tubes in the past 18 months. However, as Senator Bradford stated, we do not need reports to know what is going on. The majority of people know exactly what is going on.

Senator Callely stated that people should know what is going on. The dogs in the street know the state of the economy in this country. The Senator also referred to the banking sector not lending to small and medium-sized businesses. The reality is, despite what Senator Butler said, the banks do not have the money to do so. They owe €35 billion and are worth only €15 billion. Effectively, the banks in this country are broke and are using the money given to them by this Government to stay afloat. That is how I see it and I believe it is how the majority of the people see it.

It was amazing that every time an announcement was made about the Government measures being introduced to deal with the banking crisis, including the bank guarantee scheme, the nationalisation of Anglo Irish Bank and the recapitalisation of Bank of Ireland and Allied Irish Banks, share prices went down. The Minister for Finance stated the purpose of each of these measures was to ensure share prices increased. However, they have the opposite effect. Allied Irish Banks share price decreased in the past week from 180 cent to 120 cent. There is no confidence for shareholders or other people to invest in Irish banks. It has been stated that Anglo Irish Bank loaned in the region of €15 billion on the American market. This is now worth only €4 billion. There is no doubt that some bank in America will buy that loan for €4 billion, which means a further €10 billion loss to the Irish taxpayer in the context of the nationalisation of Anglo Irish Bank.

We must stimulate the economy. This is not happening because the Government has no plan to do so. This is the reason for the continued growth in unemployment. Small and medium-sized businesses are encountering huge problems in terms of electricity prices, insurance, health and safety issues, water, sewerage, refuse charges, rates, telephone costs, VAT and high interest rates. The banks are screwing them on short-term capital and interest on overdrafts. The interest rate on overdrafts has increased to 12%, 13% and 14% for those lucky enough to get one. Most businesses cannot even get an overdraft.

Local authorities have no funding, an issue that should have been debated prior to the recess. The majority of local authorities in this country are broke, their overdrafts have been cut and Departments are not paying them for jobs undertaken on their behalf. This is going to result in a considerable number of lay-offs in local authorities, in particular those working outdoors and so on. A plan must be devised that will start the regeneration of the economy.

The Government needs to address the issue of VAT rates which are 21.5% and 13.5%. If we have learned anything since the 1980s it is that the black economy grows during a recession. The black economy is increasing every day of the week. High VAT rates foster the black economy. They encourage people, when pricing a job, to exclude VAT because often they have no alternative but to do so to remain in business. The Government has stated on numerous occasions that the Opposition has put forward no proposals. We have put forward proposals on various issues during the past 12 to 18 months. VAT in the services sector is payable at 13.5% and in other sectors at 21.5%, which is criminal. It is driving people out of business. One has only to walk down Grafton Street to see the number of premises boarded up. The same is happening in every town in the country. Fourteen premises on the main street of Castlebar are closed. That is all due to the economy that is not generating any capacity for the service sector to develop.

Pat Moylan (Fianna Fail)
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The Senator has one minute remaining.

Paddy Burke (Fine Gael)
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I am sorry I do not have much longer because I have much more to say on other issues. I appeal the Minister with regard to VAT. In his speech the Minister of State said:

Measures to reduce the public wage bill will, of course, be complemented by public sector reform. The Government has adopted the recommendations in the report of the task force on the public service, Transforming Public Services, which sets out a framework for what amounts to a radical transformation of the public service. It has recommended specific actions over set timescales which the Government has agreed to implement.

I have not seen any evidence that there is to be a major transformation of the public service. I know the local authorities would love to see local government reform. The health service needs to be transformed urgently. I have not seen the Government put great emphasis on this. I have not heard or seen a report indicating what is meant by this. I hope the Minister of State will outline those reforms when he sums up.

Mary White (Fianna Fail)
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I welcome the recently appointed Minister of State, Deputy Calleary, whom I have known for many years. I know he has perseverance and he is a worker. In my book they are key personality characteristics to deliver professionalism in his work. He has a great opportunity before him.

Speaking about the IMF report earlier the Minister of State, Deputy Kelleher, said:

Crucially, the report endorses the policies being pursued by the Government. It says that in the two areas that matter most - the healing of the financial sector and the correction of the budgetary situation - the Government has moved in the right direction.

I have noticed that our senior Ministers are smiling more these days after their policies have been endorsed. It is a relief to see that rather than worry and concern on their faces. In particular I have noticed the Minister for Finance has been smiling all the time since the report was published. The Minister of State continued to say:

[In] the healing of the financial sector and the correction of the budgetary situation - the Government has moved in the right direction. As we all are aware, the [International Monetary Fund] is a rigorously independent organisation, with a considerable economic expertise, so the endorsement it provides for the actions being taken by the Government carries considerable weight internationally.

I fully endorse what the Minister of State said.

In case any of my colleagues are unaware, the Minister of State, Deputy Calleary, worked for many years in Chambers Ireland and got to the nuts and bolts of what business needs to do to survive. On 23 June I attended the Lemass international forum at which Dr. T.K. Whitaker, the icon of the public sector, said it was very important to draw attention to the fundamental economic truths about our economy. As a businessperson I probably saw more clearly than most what was going wrong in the economy with the lack of competitiveness and the cost of doing business here. Dr. Whitaker said:

In the midst of a worldwide recession, as we await a revival of incomes and demand in the major economies, we cannot afford to forget that we will benefit from a global economy only if our goods and services are competitive in price and quality. The greater part of our income as a nation comes from exports of goods and services, so incomes and jobs are vitally dependent on competitiveness.

The Cathaoirleach will know that I have been saying that for many years. When we were in the middle of the bubble many people in Leinster House thought we were rich because we were getting all the taxes from the property sector and they had a false idea of what makes an economy sound. As we are a tiny open economy dependent on the world economy, I warned in this House that unless we sold goods and services abroad, we would not be able to create or sustain employment. Now that the bubble has burst we are inundated with reports and discussions on competitiveness.

Connie Doody and I launched Lir Chocolates in 1986 to create employment. In some parts of Ireland there was 40% unemployment and the overall national figure was approximately 17%. It was wonderful to see the effect on a person of having a job. Sigmund Freud outlined what it takes to make a person happy. We have a doctor in the House who has dealt with people coming to him and knows what makes them happy. Sigmund Freud, the father of psychoanalysis said: "the secret of a happy life is to love and to work".

Joe O'Toole (Independent)
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I believe St. Benedict said that.

Mary White (Fianna Fail)
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Well, I am quoting Sigmund Freud today. I am sure everyone in the House will concur with Sigmund Freud or St. Benedict, whoever said it.

Liam Twomey (Fine Gael)
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Can the Senator expand on that point?

Pat Moylan (Fianna Fail)
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No interruptions, please.

Mary White (Fianna Fail)
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Our priority should be to be loved to give us security. When we started our business at a time of high unemployment I saw the transformation in a few months in those who had been unemployed and then got a job. Their self-confidence and self-esteem grew. As the doctor in the House will know, when a person has self-confidence and self-esteem, his or her physical health improves as well. The Government's priority should be to look after existing businesses and keep people in employment. If I were a Minister, my priority would be to keep people in employment and create further employment. Approximately 450,000 people are unemployed at the moment and it will grow in coming months. However, I believe it will peter out thereafter and by the middle of next year the economy will begin to turn around. Economies are cyclical and go up and down.

In last autumn's budget the Government failed to bite the bullet of public sector reform, which disappointed many people. We need to get value for money from the public sector. The services provided by the public service are paid for by taxpayers' money. The taxpayers are entitled to value for their taxes. They want to see a good return on how the Government spends that money. The Government needs to bite the bullet and increase efficiency in the delivery of the services. While I do not want to labour the point, as I have said in the House many times €14.5 billion is spent annually on the HSE. While there have been improvements in some aspects of the HSE, fundamentally it is overstaffed and I would love to know the breakdown of where the €14.5 billion is spent. I would like to know the detail of where the €1.5 billion on mental health is being spent.

Those in the private sector are under severe pressure morning, noon and night to sustain their businesses. If they can keep their businesses going, people can keep their jobs. I worked in the public sector on two occasions for different durations of time. I know from that experience that the people working in that sector are outstanding but in my time there I never saw the good management practices that I experienced from working in private business. The people in the public sector are aching for good management and they want to feel good about where they work. The people who worked in my immediate circle in the public sector were frustrated because systems were not working properly. The Government has to bite the bullet and take on the issue of public sector reform.

The cost of electricity to industry is another matter that has annoyed me during the past 18 months. A Central Bank quarterly report a year an a half ago indicated that our electricity costs to industry were 34.4% above the EU average. I do not know how many times I raised that point in this House and tried to get it on the radar. It is the job of Government not to let such costs escalate such that we lose our economic competitiveness, which we no doubt have. Most indigenous companies deal with the UK and they have had to hang in there and cope with the sterling-euro exchange rate. Those in business who survived the impact of that exchange rate differential will do well as it is beginning to rectify itself now. The multinationals tend to deal with countries beyond the UK. They are engaged in a different ball game and they are holding on to their business.

Seán Lemass, a forum in whose name I attended the other day, and Dr. Whitaker, as a team had a sense of magic about the Irish economy. They turned it around from an inward looking, protectionist economy. I sat my leaving certificate in 1962 and I recall I had a mantra in my head, buntáistí and míbhuntáistí an chómhargadh. When there was a drive for Ireland to join the EU, buntáistí and míbhuntáistí an chómhargadh came up as a question in the intermediate certificate and leaving certificate. That was driven from the top by the political leadership of Seán Lemass and Dr. Whitaker. I want to see a spark and a touch of magic about the political leadership in the country to inspire the people who are holding on to their jobs that we will come out of the recession.

I was heartened when the Tánaiste, Deputy Coughlan, said at a trade and industry policy meeting two evenings ago that we are going to focus on the unemployed. My heart lifted when I heard her say that. People need a job. They need to have a place to go every day, they need money to pay their way, including paying their mortgage, and they need to interact socially with people. The bottom line is that I am glad the Tánaiste clearly said she will ensure we will look after the 450,000 who are unemployed. That is what political leadership is about.

I am waiting for a spark of magic to get this economy going and to lift the spirits of the people of Ireland. Political leadership is about lifting people's hearts and spirits and having a vision for the country in terms of where it is going.

Joe O'Toole (Independent)
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It was interesting to listen to the points made by Senator White, and I agree with much of what she said, but when I hear members on the Government side talk about an issue, I wonder whether they ever listen to what they are told. I raised the price of electricity in this House ten years ago and pointed out time and again that the Government strategy was to raise the price of electricity to invite the private sector into the field.

Mary White (Fianna Fail)
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Yes.

Joe O'Toole (Independent)
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That was the policy of the Senator's party and of the Fine Gael Party. It was done quite deliberately because Irish electricity was too cheap and the private sector could not get involved in that field. The regulator was given this job to do to raise the price of electricity and we are all paying the price for it. We all knew it would happen.

The Senator is right in what she said about political vision and leadership. A good example of that is the first and second programmes for economic expansion. I welcome the Minister of State to the House and he could tell Senator Mary White the damage those programmes have created to this day in his constituency. Dr. Whitaker and Mr. Lemass made no mention in the first and second programmes for economic expansion of the question of the marine. The marine industry was ignored in them. Having sat the leaving certificate, some of us went on to study economics some years later and the basis of our negotiations to get into the chómhargadh in 1973 were those two programmes. We sold away our fishing rights. The Minister of State's constituency among others has been paying the price ever since.

The same Dr. Whitaker who had vision and made a huge impact, when a power station producing cheap electricity in Bellacorick in the Minister of State's constituency was being closed a few years and a proposal was put forward for it to continue to operate for a further year by using the peat which had slid off the top of a hill in the north part of the Minister of State's constituency, objected because he would be discommoded by the transport of the peat passing his front door from the bog in north Mayo to Bellacorick. There is a need for balance in everything.

I am not taking from the great work Dr. Whitaker has done. He objected to free travel for old age pensioners as well.

Mary White (Fianna Fail)
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Is the Senator referring to Mr. Haughey?

Joe O'Toole (Independent)
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Dr. Whitaker.

Mary White (Fianna Fail)
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He was not in favour of that.

Joe O'Toole (Independent)
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Dr. Whitaker did a massive job for Ireland. Political leadership is important. It is also important that we look at how we got to where we are.

I listened to an extraordinary discussion on radio recently between a well known figurehead of the Irish motor industry and a member of the Green Party, who is a Member of this House. I listened in astonishment to the head of the Irish motor industry say that collapse in the motor industry was related to Government policy and Green Party policy in particular. All of us know, except, it would seem, the person who was the asking the questions, that we were being screwed with high car prices for the past 20 years. The same people in the motor industry are now able to reduce the price of cars. The price of a Mercedes has been reduced by €15,000 or €20,000 in the recent period. These people can look into a camera, speak into a microphone and blame everyone else.

People have pointed the finger at me this morning about my involvement in benchmarking and salary negotiations. Life is simple in that regard. There were two choices involved. I sat at a table in Government buildings and said I was unhappy with the taxation system, with the lack of local charges and with many other areas where revenue should be raised. The Government did it its own way. There are people, including some colleagues on these benches, who believe that public sector and private sector workers should stand back and look for low wages while the bosses and the owners take huge profits and all the excess from their companies. That is never going to happen. The issue is about getting a balance. We need to ensure there is balance throughout the process.

It is fair for the Minister to say that the IMF and OECD reports are not all bad in respect of Ireland. They were critical of previous decisions and they are critical of certain aspects of Government policy, but they were positive about what the Government is doing. I would not hesitate in saying that I supported the Government's decisions on the bank guarantee, the recapitalisation of the banks and, most reluctantly, on the nationalisation of Anglo Irish Bank. It would have been too much of a risk to let it go bust. We saw what happened in the US when it let a bank go bust.

Some Members on the Government side believe that selling bonds is like selling cars, that we make a profit every time we sell them. Those Members tell us once or twice a week that we sold all our bonds on the European market this morning. What that means is we got a loan in Europe and we owe more. It is positive in one sense that we managed to sell them and that people managed to give us a loan but in the long term it is like all loans and will have to be paid back. We should be clear about that.

What the Government is approaching in terms of NAMA is the only game in town. I listened to my colleagues in Fine Gael and I have listened carefully to what Deputy Bruton said. He makes sense in what he says about having a good bank and a bad bank alongside each other. I do not understand what happens next. I have an understanding of NAMA. It might not work but I am prepared to give it a try. Similarly, I do not understand how the Labour Party proposals on nationalisation would solve the problem. I like the idea of the State owning banks. One of the attractions of NAMA is that at least we will finish up owning the bank in Ballsbridge, or wherever it is, and will have the deeds to the place. That has a certain attraction to me, coming from rural Ireland, in that it is important that even if we are left with no money at least we will have a couple of acres of ground.

We need to look at where all this is leading us. I say to the Minister of State, Deputy Calleary, that my criticism of the Government is on a different basis. The Government has not engaged fairly with Fine Gael in particular and to a lesser extent with the Labour Party. One can blame them if one wishes, but there are good ideas everywhere. We, on these benches, do not think wisdom is lodged in any one place or person. I would like to have seen an engagement taking place, as Senator Hanafin sought on a number of occasions in recent weeks. I did not hear that engagement this morning. I heard important contributions from this side of the House also but there is a need for engagement.

People are inclined to jump on the bandwagon. The Spirit of Ireland is a good example. People on the other side think this is brilliant, new, fresh thinking. It is a good idea, but there are other good ideas. The first thing one must do is get wind energy going. In the constituency of the Minister of State, Deputy Calleary, the local authority has received a proposal to establish a wind farm in Bellacorrick that would produce 500 MW of energy. That is one tenth of the peak output demand in this country. The local authority produced a report and made great progress on establishing the extent of wave energy potential off the coast. On that basis it could also produce 10% of peak energy demand.

What I do not understand is why the Government does not make those things happen. I accept wind energy is not a constant source of power. However, wave energy is constant. If we forget about the gas resources for a moment, County Mayo could export and supply energy outside the county. It could certainly supply all the energy needs of the west. The Green Party in government talks about developing the green economy. Here is a classic example. The local authority in the Minister of State's county has put forward a blueprint as a model of best practice. It has done all the research and it has models in the sea. The project is ready to go. It would create jobs and reduce our energy dependence on imports. It is the way forward.

Senator Mary White referred to fresh thinking. Only one person in government need say this is a good idea, stress test it and put it into practice. I do not see why those things are not done. There are other similar areas. If we meet in ten years I urge Senator Mary White to remember my words today. On a map of the world showing the location of the greatest wave energy, the highest wave energy is not in the southern ocean, as people might think, it is not around the great continents, it is between north Mayo and Rockall, where there is an average wave height of 2.5 m to 3 m throughout the year. That energy exists and can be harnessed now.

My colleague, Senator Ross, raised many times how far we have fallen behind in broadband provision. We led Europe in that regard ten years ago. Similarly, we led Europe in wave energy only five years ago, but we have been passed out in the past two years. Now there is more happening in terms of wave energy in Scotland than there is here. Scotland has connected to the grid wave energy off the Shetland Islands and other such places. Something can be done here in that regard.

The proposals being discussed in Government Buildings on job creation and job protection are the way to go. It is better to invest money in a controlled way in maintaining jobs than to pay dole. My colleague, Senator Ross, and I hold different views on the pluses and minuses of social partnership. Let us take this week, for example, when the electricians were on strike. Let us examine what was going on. Those electricians were earning €40,000 a year and they were expecting to get an increase to bring them up to €45,000 based on the agreement they had signed in blood. Instead of that their salary was being reduced to €36,000. Everybody spends to the limit of their income. The electricians had to consider whether it was economic lunacy to go on strike. People here do not seem to understand that the electricians were facing financial disaster, not economic lunacy. They were fighting for themselves and their families.

Let us consider why the broader trade union movement supports them - I am not saying whether they were right or wrong. I am giving a one-sided view. The electricians saw themselves being screwed into the ground and losing out. The broader trade union movement realised it was the electricians now and it could be carpenters, teachers or whoever else next, and they decided to stick together. That is what was going to happen. People might say that the electricians and others do not understand the economic situation. The only way one can bring discipline into the situation from all sides is through a national partnership agreement where a view is taken on what one is trying to achieve in the economy. One has to set down that there will be no increase, a small increase, a reduction or whatever, and people are tied into it. That is the only way one gets discipline and control.

As I said many times and as the Pope said this week, the free market does not cure the ills of society. We need to keep those issues in play. I agree with Senator Mary White in terms of where we are going with the economy. It is about political leadership and recognising social responsibility but also giving space to entrepreneurship and reward for real risk taking. What we saw from the banks in the past ten years was not risk taking, it was gambling - there is a significant difference.

Shane Ross (Independent)
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I welcome the Minister of State, Deputy Dara Calleary. It is the first time I have seen him here. Perhaps that is because I was not present when he was here previously. It is a great pleasure to see him. I hope he has a very successful ministerial career, which undoubtedly he will have. I wish him well. He comes at a very difficult period for the economy and for the House.

The IMF and OECD reports are very welcome because they are among the few impartial and independent reports we get on the state of the economy. We are used to getting reports from flawed sources. The Government and the Opposition naturally pick and choose from all the reports and decide to extract those parts to emphasise that suit them. What does not suit will be discarded. We have already seen that happen. Speakers have echoed the point that the reports condemned what happened between 2004 and 2008 but that since then the Government is on the right track. That is a point of view with which I broadly but not totally agree. What they have done is tried to draw a line under the past and to suggest a route forward for the future, which is exactly what the Government is doing. It is harder for the Government to do that because drawing a line under one's own stewardship is something one cannot do in politics. Having done that, the IMF said, broadly speaking, the Government is probably on the right road and if it keeps to that road it might come out of the crisis.

We have had a problem in the past with reports of this type. I do not include the ESRI in this because it has developed in recent years a record for independence that is quite commendable and courageous. It has said a lot of things the Government does not approve of, does not like or finds politically uncomfortable, so it must be excepted from the general rule that economists here tend to write reports to order. By that I mean that predictably enough the economists who write for the banks and stockbrokers tend to write reports that are inevitably bullish about the economy. The banks' economists contributed-----

Mary White (Fianna Fail)
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They are a disgrace.

Shane Ross (Independent)
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-----to the unbelievable hype that existed in this country.

Mary White (Fianna Fail)
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Senator Ross should name them.

John Gerard Hanafin (Fianna Fail)
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Senator Ross should be allowed to speak without interruption.

Shane Ross (Independent)
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They spoofed and boosted the economy to a level of confidence that was completely unjustified. That is something the Government will have to address, namely, that powerful organisations such as those command such clout, not just internally but on the national media. I saw them yesterday on the national media. I do not want to mention names. On the news yesterday there was a well-known economist from a bank telling us things are getting better. They may be getting better but he has absolutely no credibility because of the organisation that pays him to say that. He has absolutely no credibility because the same person, along with a host of others, was giving the green light to more spending on property, constantly reassuring us that the little dip in 2005 was only a dip. Those people must not be listened to. RTE has a greater responsibility than the newspapers not to use these people and give them credibility because they are presented as experts who are independent. They are possibly experts but they certainly have no independence and the tune they have been singing was almost universally one of saying the economy was on the right course when it was heading for the rocks. That is why it is so valuable to get reports from the OECD and the IMF.

Regrettably, when we get these reports people play politics. It is inevitable although it is not to be condemned. It is just a pity because they become a political football instead of something we can look to for independent wisdom. The message that came from the IMF was that the aspirations of the Government are fairly sound but it may not be able to do what it wants to do.

There is a problem, and it comes from the top, that we do not have a sense of the crisis we are in. Quoting deficits of €20 billion on television means nothing to people watching. Budget deficits are for other people, not individuals. They are national issues that do not affect us.

The first thing that might have been done was to inject panic because we are in a panic situation. Most independent commentators are of the view that virtually all the banks here are bust. They cannot make ends meet and if they had to call in their loans, they could not be paid and they would go under. That is the reality. That does not mean a lot to people and they do not care a lot about it until their savings are threatened. We have seen a certain degree of savings being moved out of the country but if people were to realise how bad things were we would see a lot more movement of money.

People must be conditioned to accept that they must make sacrifices and that we are all going to make them. That is the most important thing. It is difficult to take the sort of strike Senator O'Toole was talking about so eloquently when the perception - I do not want to get into the rights and wrongs of it - is that a group of workers is stealing a march on others. It is a difficulty for David Begg, the president of the Irish Congress of Trade Unions, who is trying to hold the line on the public service levy and who is then saying these guys should get 11%. They should not get 11% or anything like it because the message will go out that the flood gates are open and that striking, even in this situation, pays. The threat of an all-out strike is real. On top of that it appears the entire trade union movement backs that strike. If that happens and it escalates, we can wave goodbye to the economy. We must instil that sense of urgency into ourselves.

Senator O'Toole mentioned an issue we do not agree about but it is important. We should look again at social partnership. To my mind, if it is not dead, it is completely lost. We only need look at the social partnership negotiations of two weeks ago between the Taoiseach and the Minister for Finance and the unions. There was a demand from the unions for €1 billion in subsidies for employment. That is just not a runner. They quite rightly said that the banks are getting so many billions so why can the Government not do as much in terms of subsidising employment. I do not believe, however, that they will get even the €250 million vaguely promised.

If partnership is to continue, which I do not believe it will, we must look at it in a different light. Social partnership succeeded principally when we were rich, although not entirely, perhaps. Those who point to the 1987 to 1989 period may have a point in saying that they agreed to responsible wage levels which helped the economy. I do not believe it made much difference but I can see the point of view of those who say it. The social partners - the employers, the unions, the Government and anyone else who was involved - were very successful and life was easy for them during the 1990s because there was plenty of money to go around. Now, however, there is not plenty of money so they must adjust their thinking to how they can act in the national interest. Acting in the national interest now means making sacrifices, with the trade unions telling people in the public service that they must make sacrifices of 10% to 15%.

It means employers making sacrifices on profits and on their own pay. Senator O'Toole is right. I cannot understand why the new head of IBEC did not come out when he was appointed and say how much he is paid. Let us see how much they are paid in that organisation, which enjoys an immensely privileged situation and does nothing for it. Let us see what they get paid because they do not do very much. There should be more of an emphasis on employers who get these large salaries to declare what they are getting than there is on the workforce who are getting an awful lot less. The sacrifices, openness and transparency must cut both ways.

I have not been as critical as I wanted and there must be some words of encouragement for the Minister for Finance. It is encouraging that we have a Minister who has gained the confidence of investors overseas. There are desperate dangers for Ireland. The raw figures are appalling and the outlook is still really bad. The Minister for Finance, however, has got on top of his brief and anyone who talked to anyone who was on his roadshow in Europe - I am not talking about people from here because they would be propagandists and from the Department of Finance but overseas investors, two of whom I have spoken to although I have heard anecdotal evidence from elsewhere - and who saw the Minister for Finance say he is most impressive and determined.

I urge the Minister to hold his nerve, not to worry too much about the reaction of his backbenchers in December at budget time, to do what is right for the nation and to take political courage. He will get a budget through if he does that. It will be extremely unpleasant but it will be the right thing to do. If he relies on the IMF report more than any domestic advice, he will be doing the nation a service.

Dara Calleary (Mayo, Fianna Fail)
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I thank Senators for their good wishes and welcome this opportunity to discuss the IMF and OECD reports. Much of the debate has been constructive and challenging, with religious figures invoked and dismissed, perhaps, and has touched on the key economic challenges we face as a country. I am happy to engage with any Member of the Opposition on any plans he or she might have to get us through the challenges we face. A shared understanding of our economic situation will help enhance the overall quality of public discourse beyond the House and throughout the environment in which we operate. In some contributions I have heard there has been a feeling that the public discourse does not include a full understanding of the depth of the challenges we face.

Any analysis of the Irish economy conducted by established, reputable international organisations such as the IMF and the OECD will understandably be the subject of much media and political comment. In this context, the assessment of the Irish economy that these organisations provide is timely, valuable and welcome.

In welcoming the IMF report, my colleague, the Minister for Finance, summarised it well when he described it as a balanced and realistic assessment of the challenges we currently face. While endorsing the actions we are taking to counter the effects of our economic deterioration, the IMF has also highlighted the unprecedented nature of our current difficulties and the scale of the correction need to address them. It has also identified the risk remaining to overall economic and fiscal recovery.

The IMF highlights two critical areas that need to be addressed in order to restore consumer and business confidence and provide the necessary environment for future sustainable economic growth. These involve the restoration of sustainability to the public finances and repair of the financial system. In this regard, the IMF has endorsed many of the essential steps for economic renewal highlighted by the Minister, Deputy Lenihan, in the April supplementary budget. With regard to the first of these, the Government has adopted a series of measures which demonstrate its commitment to stabilising the public finances, and we view this as a critical aspect of the renewal of our economy and our country. In this regard, we are focused on stabilising and restoring sustainability to the public finances and we expect the deficit to be below the Stability and Growth Pact threshold of 3% of GDP by the end of 2013. This plan has been welcomed by the European Commission.

The supplementary budget of April should be seen as part of a series of concerted measures to stabilise the budgetary situation which began 12 months ago in July 2008. These were followed by further steps in the October budget and again in February of this year and in the supplementary budget. The significance of the actions taken already should not be underestimated, as the revenue-raising and expenditure-reducing measures introduced since July 2008 amount to the equivalent of 5% of GDP in 2009.

With regard to our future direction regarding future necessary fiscal adjustments, the IMF in its recommendations feels the focus should now be more upon reviewing our expenditure rather than on taxation measures. I believe most people would subscribe to this. In this regard, the presentation earlier this week of the report by the special group on public service numbers and expenditure programmes to the Minister for Finance represents a significant contribution to the policy discussions that will inform the preparation of the 2010 budget, as mentioned by Senator Ross. In carrying out its work, the group has considered critically the number of public servants employed across all areas of the public service and has assessed the scope for transferring staff to priority areas, such as those referenced by Senator Burke, and for reducing numbers overall, as well as identifying surplus staff.

The group has also examined the overall efficiency of the public service, including any ways of doing business that are out of step with the needs of a modern, responsive country. The Minister stated in the Dáil last week that he expects the group will make recommendations for further rationalisation of State agencies beyond the measures already announced in budget 2009. On a separate but related point, the Commission on Taxation is expected to complete its work shortly. When the commission's report is received by the Minister, it will be brought to Government in advance of publication.

I will briefly mention the OECD's assessment of the short-term outlook for the Irish economy, which contains the most pessimistic assessment for economic growth this year. I must point out, however, that this week two sets of forecasts from the banking sector suggested a contraction of 7% this year, although we must bear in mind the health warnings given by Senator Ross. While a 7% contraction is nothing to be pleased with, the latter projections put the OECD forecast of a 9.8% contraction into context. Nevertheless, the OECD does recognise in its report that the underlying domestic economic imbalances may be unwinding and that this could add more strength to the recovery than had been anticipated. Implicitly, the analysis demonstrates the flexibility of our economy, which will stand to us.

One of the greatest priorities of the last number of months has been the restoration of our damaged banking system to ensure credit flows to business and customers. The availability of credit is crucial to the healthy functioning of a modern economy. Accordingly, the Government's priorities over the past few months have been as follows: to prevent the collapse of liquidity to the banking system; where necessary, to maintain and rebuild the capital position of systematically important banks; and to address the issue of confidence in the asset quality of the banking system. The IMF acknowledges that the Government has taken important steps to stabilise the financial system through the bank guarantee scheme, and it has also endorsed our decision to set up the National Asset Management Agency. The IMF's assessment is that if well managed, the distressed assets acquired by NAMA could over time produce a recovery value to compensate for the initial fiscal outlays.

The Government's approach to tackling the financial crisis has at all times been structured and considered, with the Government demonstrating its commitment to preventing the failure of any systemically important financial institution. The IMF also recommends that the Government needs to continue its efforts to provide a supportive regulatory and supervisory regime. To this end, we will continue to work with our European colleagues in this area.

Another crucial challenge we confront is the restoration of our cost competitiveness. We are experiencing a profound recession which has resulted from a domestic housing market correction that is being exacerbated by a global economic and financial crisis of almost unprecedented proportions. Living standards are falling and will continue to do so for some time. However, we are not unique in this regard. Economic activity is declining in virtually all of the world's advanced economies, although the decline here is clearly steeper than in most of our partners.

As both the IMF and the OECD have outlined, we must regain the competitiveness we have lost in order to return to sustainable export-led growth, as mentioned by Senator White. This will mean an adjustment in our labour market with costs and work practices changing in order to safeguard employment. We are already demonstrating such wage flexibility in both the public and private sectors. This is a significant achievement which many countries would wish to emulate. Such economic resilience and flexibility allows us to adjust swiftly to our changed economic circumstances and is already being demonstrated. Our labour force continues to be highly skilled and we are continuing to invest in education at all levels to ensure we have the skills demanded by an increasingly knowledge-intensive economy.

The Government remains committed to providing a pro-enterprise environment and maintaining a relatively low tax burden on business. We are also maintaining capital spending at a high level by international standards. This will allow us to maintain our investment in productive infrastructure, which will also help enhance our competitiveness and increase employment. This year alone we will be spending €826 million on the schools building programme - €423 million at primary level, €191 million at secondary level and €200 million at third level. This will drive employment and investment in that sector.

Before concluding I will say a few words about the latest economic developments. Last week, figures from the Central Statistics Office showed that GDP fell by 8.5% in the first quarter of this year. Although the sharpest rate of decline ever, this figure was broadly in line with our expectations. In this regard, we must avoid double-counting. Previously published data had indicated a poor performance in this period. In other words, we already knew conditions had deteriorated significantly in the first quarter. Moreover, there is a growing consensus that the pace of deterioration in economic activity evident in the early months of the year has slowed. Nevertheless, a return to positive growth remains distant. The economy appears to be evolving in line with expectations at the time of the supplementary budget. This involves a further, albeit more modest, contraction next year, with positive growth in 2011.

Returning to positive growth will require difficult decisions to be made. The Government has clearly demonstrated its ability to make these choices irrespective of the political fallout. The Government is doing what is best for the country by implementing measures that are placing our economy in a position to take advantage of the global recovery when it emerges. The Government is acutely aware that the entire spectrum of society is being affected by the deterioration in economic conditions. In taking these corrective measures we are trying to ensure the burden of adjustment is spread as evenly as possible. The road ahead will not be easy, that is clear, but the Government has put the country on the right path, as has been recognised by the IMF, and will continue to act responsibly in the difficult years ahead in the best interests of the country and its people.

I propose to clarify several issues raised in the debate. Senator Regan referred to the legal advisers recently appointed to NAMA. On that matter, the Minister for Finance stated in the Dáil that the National Treasury Management Agency engaged in standard tendering procedures in which he had no involvement. On the basis of these procedures, the NTMA selected the advisers it regarded as complying to the best possible extent in terms of price offered and the quality of expertise available.

Many Senators raised Government plans to address the fiscal and budgetary position. While I discussed in detail these plans and their impact, it is worth repeating that in the April supplementary budget a multi-annual framework was set out to bring the fiscal deficit below the 3% of GDP, as set out in the growth pact.

Senators O'Toole and Ross discussed the prospects of an economic upturn. As I stated, some of the indicators tentatively suggest that while activity continues to be on a downward path, the pace of deterioration in the second quarter may not have been as severe as in the first quarter.

Senator Donohoe referred the structural fiscal balance. Although the deficit in this balance this year will be 8.2% of GDP, on the basis of the Government's fiscal plans, the deficit will decline to -2.2% by 2013.

I congratulate Senators for their contribution to this enlightening and lively debate which will serve as a good model for future debates.

John Gerard Hanafin (Fianna Fail)
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When is it proposed to sit again?

Mark Daly (Fianna Fail)
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At 12 noon on Tuesday, 14 July 2009.