Thursday, 2 December 2010
EU-IMF Programme for Ireland: Statements
Martin Mansergh (Minister of State with special responsibility for the Arts, Department of Arts, Sport and Tourism; Minister of State with special responsibility for the Office of Public Works, Department of Finance; Tipperary South, Fianna Fail)
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As Members will be aware, the key documents which together set out the policy conditions of the financial support being provided to Ireland, and which I shall refer to collectively as the programme, have been made available to the House. I wish to outline briefly the documents involved. There are five documents :the memorandum of understanding on specific economic policy conditionality, MoU, the memorandum of economic and financial policies 2010, MEFP, the letters of intent to the IMF and the EU authorities and the technical memorandum of understanding, TMU, attached to the letter of intent to the IMF. While these documents have not yet been completely finalised, they are not expected to change in substance.
The programme consists essentially of two parts, one on bank restructuring and reorganisation and the other on fiscal policy and structural reform. The fiscal policy and structural reform elements are effectively the same as the national recovery plan. Financial support is being provided from Europe through the EU's European financial stabilisation mechanism, EFSM, and the European financial stability facility, EFSF, as well as through bilateral loans from the UK, Sweden and Denmark, in conjunction with IMF assistance.
There have been various derogatory terms used to describe the financial assistance for Ireland which has been agreed by the Government with our euro area and EU partners and the IMF. I wish to make two fundamental points about this. First, without this programme, our ability to continue to fund essential public services such as social welfare payments and salaries for doctors, nurses, teachers and the Garda would have been seriously compromised and highly uncertain. Second, the stability support which is being provided for Ireland is self-evidently indispensable to safeguard both our own financial stability and that of the wider euro and EU areas with which our economic welfare is intrinsically linked.
A total of €50 billion of the €67.5 billion we are receiving from our European partners and from the IMF relates precisely to the funding of vital public services over the next three years. This is money which we would be borrowing in any event but will now be doing so at rates well below what is currently available in the markets. Indeed, should there be an opportunity to return to the markets at better rates in the coming period, we can clearly do so. It is obvious that in the difficult and unprecedented situation confronting the public finances, the only responsible course of action for any Government was to accept the EU-IMF financial assistance fund.
Let us be absolutely clear about this. Ireland is not accepting external financial assistance as some sort of basket case. On the contrary, the country is funded until the middle of 2011 and holds reserves in the form of the National Pensions Reserve Fund. Moreover, the people of this State have demonstrated remarkable resilience and flexibility over the past two years in facing an unprecedented economic and financial crisis which has to be seen in the wider context of the recent global turmoil. Irish people are recognised internationally as a proud and resilient people who have capably overcome many challenges in the past and who will do so again now. Financial assistance from Europe and the IMF will be applied alongside our own resources.
The Government's success in stabilising the public finances and the banking strategy we have pursued have been endorsed by the international team with whom we have negotiated. They have also accepted our four-year plan for national recovery and have built their requirements around that plan. I emphasise this because it demonstrates that we have been pursuing the correct policies and that what has been achieved through difficult and challenging circumstances can now be built upon in the context of the programme. The fact is the economy is showing signs of recovery. As the Minister for Finance, Deputy Brian Lenihan, reminded the Dáil last week, GDP will record a very small increase this year based on strong export growth, exports are expected to grow by about 6% in real terms this year, driven by improvements in competitiveness and a strengthening of international markets; and conditions in the labour market are also beginning to stabilise.
The outlook for next year is much improved. As forecast in the plan, growth is expected to be around 1.75% next year, again driven by a remarkably robust export performance. It is not possible to make definitive projections for growth for a very open economy such as ours in the present circumstances of international uncertainty. The European Commission has taken a relatively more conservative approach in its forecast of just under 1% growth in 2011. At the same time, I point out that the Commission has also made a substantial upward revision in its forecast for international trade, which will benefit a small open economy like ours in which growth, by common consent, will be export-led.
There is also the point that under the programme the time provided for reducing the general Government deficit to below 3% of GDP has been extended by one year to 2015. This is designed precisely to take account of the fact that economic circumstances could prove relatively more difficult than at present envisaged. While this is welcome, I must emphasise it does not change our budgetary plans as set out in the national recovery plan. We remain committed to pursuing €15 billion of adjustments by 2014, but, obviously, the extension of the deadline provides some additional flexibility, if growth turns out lower than expected. I note, however, that in the later years the Commission forecasts are similar to those of the Department of Finance, while others, such as the ESRI, consider that the Department's forecast is too pessimistic.
The programme has adopted in its entirety the measures set out in the national recovery plan as a roadmap to return our economy to sustainable growth. The programme has accepted the adjustment of €15 billion by 2014 and endorsed the planned breakdown of €10 billion on the expenditure side and €5 billion in revenue raising measures. Budget 2011, which the Minister for Finance will present to the Dáil on Tuesday next, will set out the details of the first €6 billion of this adjustment. The programme has also taken on board the programme of structural and labour market reform in the national recovery plan aimed at improving our competitiveness. Performance in this regard will be monitored on a quarterly basis.
The negotiations on the programme which took place over a ten day period were intense and at times difficult. They were conducted under the direction of the Minister for Finance and of the Governor of the Central Bank by the most senior officials from the Department, the Central Bank, the Financial Regulator, the National Treasury Management Agency and the Office of the Attorney General. While there has been various criticism of the outcome of the negotiations, we have yet to hear any suggestion of how we could have secured this package of financial assistance at less cost to the State. What is absolutely clear is that we cannot afford not to receive this assistance.
It has been suggested, for instance, that we are paying a higher interest rate than Greece, even though Greece is now seeking our terms. The interest on the Greek loans is 5.2% for three year loans. Ireland's interest rate will be 5.8% for loans with an average maturity of 7.5 years. It is a basic fact of sovereign borrowing that the longer a country borrows money, the higher the interest rate paid. However, if it transpires that there is an opportunity to borrow at a lower rate in the markets, we would of course plan to do so and there is nothing in the programme which would prevent this.
As regards the make-up of the €85 billion funding package, €50 billion is to provide the normal budget financing - this is money we would have had to borrow over the next three years in any event. The programme provides these funds at a much lower rate than currently available to us in the market. This level of funding is already included in the plan. Of the remaining €35 billion, €10 billion is for immediate additional bank recapitalisation and the remaining €25 billion is to be used as a contingency fund, only to be drawn down if required and based, for example, on the results of the updated capital assessments.
The State is in the strong position that it can contribute €17.5 billion towards the €85 billion package from its own resources, including the National Pensions Reserve Fund, NPRF. It will be possible to do this in tandem with the commitments in the four year plan to use funds from the NPRF for projects such as the water metering programme and retrofitting. There has been much confused criticism of the proposed use of the NPRF, including from parties who have consistently in the past questioned the very existence of the fund. This makes no sense. What is abundantly clear is that there would be no understanding on the part of the EU, the IMF or any other international body of our not using the very sovereign wealth fund which we have at our disposal. How could we expect taxpayers in other countries to support assistance to Ireland while we hold funds in reserve? We have a large problem with our banks, which has forced us to seek this external assistance. In these circumstances, it is surely appropriate that our cash reserves should be deployed to help solve that problem.
The bottom line is that we have had to seek external assistance because the problems in our banking system simply became too big for the State to handle on its own. We have succeeded in stabilising the underlying position of the public finances. The public finance problems are serious but we were well on the way to solving them. The combination of the two sets of difficulties in circumstances where the entire eurozone was under pressure was beyond our capacity. Therefore, the primary aim of the programme agreed last weekend is to support the recovery and restructuring of our banking system.
It has been clear for some time that our banks were facing serious challenges in terms of their liquidity position. Lingering concerns in the market regarding their capital position led to negative market sentiment. This was despite the substantial transfer of the banks' riskiest loans to NAMA and the detailed capital adequacy assessment made by the Financial Regulator in the summer, as well as the significant recapitalisation measures that flowed from that. The programme does not envisage any departure from existing policy. Rather, it is an intensification and acceleration of the restructuring process already being undertaken for the Irish banks. A priority here is to ensure that the size of the domestic banking system is proportionate to the size of the economy and is appropriately aligned with the funding capacity of the banks overall, taking into account stable sources of deposit and wholesale funding.
An important objective of the programme is also to demonstrate the capacity of the banks to accommodate any unexpected significant further deterioration in asset quality so as to rebuild market confidence in the robustness and financial resilience of the banking system overall. The Central Bank is requiring the banks to meet a core tier 1 capital ratio of 12%, which is a key measure of capital strength. If the banks cannot achieve this themselves, the State will inject the necessary capital. There is provision for this to be drawn from the €10 billion which is available immediately from the overall programme fund. A further remaining €25 billion will be available on a contingency basis.
I emphasise that a detailed and extensive review of the financial status of the Irish banks was undertaken by the external authorities in advance of the agreement on the EU-IMF programme. This focused, in particular, on the results of the Central Bank's assessment of the capital position of banks, the prudential capital assessment review or PCAR, carried out earlier this year and updated in September last. The Governor of the Central Bank recently confirmed that the external experts had found no fault with the methodology used for the PCAR. The Central Bank will under the programme carry out an updated PCAR exercise on the capital position of the banks in early 2011 based on stringent stress testing and detailed reviews of asset quality and valuation, which will also take into account updated assessments of the macroeconomic environment. This will provide that, over the coming years, the banks' capital ratios do not fall below 10.5%. This is a high standard in international terms and is intended to provide significant confidence to the market that our banks will be in a strong financial position. It will provide a foundation for the necessary reassurance to allow the banks to attract greater market funding in due course.
The Government will also undertake a process of significant restructuring and right-sizing of the banks to reduce their balance sheets. In this context, all land and development loans below €20 million in Bank of Ireland and AIB will be transferred to NAMA. Further work will be undertaken in the short term with the banks to identify how the sector can be reorganised to ensure we have a viable and financially strong banking system which meets the needs of the real economy and has the confidence of international markets. This strategy, developed in collaboration with the various international organisations and endorsed by them, builds on the measures adopted by the Government over the past two years to resolve our serious banking difficulties.
The programme allows for an integrated approach to the restructuring of Anglo Irish Bank and Irish Nationwide Building Society, building on the proposed asset recovery bank structure to seek to maximise value from their loan books. Revised restructuring plans for the two institutions will be submitted to the European Commission in early 2011 detailing the resolution of the institutions, in particular, the arrangements for working out of assets over an extended period of time.
I reiterate that all deposits held with the domestic banking system are safe and covered by the deposit protection scheme for sums up to €100,000. In addition, deposits in participating institutions under the eligible liabilities guarantee scheme are guaranteed in line with the terms of the scheme for sums over €100,000. The scheme has been extended in national law to the end of 2011.
There has been much commentary about the need for senior bondholders to accept their share of the burden of this crisis. This matter was certainly raised in the course of the negotiations, and the unanimous view of the ECB and the Commission was and is that no programme would be possible if it were intended by us to dishonour senior debt. The strongly held belief among our European partners is that any move to impose burden sharing on this group of investors would have the potential to create a huge wave of further negative market sentiment towards the eurozone and its bank system. That apprehension was confirmed by Professor Honohan in an interview last Monday when he said there was no enthusiasm in Europe for this course of action.
There is simply no way that this country, whose banks are so dependent on international investors, can unilaterally renege on senior bondholders against the wishes of the ECB. Those who think we could do so are living in fantasy land. Worse still, those who know we cannot do so but who nonetheless persist with the line are damaging this country and its financial system, all for the sake of a cheap headline. It is a case of politics as usual, unfortunately, even at this difficult time.
The idea which is out there that somehow there are no costs associated with default is entirely incorrect. Ireland is hugely dependent on foreign direct investment.
These companies have large funds and investments in Ireland and, directly and indirectly, employ 250,000 people in this economy. Any default on senior debt and the uncertainty that would cause would undoubtedly have an impact on the future investment decisions of these companies.
There is an article in The Irish Times today by a regular Financial Times columnist, Mr. Wolfgang Münchau, suggesting we should default. To be fair to him, he does not disguise the enormous disruption that this would cause, both to Ireland and the eurozone economy. Foreign commentators who are regularly quoted, including Nobel prize winner, Professor Krugman, have agendas and priorities of their own that might be advanced by this country adopting particular courses of action. It does not mean to say those courses of action would be in our interest. They emphatically would not.
Subordinated debt holders are in a different position. As the Minister said in his statement on 30 September last, there will be significant burden sharing by junior debt holders in Irish Nationwide and Anglo Irish Bank. These two institutions had received very substantial amounts of State assistance and it was only right that this should be done.
The Department has been working with the Office of the Attorney General to draft appropriate legislation to achieve this and this is near finalisation. Parallel to this, Anglo Irish Bank has run a buyback operation which will offer these bondholders an exchange of new debt for old but at a discount of at least 80%. This process is still under way and will be concluded shortly. This approach will also have to be considered in other circumstances where an institution receives substantial and significant State assistance in terms of capital provided to maintain its solvency ratios. I hope to be in a position soon to announce this legislation.
We need a properly functioning banking system for this country. As the Minister has indicated, we need to shift to a banking system commensurate with the economy but one that is strong and capable of meeting our needs. That has been the overriding objective of all our efforts since this crisis began two years ago. The considerable funds provided by this programme will enable us to bring this crisis to an end and to secure the future of the Irish banking system in order that it can play its full role in supporting the development of this country.
The past two years have been exceptionally difficult. Needless to say, we would have preferred not to have had recourse to external assistance. This was not only unavoidable but necessary to secure our economic future. We will engage positively with this process and will emerge from it a stronger and fitter economy. The basic strengths that have been associated with the Irish economy remain: the quality of our workers, our entrepreneurship and our pro-business environment. These remain vital building blocks for the future. In the good years, we invested wisely in vital infrastructure, including top class transport infrastructure and education, sports and cultural facilities, in addition to many other important areas. Over the past two years, we have won back much of the competitiveness we lost during the boom.
The three-year EU-IMF programme provides us with access to vital funding in these difficult times. It also provides the means to restructure and recapitalise our banking system. It will guide us through the implementation of the necessary budgetary and reform strategies set out in the national recovery plan. We have every reason to be confident about the future of this economy.
It is unusual we are having statements on the EU-IMF programme for Ireland after the so-called Celtic tiger of recent years. We have pumped billions of euro into Irish banks, yet the Minister of State is talking about an additional 10,000 loans from Allied Irish Banks and the Bank of Ireland, valued at €16 billion, being transferred to NAMA. This means the average value of each loan is €1.6 million. This means a number of the loans must be valued at or below €1 million. The tranche of loans being transferred is substantial. Will the Minister of State elaborate on this when he responds?
Part of the programme involves an additional €25 billion contingency fund for the Irish banks. Will the Minister of State expand on where this €25 billion will be directed? It is a lot of money to have as a contingency fund, especially when we are just about to pour another €10 billion into the banks from the EU-IMF fund. When the Minister of State is thinking about where the €25 billion will be directed, he might comment on the report published by the Central Bank stating that bankers have given themselves bonuses for this year, in spite of the cuts the Government will be making in the budget next week. It seems a bit ridiculous that bankers are paying themselves bonuses in spite of the billions of euro poured into the banks, the additional €16 billion in loans now to be transferred to NAMA, the €10 billion we are putting into the banks, the €25 billion contingency fund to bail out the banks further, and the shrinking of the size of the banks. There seems to be an unbelievable contradiction in this regard. Will the Government ever take control of what it is supposed to be responsible for in regard to its banking policy? Hearing about bonuses is driving people crazy.
There is a need for the Minister of State to tell us how we landed in this mess. Time and again, different contributors in this House have pointed out how we walked into this crisis. Whatever Professor Honohan heard in Hong Kong in August frightened him enough to come back to Ireland and state we need to get our relationship with the international bondholders right. At that time, they had stopped lending to Ireland. In September, Mr. Olli Rehn wrote a front-page article in The Irish Times stating we would need more stringent cuts. We went through the farce of the Green Party's consensus for a few weeks before reality slapped us across the face. Thereafter, the Government was honest with us in stating the adjustments we need to make were no longer valued at €7.5 billion but at €15 billion. We never got a clear explanation for this, nor was it outlined when we would be told.
There is a sense that our European partners were losing patience with their partner in Ireland and that they started to push the agenda to get the Government to adopt a more realistic outlook on what was occurring here at the time in question. Ministers were in denial about the IMF but were also in denial about the state of our economy only six weeks before the arrival of Mr. Rehn in Dublin. There is lingering concern among the Irish that there is more we need to know about. Perhaps the Minister of State will explain further what is happening within the Irish banks and what sort of surprises we can expect to come down the tracks. There is a need to know.
Everyone is taking a hammering in regard to what is happening. The Minister of State is telling us the European Union will not touch our corporation tax rate of 12.5%. This is possibly true. Has any pressure been put on the Government by our partners in the European Union to change other aspects of our taxation policy, thus rendering our position on corporation tax null and void? For instance, businesses registered in Ireland but which do the majority of their work outside this jurisdiction may be forced to pay VAT or some other tax on earnings in other jurisdictions. This would sort out the problem for the Germans and French but would be detrimental to our potential to earn revenue from taxation. Are there ongoing discussions at EU level on this issue? Does the status quo remain for companies registered in Ireland? Are there proposed changes to other taxes that may reduce our tax revenue from companies operating outside the State?
There are two aspects to the plan. One concerns the adjustments we are to make by increasing taxes and cutting expenditure and the other concerns potential growth. The variables for growth next year are still quite significant. Dr. Peter Bacon has stated there will be no growth next year, while reports from other quarters indicate that the rate of growth will be 1.75%. This is an important issue. Perhaps the Minister of State might comment on the further adjustments which might have to be made if the rate of growth is at the lower rather than the upper end of the scale.
As many have stated, a significant jobs strategy must operate in tandem with whatever actions we take in the coming years because otherwise we will find it impossible to extricate ourselves from the current economic mess. In the context of the national recovery plan, the Government proposes to cut capital expenditure by €1.8 billion. This money is for the provision and upkeep of roads, railways, harbours, schools and hospitals and a reduction of €1.8 billion means that many of those who rely on State contracts to remain in work will find themselves unemployed. Were options other than introducing large cuts to capital expenditure, for which good value for money is obtained, available to the Government?
Will the Minister of State expand on the savings of €1 billion it is proposed to make in respect of goods and services? This is a significant amount of money and perhaps a better breakdown might be provided of the areas in which the money will be saved next year. Perhaps we might be obliged to wait for the budget before we obtain an indication of what is involved.
Martin Mansergh (Minister of State with special responsibility for the Arts, Department of Arts, Sport and Tourism; Minister of State with special responsibility for the Office of Public Works, Department of Finance; Tipperary South, Fianna Fail)
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I believe that will be the case.
Reference is made in the plan to reforming the social welfare system and reducing social welfare payments. It appears this will lead to savings of €750 million, which equates to a 4% cut in the social welfare budget. If the Government is intent on protecting old age pensioners, there will be significant cuts for other social welfare recipients in next week's budget.
The Minister of State did not refer to getting people back to work or retraining them. There has been a great deal of talk from the Government side that this is going to be done and the usual flowery language has been used. However, a number of weeks ago I raised the issue of FÁS apprentices who had been working and been trained within companies which had gone out of business. The individuals concerned who may be two or three years into their apprenticeships are not now in a position to complete their training. A number of them are in limbo. If they could complete their training, they could go abroad for a couple of years to obtain work experience and then return when the economy picked up. If they go abroad now, they will be treated as unskilled workers. Many of them are on the cusp of becoming fully qualified tradespeople. The Government must stop waffling and instead take action in order to assist the people concerned and others who find themselves in a similar position.
The proposal to double the carbon tax is strange. I am aware of the probable source of this suggestion. Doubling the tax has the potential to hamper economic activity. Is this a wise move, particularly in the context of the potential knock-on effects for economic growth? We need to consider how we might stimulate the economy to the greatest degree possible rather than putting the brakes on in respect of future potential growth. The rate of economic activity has fallen dramatically from peak levels. Therefore, there is a need to review our policy on carbon credits, etc., in order to ensure we will not put people out of work unnecessarily.
The Government has not had much to say about water metering or the offer made to it by Siemens. When the State was in its infancy, the Ford Motor Company made an offer to the then Government to build concrete roads throughout Ireland as long as motor tax was not applied to its cars. This offer was turned down in favour of imposing a tax on motorists. Will the Minister of State outline the Government's view on the offer made by Siemens?
As Deputies in the Lower House pointed out, the matter of greatest import with regard to the loan the country is to receive relates to the need to provide a breakdown regarding the rate of interest that will be charged. The loan will come from four sources, namely, the National Pensions Reserve Fund, the European Union, the IMF and other European countries. I do not believe the Government has provided a breakdown on the rates of interest that will apply to each of these four elements of the loan. The people need to know what will happen in this regard. Some €50 billion of the loan will go towards funding the Government deficit during the next three years. If the economy does not grow and we are obliged to draw down all of this money - we will be obliged to do so because approximately €40 billion to €50 billion will be required during the next couple of years - we need to know what will be the likely rate of interest in two or three years time. The rate of interest we are obliged to pay could have a dramatic effect on our growth potential at that stage.
The Government entered into this deal on behalf of the people and it owes it to them to provide all the facts and figures in respect of the money it is borrowing. Prior to the bailout, Government representatives continually made the argument that we had enough money to keep the State going until next June. Given what they were saying, one would have thought we were going to win the national lottery at that point. It is obvious that what all those in government were considering was the fact that they would no longer be in power next June. There are, however, Members of both Houses who are thinking beyond that date and wondering about the rate of interest we are likely to have to pay on borrowings in 2012 and 2013.
I welcome the Minister of State for what is now our almost daily debate on economic matters. I suppose it is appropriate that we are engaging in such a debate, particularly in the light of the seriousness of the scenario.
The Minister of State provided a detailed outline of the specifics relating to the documents in their current form. It is expected that the substance of both documents which are before the Houses for assessment will remain the same. As the various commentaries in the political arena and elsewhere indicate, people are happy and unhappy about certain aspects of both documents.
The crisis has moved from Ireland. The funds that will be made available to the country under the EU-IMF package will provide us with the point of inflection for which we have yearned for two years. The changing of the goalposts at various points during the years has not been of assistance. The Government was obliged to take decisions on the basis of the best information then available. At times, the said information was less robust than we might have hoped for. Now that the goalposts have been moved, certain things have changed.
As the Minister of State indicated, it is worth noting that the European Union, the IMF and our colleagues in the eurozone have endorsed the various measures the Government has implemented to date in dealing with the deficit in the public finances and resolving issues relating to the banks. In the light of the fact that the goalposts were moved and in view of the quality of the information sometimes provided, it is obvious that the problems in the banking sector were caused by a national and international regulatory regime. We have ended up in serious trouble as a result.
I am optimistic that the EU-IMF package will be the source of the point of inflection to which I refer. I am also optimistic that it will allow us to operate outside the international financial markets, the approach of which to Ireland has been far too frenzied in nature. The focus has now moved to Spain and other countries. When the President of the European Central Bank, Jean Claude Trichet, makes an announcement in the next 20 minutes or so, I hope the international financial markets will take a different view to the eurozone as a whole. However, that matter is not in our domain for now and I believe the funding being provided will present us with the opportunity to continue to make structural and other reforms and meet the shortfall in income and expenditure.
I hope the reforms relating to the banks will be introduced quickly. It is clear that a banking Bill is to be introduced either next week or the week after and I look forward to its introduction. Notwithstanding the level of public anger regarding the vast sums of money involved, we have no choice but to invest in the banking system in order to try to stabilise and restore it; everyone wants to draw a line under the issue. As the Minister of State indicated, we must restructure the banking system to bring it more into line, from the perspective of size, with the needs of the economy. The system must be stable and sufficiently well capitalised to allow it to provide families and businesses with the means to survive and operate.
I wish to ask a number of questions on some matters on which Senator Twomey touched, the first of which relates to the individual rates of interest that will apply. My main question is on the sequencing of the draw down. What is the first money? Presumably, it is the money that will come from the State's cash reserves and the National Pensions Reserve Fund, the use of which I welcome. I want to mention the criticism for using it coming from some quarters, in particular that of Deputy Burton in the other House. In December 2002, Deputy Burton was criticising Government for shovelling money into this fund. My only regret is that we did not shovel more money into the fund. If we had, then we would have to borrow less or seek less support. What strengthened our hand in negotiations with the IMF in the context of what deal we could get was that we had some of our own cash reserves. Clearly, in sequencing, I am assuming we will draw on those resources first but I am interested in which source will be next called upon. Will it be the European financial stability mechanism or will it be the IMF? Clearly, the different amounts will involve different interest rates. I express the wish that since the IMF may be the next cheapest it should be drawn down next.
I am also optimistic, albeit with relatively modest growth forecast for the coming years, that within the three year period it is conceivable we can return to the bond markets and, regardless of who is in Government, we can get some of that funding, which is a facility of some €85 billion made available, sourced from other means. Of course, that would be open to the Government of the day as an Executive decision if there are means to do that and it is more competitive to do it. I would appreciate if the Minister of State could, to the extent possible, deal with the issue of sequencing and individual interest rates, as Senator Twomey sought, and I understand it may not be possible to give all of those.
On the overall average interest rate of 5.8%, the criticism that it is too high and us paying more than Greece, I note the Minister of State touched on this. Greece now is seeking Ireland's terms. It was on shorter money - three and a half years or thereabouts at 5.2% - and we are getting close to ten year money at 5.8%. I suppose if one was looking for that in the markets today, it would cost 9%, or a little less because in anticipation of the announcement by the ECB today on bond purchases, the markets have calmed somewhat. However, I think it will cost Spain something similar to source that kind of money from the wholesale markets. All things considered, the rate was quite good.
Without question, the interest payments will represent in the region of 20% of revenue in 2014. That is a vast and unacceptable amount, but we are in this situation and we must deal with it, and no doubt we will. I recall, of course, that in 1985 payment costs reached close to 35% of tax revenue and at that point our debt to GDP ratio was significantly higher than it would be if we drew down all of this money.
That brings me to note the many positives. While there has been a rightful focus on many of the matters that did not serve us well over the past number of years throughout various debates in this House, including today's, it is also important to acknowledge that many of the wins of the tiger years, for want of a better expression, are secure. The Minister of State mentioned the investment in infrastructure, in people and in the education system. There are still 1.86 million people at work, which is significantly more than even ten years ago. There are many positives to be built upon and the template is there to allow us grow to our potential in the future, regardless of who is in Government. Senator O'Reilly mentioned on the Order of Business that people were entitled to have hope, and they certainly are. Regardless of who is in Government, I have that hope. I am fully confident in the resilience of the Irish people to bounce back from this challenging and difficult time, and I believe we will do it quickly. This deal with the IMF and the EU provides us, as I stated, with that point of inflection from which we will grow quite quickly and I am optimistic about the year ahead. I note the Opposition has stated that the Commission has been more conservative in the context of its growth forecasts over the years but, as the Minister of State said, it has also revised our export forecasts upward. Indeed, the ESRI states that the forecasts of Government, and particularly of the Commission, are too conservative. Let us hope that such may be the case.
Europe is due a bounce of the ball and it has not come over the past number of years. Certainly, the crisis has moved on to Spain, and we will see what happens this afternoon. However, we in this country are fully financed for the next number of years. As I mentioned, the possibility to source some of that funding from the other markets still exists, but that money is there. Let us get down to focusing on getting the deficit under control and getting the public finances back in line. As the Minister of State also stated, much of this work had been started and is ongoing.
When I read today's newspapers headlines, such as "IMF names its price" in the Irish Independent, there is nothing in it that particularly scares me. Indeed, much of it was underway in any event. I wanted to mention the Croke Park agreement because for it to suggest that we will allow another nine months for what is effectively a business plan to be implemented is ridiculous in the extreme. While implementation plans are in - I have spoken to many trade unionists about this - there is simply no excuse. If it were a company, it would agree the business plan today and it would be implemented the next morning or the company would be gone out of business. The threat of a pay cut being an incentive to do a job to one's potential is laughable but to allow a further nine months for the implementation of it is ridiculous in the extreme. If the Croke Park agreement is implementable, then implement it in a matter of days and weeks. Certainly, to preside over a plan which states we will do it over the next nine months is not the correct place from which to start.
As we continue down the path of fiscal rectitude my personal opinion stated clearly on many occasions previously is that everybody over a certain level in pay in the public service, whether it is €60,000 or €70,000 and maybe it is higher or lower - let us agree in partnership with the unions - needs to take a percentage cut. I also stated this morning on the Order of Business that State-connected or supported entities, whether in the semi-State sector or in sporting organisations that receive substantial grant aid, cannot preside over monster salaries in an era where there is a national emergency. This morning I gave the analogy from a sports perspective of the Sligo Rovers bonus for having won the cup of €100,000 for the club, but in the meantime the State-supported FAI paid its chief executive €450,000 a year. It is not to hone in specifically on the poor CEO of the Football Association of Ireland but to make the point that there is a great deal of State funding going to organisations like these.
This morning Senator Ross mentioned the banks, as did Senator Twomey in his contribution. To be paying bonuses in this day and age is disgraceful. It is not in the spirit of solidarity, which circumstances have demanded of all of us and to which most have lived up. The banking sector, while there are many good people working in it, has contributed in such a significant way to the mess we are in and it is inconceivable that we can preside over paying bonuses to them.
I welcome the programme. It will provide us with the template from which to go forward. We have many difficult challenges and difficult things to do ahead. However, the international crisis has moved on from us for the moment and let us focus on getting our own house in order. We clearly now have the means to do it at an interest rate that is competitive in the current market, and as I said, there is a possibility always to opt out and go to the market for other funding when there are calmer conditions in the bond markets.
It is difficult to approach this subject. From an Independent's point of view it is even harder than it is from the Government's in some ways because the wish is that any package of this sort should be successful. Indeed, there is a reluctance on the part of Opposition Members even to oppose it in its entirety or to criticise it because it appears that one may be in danger - I do not overestimate the power of Independent Members of the Seanad or Opposition Members in the Dáil - of damaging what is perceived as the national interest in that some state, I think wrongly, that to reject this plan would take us into an abyss, which is unknown, unfathomable and possibly even more precarious than the situation we are in. I understand that point of view and it is made with genuine feeling from the Government benches. They believe there is an obligation on everybody to support the package because, possibly, the alternative is so horrific. However, I find there is an element of a Government and Establishment mindset which means there was a lack of imagination in the negotiations, which is staggering. I notice the Minister of State said - I suspect with some pride and to endorse and bolster the strength of the negotiations - that they had been conducted under direction of the Minister for Finance and the Governor of the Central Bank, both of whom are very eminent and able people, and by the most senior officials in the Department, the Central Bank, the Office of the Financial Regulator, the National Treasury Management Agency and the Office of the Attorney General. The latter does not fill me with such confidence as the former and my guess is that, having been given marching orders, those negotiating were thinking with the mindset that they should go in and, within certain parameters, accept what they were given.
There is an element of force-feeding about the package. I suspect the initiative for it comes as much from elsewhere in Europe as it does from Ireland; I suspect it comes as much from Germany, France and other nations because they saw extraordinary dangers in Ireland defaulting which would not be in their interests. The letter written by the Minister and the Governor of the Central Bank to European officials and the IMF has all the hallmarks of a complete surrender written to European leaders accepting what was dictated to them. They stated they offered their plan; it was not theirs. Throughout the document there is a pretence that this is the Government's preferred choice; it is not. There is every sign that the Government had very little input into what happened.
I was struck - I will be interested to hear the response of the Minister of State - by the fact that when Patrick Honohan and the Minister for Finance, Deputy Brian Lenihan, responded to questions about defaulting on the senior debt, they both stated it would not be countenanced by the Europeans. It is obvious that this, the most vital, controversial and important alternative, did not even reach the table. It is obvious from what was stated that defaulting on that debt was not even going to be considered by the European leaders and that we accepted this. That is a pity, but the possible clue to it is in the identity of the negotiators. They were all Establishment and official Ireland figures, deeply plugged into the ordinary, conventional and traditional way of thinking, to whom the idea of defaulting on the debt would be abhorrent. It is not encouraging.
In many ways, Matthew Elderfield, Patrick Honohan and Deputy Brian Lenihan were wonderful people to have directing these negotiations. However, we have the same problem we had in dealing with the issue of the banks this morning. Underneath the people negotiating - the Minister of State said it with a great deal of confidence - were the most senior officials in the Department, but this does not inspire anybody, bar the insiders, with confidence; ditto with regard to the most senior officials from the Central Bank and the Office of the Financial Regulator. All three contain exactly the same people who were there at the time of the bank guarantee and a large number of them were there at the time when the banks were not regulated. The Minister of State also mentioned officials from the Office of the Attorney General. I know it is difficult and countercultural to speak about officials in a derogatory way or to dismiss them, but we have to accept that the negotiators were the people who, as Senator MacSharry stated, certainly had been advising the Minister with information which, at the most charitable, had led him to make decisions which were more than questionable.
The default issue should have been tackled at the negotiating table. The Minister of State said defaulting on senior debt was unthinkable because of the reaction in respect of foreign direct investment; such investors would baulk at it. However, he said this without much evidence. If there was a quick and clean default in respect of senior bondholders, would Intel, Google and others flee the country? I am not sure this is true. I would have thought a clean default, admitting that we could not and would not pay the people concerned would have been perfectly acceptable in this sense. It seems the idea of not paying senior bondholders will suddenly go out of fashion in 2013 but is beyond acceptable now. One wonders why it is being imposed on Ireland that it will not be allowed to default in respect of senior bondholders, yet in years to come others will be able to do so. This leads me to question whether the Spanish, Italian or Portuguese would put up with this treatment. Will the great powers of Europe be able to tell the Spanish Government, if it gets into trouble in the coming weeks, that it will have to accept a diktat from other powers such as France and Germany? I do not think so. Portugal, Spain and Italy would be offerd a better deal. There is not much to be said for Mr. Berlusconi, but he is erratic. If I had a choice between taking Mr. Kevin Cardiff on one side of the table or Mr. Berlusconi on the other, I would take Mr. Cardiff as a negotiator any day because Mr. Berlusconi is a wild card. If it comes to this with Italy, the Italians will not put up with this treatment.
This is a major humiliation for the country. I do not wish to knock people in their hour of need, but I do not believe our negotiators at any stage took, or even threatened, the attitude that the nuclear button was there for them to press. What would have happened if they had stated they would default on the debt and that they were walking out? Would we have been left to swing or would the European governments have come back and stated we could not do so and that they would fix the problem somehow? The motivation came as much from elsewhere in Europe as it did from here because it involved self-preservation. Of what were they frightened? They were frightened that our banks would go under and for one reason, that it would affect their banks. There is no great philanthropic move in this instance. That is why Britain came in; it did not do so out of love for Ireland. That is why the Scandinavian countries also came in. Denmark did so because of National Irish Bank. The British did it because of UBS and a few others.
We had some negotiating power, but it does not show in the results achieved. What we should have been prepared to do was to default, to state we were not paying and would take the consequences. I ask this question about Spain and Portugal; I hope it will not affect Spain but let us see. There is no way they will treat the Spanish like they treated the Irish, because Spain is too big. We were just there. We were the shield and first firewall and I suspect we have accepted that lying down.
There are other alternatives. I have not seen the devaluation option being talked about. While it would not be impossible, it would be a difficult option because one cannot exit the euro easily. The debt equity swap does not appear to have been considered at any serious level although it is a perfectly normal transaction across global markets. I cannot understand why this was not done. I believe a serious mindset compelled and thrust us into the humiliating position which has got us what looks like a very bad deal. I have not seen any convincing argument for the growth rate being 2.8% over the next few years. That argument has been somewhat spoiled by the European Commission's growth rate projection, which came in the day before yesterday almost simultaneously to the deal. The European growth rate projection came in on one day, but a completely different one came in on the second day. Ireland has, unfortunately, got a bad deal out of this.
In the 1980s a friend of mine with whom I shared parallel periods of unemployment developed a deliberate Spoonerism for the phrase "fiscal rectitude", the phrase de rigueur at the time. Given our mutual situation, he constantly referred to it as "rectal fistitude". It was amusing then, but is probably more apt now. The situation this country is experiencing is formed on pain and on more anticipated pain.
The programme documents for financial support that we received carry a caveat on the front cover written in red ink. It advises us that the documents remain subject to editorial change and the final documents will be laid before the Houses in due course. I find that oddly reassuring, because I believe that during the course of the three years the circumstances in which the deal has been agreed may change. I accept what Senator Ross has said in terms of the growth projections, but while they are ambitious, they have been downscaled from original projections. The growth rate for 2011 cannot be taken as being the average growth rate for the three to four year period. That said, there is something in the programme that allows us a little leeway and the extension of the time period to 2015 will allow for some of that growth to happen. While the average interest rate of 5.8% is high, it is considerably lower than what the markets would make available to us in the short term and lower than the rates for the countries mentioned by Senator Ross, Portugal, Spain and Italy, in the short and medium term. That was the option before us.
I agree the set of circumstances that have arisen constitute a humiliation for us. This is something many economies have had to face in recent times. The United Kingdom faced it in the 1970s. Latvia faced it and had its Government re-elected. Hungary is in the process of facing it. Among the many ironies of the situation is that if Ireland had as a country gone directly to the IMF, it would have got a far better interest rate. However, behind all of this is the fact we are a member of a common currency and the combination of our failures over the past ten years or so, particularly the failure to regulate our banks properly. As a result, the weaknesses inherent in the single currency have been visited upon us. Senator Ross has represented it as us taking most of the weight and the first blow in the defence, but it can be argued differently. I suggest that because we have had to resort to this loan we are now, at least for the short term, out of the immediate firing line. The pressures that will be felt in the ongoing battle will be felt by the economies of Portugal, Spain, Italy and key economies such as Belgium.
If we do not look at this crisis in the wider European sense, we could be guilty of the type of political debate we see in our near neighbour, a type of little Englishness or little Britishness in the way we approach economic matters and deal with the wider world. Senator Ross referred to the fact that there might have been interests at play in the additional loans given by the United Kingdom, in terms of the Royal Bank of Scotland interests, and by Denmark, in terms of the ownership of National Irish Bank by Danske Bank. I do not know of any particular interests on the part of the Swedish Government to participate in this package, unless it is protecting the interest of IKEA. There is good will out there and it is necessary to look at the wider European problem. If we understand that, we will go some way towards solving the problem.
I share the view of Senator MacSharry that if we are optimistic we can and will come out of this difficulty. Some of the reason for the difficulties we continue to have - Senator Ross mentioned this on the Order of Business today - is that we are too slow and reluctant to make the necessary structural changes. When structural changes have been mentioned in the context of this programme, they have been in the context of competitiveness, minimum wage and social welfare payments. However, the real and continuing structural problems are those within our financial services industry. The culture and attitude that existed remain and the unwillingness to be involved in real reform remains. We have repeated this constantly in debate on the economy in this House. If the past three to four years have just been about a fire brigade or Band Aid exercise that puts the same regime in place for the future as brought us to this problem in the first place, that will be the ultimate political failure of the country.
I look forward to the legislation that will underpin this programme, the banks Bill, employment and competitiveness legislation and legislation on the pensions fund and minimum wage. I am slightly taken aback by the call for a single vote on the package being presented to us because every element of the package must be voted on following the budget. We will have additional legislation on each of the areas mentioned and that will be the opportunity for both Houses of the Oireachtas to put on their records how we feel. On the Order of Business today, Senator Bacik, on behalf of the Labour Party, talked about the need to discuss the alternatives. We have not lacked an opportunity to know what are the alternatives. However, there has been a lack of honesty with regard to the possible consequences of those alternatives. I, as well as many other members of society, would like to see an option that provided better burden sharing. We would like to see the role of the European Central Bank brought more into focus and to see the bondholders in many of our institutions share the burden. I do not rule it out that these options are off the table. If the situation changes, all of the options must be re-examined.
The major element of the money we are taking through this loan relates to our own budget facility, €50 billion of the €85 billion. That has come about mainly as a result of a culture of spending more and taxing less over a period of a decade. We should take a look a the reliance we had on property taxes, such as VAT on the sale of new housing and stamp duty, which in 2007 alone raised €6.8 billion. This year it only amounts to €1.6 billion. This brings us to the essence of why the country is suffering and why the hole, in terms of our annual budget, is €19 billion. Over the next three to four year period we must tackle this deficit. Much of this programme contains measures the Government had already indicated it intended to put in place, such as the €15 billion adjustment, €6 billion of it up front, and the fact that we need to get that fiscal health as soon as possible. Because of that, I believe the deal is not the worst deal available.
There are elements in the programme that cause me to bristle and I wonder about some of the negotiations although, unlike Senator Ross, I have total confidence in our negotiation team. I contrast the Secretary General of the Department of Finance, the head of the NTMA and the Governor of the Central Bank with their predecessors in 2008. I realise I am breaking the convention that one should not criticise the work of high level public servants, but the people concerned did not serve the country well. Their replacements are infinitely better and the confidence they inspire in our future will outlast the changing Governments of the next decade. That is the confidence we need to inspire in the political system with this package.
I have repeatedly made reference to the Order of Business and the recurring debate on the state of the nation and the economy. While the immediate future appears difficult, a key theme on the Order of Business today was the reaction of Irish people to the difficult weather conditions. An unfortunate narrative suggests we have failed as a country and that we lack the means to recover, but the co-operation Senators described in local communities illustrates our industriousness and ability to work together. If that is happening without recourse to the political system and despite a high level public service approach that dominates future policy direction, so much the better. The ones in whom we need to believe are the people and when they take responsibility for our situation, this will be a better country. That will happen soon.
It is true that a majority of the people who are often invoked in this House believe in the future of the country and our collective ability to turn things around. However, the problem is that the people have been let down by the Government. In all of their positiveness and hope for the future, they were told things about the banking crisis which were manifestly untrue.
I accept there is room for argument over the questions of sovereignty and whether we were made an offer we could not refuse, but there can be no argument about whether the Government's banking strategy has failed. From the moment the guarantee was given, through the various promises that the banks were beginning to lend again, we were given repeated assurances that were later demonstrated to be untrue. This does not necessarily lead me to suggest the Government told untruths in every instance. In most cases, I do not believe the promises were known to be untrue. However, this should not distract us from the fact that by resorting to this programme, the Government is demonstrating that its banking strategy has failed.
The Minister of State has stated it is absolutely clear we cannot afford to refuse the assistance offered. I will not indicate the catastrophe of the presentation of the matter two weeks ago, other than to note that the Government's statements have changed, from asserting that the assistance was not necessary and not being sought to claiming it is absolutely clear that we cannot afford to refuse it. These extremes go to the heart of the Government's problem with legitimacy. It engaged in denials and misrepresentations of its position for too long to expect the people, given their intelligence and desire to protect their livelihoods, to accept a volte face over the course of a weekend.
The National Pensions Reserve Fund is another example of the problem. If any Senator had suggested in the House last week that we should hand over the fund in a further attempt to rescue the banking system, one can only imagine the reception he or she would have received. This is a high level version of turning out our pockets for change.
My understanding of negotiations is that they involve opposing parties of approximately equal strength. It appears, however, that the Government did not negotiate in the true sense of the word. What leverage did we have to counter the demands made? What strengths did the Government seek to invoke? Unless I can be persuaded otherwise, it appears we merely imparted information to the other side on our true position before signing the document. How can this arrangement be described as a deal? A deal suggests give and take. What was given and what was taken?
The Minister of State's comment on senior bondholders was yet another example of how the Government's word play underestimated the people's intelligence. Professor Honohan used a wonderful phrase when he said there was "no enthusiasm" for such a proposal in the ECB or the European Commission, although the IMF might have held a different view. The Minister of State has stated the matter was certainly raised in the course of negotiations but that the unanimous view of the ECB and the Commission was that such a programme would not be possible. I do not want to be overly legalistic, but I ask him whether it was proposed by the Government.
It was raised but who raised it? I presume the Irish Government raised it. I want to know if it was proposed in the course of the so-called negotiations or did somebody say it out of the side of his or her mouth? What would the story be if we were to introduce some element of reality regarding what we do in respect of the senior bondholders? Was it proposed and rejected? The Irish people are entitled to know that.
This document is replete with undertakings of all kinds, to which other people have referred in respect of the rigorous level of scrutiny required. People have said it involves no loss of sovereignty. We could have a long debate on what precisely is the nature of sovereignty in our modern world, particularly for us as members of the European Union. I freely accept that we have knowingly and openly pooled our sovereignty through our membership of the European Union, the other institutions and so on. When people claim that our sovereignty - even if I were to call it our residual sovereignty or sovereignty that we still have not pooled - has been undermined by this document, I do not believe for one second that such a claim is an exaggeration. When have we in our history given undertakings regarding budgetary policy which we intend to introduce in Parliament over four years, or when can we point to such occasions in the history of other modern democracies? Nothing is said about the quarterly, monthly and, in some cases, weekly involvement of the institutions in requiring certain information and so on from the Irish Government on behalf of the Irish people.
I want to draw closest attention to another issue. There is an ongoing debate on the constitutionality issue and I would be interested in engaging in it on another occasion. One thing that sticks out a mile in this document is that the Government, not the Oireachtas, has done this on behalf of the Irish people because the Oireachtas is not being asked to vote on this document. It is not the property of the Oireachtas; it is the property of the Government. How can a Government of which Minister of State is a member or any other give so many undertakings about legislation? Legislation is something the Oireachtas passes the last time I checked. The Government gets to introduce and sponsor it and if it has a majority, it gets the legislation through. Constitutionally, our Government does not decide on legislation; it is these Houses that decide on it.
I have circled at least six, seven, eight or more occasions in the course of this document where we have undertaken to introduce and enact legislation. That, for me, puts a serious question over the constitutionality of what is being done. Even if it does not offend the Constitution immediately, it is a grossly serious undertaking for a Government to make on behalf of the Parliament to which it is accountable, that the Parliament not only now will introduce legislation but will do so next year, the year after and the year after that. These are actual undertakings for enactments to be passed by these Houses. That is an incredibly serious aspect of this document-----
-----and one of which we should take note and demand that it be addressed, particularly in the Lower House but also in this House because I accept the Government is principally accountable to the Lower House. I find it inexplicable from the point of view of the integrity of these Houses and the integrity of the our political and democratic system that the Government should purport to agree to such fundamental policy choices and decisions, fettering these Houses into the future for a period of years, without the matter being put before the Houses for a vote.
The current bond market crisis has passed and we were caught in that storm. There is no doubt that the EU was anxious that we would take the package because it was anxious about the stability of the EU and the eurozone. It is good to note that this morning the Irish bond prices have decreased significantly in line with Portugal and Spain, as the ECB is now buying bonds and giving stability to the market. However, there are other reasons for the market having stabilised. We have strong growth rates in China, as shown in the figures that came through yesterday. The world economy appears to be picking up. The stock markets were up significantly yesterday, with the New York Stock Exchange up 2.25%, one of the largest increases in recent times. Commodity prices are significantly up. Commodity prices rise in anticipation of demand. On the New York index crude oil prices were $86 a barrel and Brent oil prices were $88 a barrel, which are an indication that there will be significant demand. The OECD predicts there will be a 4.5% growth in the world economy. It is my opinion that the crisis has passed and that we will now see some stability and growth. I am conscious there is growth in the Irish economy this year and there will be even more growth next year. As we all know, ours is a very globalised economy and we will take a more significant share of and benefit disproportionately from the 4.5% growth in the world economy.
Regarding the question mark over EU bonds, we needed stability and we got it at a good rate. The reality is that there was not a suite of rates under the counter and all one had to do to get a cheaper rate was ask for it in the correct manner and be a member of the right political party. The price is fixed and it is nonsense to suggest that Greece got a better deal because the money it received is over a three-years and the price for seven years is the rate we will pay. It does not vary according to the way one puts the question. The price is fixed. Any other suggestion is nonsense and a misrepresentation.
The fact the NTMA money was used was inevitable. I know the Opposition is annoyed about that because it had plans for the NTMA money and it certainly was not to put it into the public service pensions fund. The reality is that once we had money available to us, there was no way the people who were lending us money and the bondholders would not say we would use our own funding. However, as I suggested, I believe we have come through the worst of this. We should see a good trajectory now and a good way forward for the euro and for the Irish economy. It does not help when suggestions are made by the leading Opposition financial commentators, the leading socialist commentators in the country, that the country is banjaxed. That is not appropriate language and it is incorrect. Things are looking up significantly.
However, questions arise such as where we have come from and how we got to a state where Irish bonds were charged at 8% and 9% and we were going to have to pay significantly more, and we would have got through it. We paid 10% in the 1980s. Our debt to GDP ratio in the 1980s was 126%, we had 20% inflation, 20% unemployment and interest rates were 16%, 17% and up to 20% for businesses. Therefore, we have got through worse. We are part of the eurozone and it has different expectations and a much higher standard, and we are fortunate to be part of that. There are people who have vested interests and would like to see the euro area broken up. Being part of the euro will be of benefit right down the line. As I mentioned previously in the House, Pat Cox said that Europe is something of the light and the euro is something of that. We should support it, as we are doing. We have done our bit. As the markets change, we will benefit.
The reality is that two years ago we came through something very significant. When people say we should default on our debt, do they have any concept of the implications and repercussions of defaulting? There is almost the suggestion that it could be done quietly and that nobody would notice, that it would just happen and that it would be accepted. Argentina did that 30 years ago and it still cannot go into the world market to borrow money. In the case of the Russian bond market, Russia still gets money but it gets it at home. Anybody who defaults pays a big price. We could not have an EU member state and a eurozone country defaulting.
Art has often mimicked what happens in reality. Some of the expressions of Michael Douglas in the film "Wall Street" caught the public imagination, such as "greed is good." It caught people's imagination because we knew there was greed on Wall Street and we eventually saw the repercussions for the Michael Douglas character in that he went to jail. That seemed to be correct. We have seen extraordinary greed in the banking sector in this country and in other countries.
"Wall Street" showed exactly what would happen if one started to default on bonds. Eli Wallach, who starred in the Godfather films and in many spaghetti westerns, played one of the heads on Wall Street. The gentleman who played Ben Bernanke asked this group of businessmen, who all represented the senior houses on Wall Street, what he should do. They suggested that they would need to pump $700 billion into the economy. In fact, that is what happened in reality and we were very fortunate that Ben Bernanke's doctorate was on the Great Depression. When Lehman Brothers went belly up, there would have been very serious repercussions if many of the houses had not got funding straight away. We are talking about Bear Stearns, Goldman Sachs, Mellon's and the other major houses.
In the film, having been asked his opinion - this accurately describes what happens when a bank defaults on its debt - the character played by Eli Wallach said it was 1929 all over again but that it was worse because it would be faster, money markets would dry up, ATMs would stop spitting out bills, federal deposit insurance would collapse, banks would close, mobs would panic and that it would be the end of the world. We saved ourselves from that.
We saved ourselves from banks collapsing. It was very unfortunate that the banks in this country got into such difficulty. We had our own bubble. We all talked about soft landings, that since this was such a great exporting nation, we would be able to manage, that there would be 100,000 people unemployed but that would not matter too much because many of the eastern Europeans working here would probably go back to their own countries where they would get work, that we could start to refloat the Irish economy with capital projects such as new terminals, ports and railways and that people would hardly notice.
Unfortunately for us, there was a double whammy. Products, called sub-prime loans, were being sold on world markets and they almost destroyed the world economy. There was a major collapse and fall in confidence in that banks would not lend to each other. Week after week we found out how bad the situation was in Ireland. We were told the Government misrepresented the situation to the people. The Government asked the banks what was happening. It was given and took advice and relayed it to the Oireachtas. That advice was wrong on many occasions. The EU was also caught out. Does anybody remember the recent stress tests done on the Irish banks? They were all found to be fine but they were not.
It is a bit much that we still see the same practices today. Bonuses are being paid by banks which is unsustainable and incorrect. There is no positive news or justifiable reason for those bonuses to be paid. Having raised it on the Order of Business along with others, the Government and the Oireachtas should see if they can do anything about those bonuses which are unjustifiable in the current climate given that billions of euro have gone into the banks, although necessarily so.
I have outlined clearly what happens when a bank does not pay its bondholders and defaults. The reality is that banks close their doors, ATMs stop spitting out bills, insurance collapses and people panic. That has all been averted. We are on a strong growth trajectory now. There are positive signs and we will reach our targets. The four year plan will work and even by 2014, our debt to GDP ratio will still only be 100% of GDP which many European countries had at the start of the crisis.
Let us make no mistake about it, the bond markets picked on Irish bonds. Some specifically target the euro; there is a group which wants to destroy the euro. There was short selling of Greek debt. The Chicago Mercantile Exchange had a $15 billion fund to short sell Greek bonds. Now it only sells bonds to insurance companies and banks. It was going to target Portugal, Spain, Italy and Belgium. Iceland and Greece have already fallen.
We got the money from the IMF at a good rate. It was not a variable or notional rate or one we could choose. It is the IMF rate; it does not have a suite of rates under the counter. We had to use National Pensions Reserve Fund money and we were lucky it was there. We were also lucky we had a very low debt to GDP ratio when we started because at the end of all of this in 2014, when our debt to GDP is at 100%, it will still be below that of many countries which, even before the crisis started in Europe, had a debt to GDP ratio which was higher than that. Our budget deficit will also be below 3%. It is only now that we are beginning to see a turn in the world market and we will benefit disproportionately.
I welcome the Minister of State, Deputy Connick. This is a hugely important plan for the future of our country. This agreement will affect every aspect of Irish political life, so it is important we discuss it today. This agreement represents the manifest failure of the ability of this Government to manage our affairs over the past seven to eight years. That failure is so obvious that I will not devote much of my contribution to it. The cornerstone of the reputation of this Government in past elections was one of economic competence. The fact we had to invite an outside body to come into our country to help us to govern and with funding our State shows that claim can no longer be made, although I suspect it will not be made for a very long time. That is obvious to us and, I suspect, to the Government and the people at this stage.
I would like to address how this plan will work in the context of a new Government being elected which, I believe, will happen. I refer to annex 3 of the four year plan which preceded publication of the memorandum of understanding. In some ways, it picks up on the comments Senator Hanafin made on the appropriate economic measurement in regard to the sustainability of the debt of our country. I agree with Senator Hanafin that it is appropriate to consider the size of our debt relative to our national income, or the percentage of Government debt versus GDP.
Annex 3 goes into these scenarios in some detail and into the deficit dynamics which are likely to unfold under the four year plan. It portrays very starkly the challenge our country will face. It outlines a number of different scenarios in regard to the potential interest rate on our debt in the coming years. The baseline scenario forecasts an average interest rate between 2011 and 2014 of between 3.4% and 4.7%. That is the rate of interest the Government assumes we will pay on our national debt. The next scenario, which is referred to as the pessimistic scenario, forecasts an average interest rate of 4.4% in 2011, 4.9% in 2012, 5.4% in 2013 and 5.7% in 2014. Based on the memorandum of understanding and the events of last week, we are now clear that the average interest rate we are likely to pay on our borrowing over that period is 5.8%, which is higher than the worst case analysis in the four year plan. It is difficult to evaluate whether 5.7% or 5.8% is an appropriate interest rate for a Government and country like ours to pay. I was not involved in the negotiations and I do not know what discussions took place. Comparing this with the plan that the Government published the previous week, the highest rate of interest assumed during that plan averaged 5% but we now know we will pay a rate of interest of 5.8%. This puts into sharp contrast the difficulty our country will have in managing the level of debt we will have and in being able to ensure we can pay an interest rate on the level of debt that is higher than the Government estimated.
I made this point on the Order of Business earlier this week and I referred to a general rule of thumb which economists use when trying to evaluate whether an interest rate is sustainable for an economy. Roughly speaking, if the average interest rate an economy is to pay on its debt is higher than the rate of growth the economy will enjoy, the ability to pay the interest rate over time will go down and an economy will quickly get lodged into a cycle where the rate of interest paid will drag down the growth rate and make it more difficult to pay down debt.
If we are assuming the rate of interest on debt will be 5.8% and the economy is estimated to grow at between 1% and 2% over the coming years, how will the rate remain affordable? That question is based on the publication of the Government's own four year plan and is the key question the next Government will tackle as it looks at the affordability of the plan and the choices to be made in order for the country to flourish within the framework.
This leads to the next question, which is gaining momentum in this House and elsewhere, which is whether default should be considered. The phrase "default" is extraordinarily dangerous and we should be careful when using it. Default in the history of government and banking debt is where an economy or bank unilaterally decides not to pay its debt or pay only a small amount. Considering the history of companies or countries which have tried to do this, no one has been successful without incurring a very heavy cost soon after the decision was made.
The economies of Argentina and Russia have been mentioned, and because a decision was made in those governments not to pay a portion of their debt, even now, many years later, they are unable to get back into the bond markets to borrow. If they look to borrow, the rate is still prohibitive. For a country of this size, which is so open and dependent on foreign investment flows, to discuss generally the possibility of default would put our country at the vanguard of an experiment that no one else has managed to do successfully. It is certainly not a path I would want to see the country go down and I would not want any Government to facilitate it.
Another scenario discussed by people when considering default is the renegotiation of debt levels with the lender which makes the money available. In our case it is the European Central Bank, international banks or domestic lenders. With banking debt it is not obvious to me or many others that this is an option pursued with the kind of urgency we expect at this stage. There is a very simple model for consideration of how this would work, and this model has been successfully applied to many companies within Ireland. This model sees an investor in a company asked to swap the bond holding for equity shares. The total debt level comes down but the person holding the bonds is left with something in the anticipation of the company returning to growth. This model should be applied to banking debt.
I wish to understand why the Government believes this cannot be done. I make this point for another reason, as there is much discussion about the intervention the German Chancellor, Angela Merkel, made in the debate. The solution she advocated for 2013 is what we are trying to make happen now. The irony of the crisis we find ourselves in is that the solution proposed by the German Government could work for Ireland now. The time and way in which it was proposed ended up being counter-productive.
The burden-sharing approach of the German Government, which indicates that the German taxpayer does not want to bear the cost of reckless lending in banks in which it does not play a role, is the model many people in Ireland advocate. That intervention came at a time which was not helpful for us. If that solution is right for Europe in 2010, why could it not be a solution for Ireland now?
We may have to grapple with a significant challenge in that if the solution is implemented in 2013 or sooner, the only country in Europe that will be paying debt on senior bank debt would be Ireland. I have made clear my views that default on sovereign debt should not be seriously entertained but clarification of the matter would allow us focus on bank debt, either at senior or subordinated level. Why should we not have a pan-European solution to the issue now? That plan would work for Ireland, Spain, Portugal and many other economies in the same position as us.
There is much evidence to indicate that the IMF wants this plan to work and is very interested in implementing it soon. That organisation has much experience from all over the world where economies must deal with a level of debt generated by a bank or another force, and most of the time such economies find it very difficult to throw off the shackles of the debt. That makes the period of change and adjustment which the economies go through longer than it should be.
It is not realistic for Ireland to follow this course of action unilaterally but it should be a duty of the Government to ask why it cannot be done on a pan-European scale. Many of our neighbours want this to happen. If we find ourselves in a position where we cannot ask for this remedy because it is uncomfortable but find out in two or three years that this is the only country paying off this debt because a solution was put in place for everyone else, how could we explain it to the Irish people? This plan has been signed on behalf of the people so how could we say that after cutting the minimum wage, reducing social benefits and putting universal benefits that so many people depend on under pressure? There is much change but this will be the only country in Europe paying off many billions of euro in banking debt.
I am strongly against even countenancing the possibility of this country considering a default option for our debt. It is not an option because we would pay dearly for it. It is valid to ask why there are not more imaginative solutions in place to handle banking debt. We know the mistakes of the guarantee of September 2008 and it would be reprehensible not to implement those lessons in this agreement which will have such a significant effect on the destiny of this country.
It is extraordinary that the House is discussing the merits and shortcomings of an EU-IMF programme of financial support for Ireland. What has happened is my worst nightmare.
Last Saturday in Drogheda, I addressed a group of young people from Ireland and Africa at a development perspectives event. They were anxious to know how this country arrived at its current position. I found myself speaking to these young people, especially the Africans who kept asking probing questions, not primarily about banking debts, the size of the banks relative to the economy or the country's excessive reliance on the banks but about politics. I spoke about my background in local government and my experience, albeit less than extensive, in this House. I pointed out that Ireland, as a small, open economy which relies on its ability to trade with the rest of the world, needs a more robust political system to enable it to withstand the worst excesses of the free market, to which we have had a purely ideological attachment at times. This economy was always likely to suffer more than other economies when the train came off the rails, as it did.
The political system and process have been incapable of dealing with the type of structural problems that were deeply embedded in national life and the economy. I spoke about the need for a new type of politics in which the demands of the parish pump are secondary and the primary focus is on clear eyed, rational structural analysis. This may mean having fewer Deputies elected from multi-seat constituencies and more appointed from a list system drawn up by the political parties on the basis of expertise or by communities on the basis of how embedded they are in their locality. We need to rethink the reason for politics because the costs we are paying for the failure of the current political system even to moderate the effects of the collapse demand it.
The national recovery plan is an imperfect document in many ways. As a member of the Green Party, which has been part of the Government and participated in recent negotiations, it would be dishonest of me to deny I shared the feeling of national humiliation about which Senator Ross spoke. However, I also welcome aspects of the plan. The banking sector will be shrunk to a size appropriate to the economy. We will also be able to call it when banks lie to public representatives, as they have done repeatedly, including recently when they did not honestly provide basic information on the percentage of performing loans on their books.
I welcome many of the structural reforms to the financial sector which we will be compelled to implement. While we should have done this ourselves, as I noted, the system was probably not able to handle it. In addition, minimum capital requirements will be increased and a strategy for the reorganisation and downsizing of the banking sector must be presented in the first quarter of 2011. Legislation on improved procedures for early intervention in distressed banks will also be brought forward to the first quarter of next year, as will legislation to address the issue of burden sharing, albeit in regard to subordinated debt.
I concur with Senator Donohoe's comments on the language, concepts and outcomes regarding how we deal with debt. It would be awful if, having played the role of an obedient member of the European Union, we were to find out later we had been outflanked by other EU member states which may end up renegotiating debt. Senator Ross spoke about the attitude of the Italians should they be faced with such a prospect. I do not believe it was possible for Ireland to make a unilateral decision on the issue of senior debt. While I understand the IMF favoured renegotiation of such debt, the European Central Bank opposed such an approach. I can understand the reason the ECB did so because it wants to protect European pension reserves and banks which are highly exposed. If we are able to avail of a burden sharing mechanism in future, we need to be alert to that prospect to ensure we are not left behind by other countries which may enter such a mechanism. I am pleased legislation on subordinated bondholders will be brought forward.
While some of the proposed structural reforms are welcome, others are not welcome because their utility is unproven and they are driven purely by the ideological concerns of their advocates. I propose to discuss two unwelcome proposals. The first is the statement in the plan that State utilities should have a role in paying off some of the country's debts. While this may not amount to an explicit proposal to sell them off, it is not far from it.
Bord Gáis, Bord na Móna and the Electricity Supply Board have committed to invest more than €30 billion in the economy in the years ahead. This financial provision, which the companies will be able to make, will drive economic growth. Moreover, the ESB and, in particular, Bord na Móna, are embracing the technologies and knowledge based skills that will deliver an economy that is not reliant on imported oil and other fossil fuels and will allow Ireland to substitute much of our annual €6 billion in oil imports. To have the privatisation of these State assets looming on the horizon when we are on the cusp of taking advantage of such opportunities could be a fatal mistake and may cost the State more than it will save.
Anything could happen if State utilities are privatised. For example, they could, as was the case with Eircom, be passed around global corporations which will asset strip them and rob them of investment. We would lose the opportunities available to us as a nation rich in renewable energy. I would like to see a cost benefit analysis of the privatisation of State assets. I am convinced that by retaining control of these utilities, the State would be much better positioned to repay some of the overwhelming debt we face.
The second unwelcome proposal, one on which there also appears be a lack of analysis, is the request that we revisit the cap on retail space. This is regarded as a structural reform to drive competitiveness in the retail sector. While I accept that large supermarkets or hypermarkets can drive down prices, provision is made for the introduction of such large retailers in gateways as part of the national spatial strategy, albeit only in areas where the population is sufficiently dense to sustain them. The reason for the restriction is to ensure they do not drain local economies within a radius of 50 miles of every petrol station and corner shop. I am concerned the plan will run roughshod over this key provision in the spatial plan.
The Opposition has usefully proposed that it will address specific issues in the years ahead without changing the overall framework of the plan. Effectively, this will mean renegotiating particular aspects of the plan. I hope the Opposition and all parties will continue to press this case and try to achieve maximum flexibility.
The requirement to report the national balance sheet on a weekly basis should be more than sufficient for our overseers and provide proof positive that we are achieving our targets. At the same time we can address some of the more ideologically driven proposals although I would caution against that.
The coming budget is, in effect, step 1 of the four year plan. Many clear indications have been given, as was necessary, in regard to where the burden of the budget will fall. I would be very anxious, even at this late stage, to see a greater commitment to equity within the budget. Specifically, I wish to see higher paid civil servants, among whom I include politicians although not exclusively politicians, bearing a significant portion of the burden all of us must carry in the time ahead. It is untenable for us to seek welfare cuts and exclude ourselves from the cuts while asking others to take them. I do not believe the people will accept that. It would be advisable at many levels that the budget should put equity first while addressing the very painful demands of the plan. To return to a phrase used in another context, burden sharing is the way to do that.
I welcome the Minister of State, Deputy Seán Connick. I wish to comment on the speech of his immediate predecessor in that seat today, namely, the Minister of State, Deputy Mansergh, who made a valiant stand on television last night but whose speech today requires closer examination. He stated that without this programme our ability to continue to fund essential public services such as social welfare payments and the salaries of doctors, nurses, teacher and the Garda would have been seriously compromised and highly uncertain. That is a devastating admission. It is astonishing. In other words, the entire public apparatus of this country would come to a halt. That is bankruptcy; there is no other word for it. It is appalling to think that we have to hear such an admission in this House. I am not in the blame game and I do not select particular targets but this was a devastating statement.
The Minister of State went on to say that €50 billion of €67.5 billion relates to the funding of vital public services in the coming three years. I suggest that if we do not have access to this kind of money vitality will cease. The language of the speech is very instructive. Apparently, as indicated in the speech, there is a disagreement between the Minister of State and the European Commission with regard to growth figures. We think the figure is nearly 2%; the Commission believes it will be less than 1%. I would be more inclined to trust the Europeans because they have not got quite so many figures wrong. However, one hopes the Government is right.
The Minister of State noted that the programme has adopted in its entirety, as a road map, the measures set out in the national recovery plan. Basically, we were told what to do, a matter I will return to presently. He noted the State is in a strong position and able to contribute €17.5 billion from its own resources, including the National Pensions Reserve Fund. We were told to do that. We were directed to do it. That is robbery. It takes the future from people in this country and that is a disgraceful thing to force us to do.
The European Central Bank is just as culpable as we are, as a Government and as a Parliament. The Irish people are 100% blameless for the catastrophe, the bill for which is now being presented to them. There is a train crash coming down the line in regard to the pension situation and this will not help the situation.
I am delighted the Minister of State, Deputy Mansergh, has made a reappearance.
Martin Mansergh (Minister of State with special responsibility for the Arts, Department of Arts, Sport and Tourism; Minister of State with special responsibility for the Office of Public Works, Department of Finance; Tipperary South, Fianna Fail)
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I would not miss the Senator.
I just paid the Minister of State a little compliment but now I am picking his speech to pieces. I listened to the emollient tones of the oleaginous Mr. Chopra on the wireless telling us what good, brave, little soldiers we were, that he had every confidence in us. That was patronising in the extreme. When he said we got a "good deal" I knew he was telling lies because this is an absolutely lousy deal. Some of the reasons for that belief were laid out in a very gentlemanly fashion by my colleague, Senator Paschal Donohoe. We are paying punitive interest rates. The rate is not 5.8%. If we have to go right to the top end of our borrowing we will be paying a rate that has not actually been disclosed yet but it will be a hell of a lot more than 5.8%. Why is this? We were told it is to introduce moral hazard. I feel like laughing. What do these people who are instructing us know about moral hazard? They are the very ones who are protecting the gamblers and speculators and they are no friends of Ireland. There is no such thing as altruism at that level of European politics. They are protecting their own backsides as well as they possibly can. The reason Germany, for example, does not want the bondholders burned is because so many of the German banks are involved. Many of these are crooked as I was able to demonstrate on an Adjournment debate in the House. That matter was never resolved satisfactorily although the Allgemeine Zeitung took it up. Those people are exposed in our system and are serving their own self interest while the Irish taxpayer has to pay for the gambling habits of German, Swiss, Italian and French banks. That is wrong.
On the Order of Business yesterday I asked a series of questions, one being whether the Government intended to lay the full terms of the memorandum of understanding before both Houses and allow them to vote. The answer is "No". My colleague, Senator Hanafin, said the Government does not lead excursions into the bond market. This present matter is of a totally different scale. It involves constitutional infringement and direction to the Irish Parliament as to which laws to make, what we are allowed do with the lenders' money and what reserves are available to filch from the people. That is a different process. It is not a little shopping expedition down to the financial equivalent of Dunnes Stores. This is a smash up and the sooner we tell the truth about it the better. It is offensive to try to suggest it is in the same league as ordinary transactions.
The Minister of State said the question of burning the bondholders was raised during the course of negotiations. That is weak. It appears the matter was actually raised. I wish to put on the record that one of the largest players in this area, Mr. El-Erian from Pimco, indicated that it would be grossly wrong for these people not to suffer some of the punishment. If such people are saying so there must be something right about it.
The other question concerned morality. Let us have a little morality in this situation. Every reputable economist and financial commentator has said it is morally wrong, unjust and unethical for Irish taxpayers to be stuck with this bill on their own and the bondholders should take their share. We are told that although this may be ethical it is not practical. I remember hearing that argument from the other side of the House many years ago when the Iraqi beef deals were revealed. I was told by Deputy Seán Haughey, who was spokesman on foreign affairs at the time, that although what I had suggested might be the ethical path to take the question was whether we could afford it. It was the same argument. We got stung on that one, however, because we did the unethical thing and were presented with an enormous bill by the late Mr. Saddam Hussein.
Is it possible to sustain a proper and ordered civic society and a proper and ordered banking system on a foundation of immorality, injustice, lack of ethics and theft? That is what confronts us. For the Minister of State's benefit I reiterate what I said earlier because I am sure he does not go back with assiduity over the proceedings of the House. This is now a war. People are saying that Portugal is being taken on, that Spain and Italy are being targeted. I do not share the confidence in Mr. Berlusconi expressed by one of my colleagues. He is an utterly disreputable person and I would not attend any occasion in his house with or without a table between us. These people are targeting us, we are told. It is a war. They have made it a war. Let us take them on. Let us perfect the weaponry necessary to disable them. Let us also take on the utterly discredited ratings agencies.
With regard to the question of whether we can take on the bondholders, we are told there are associated risks, which there may be. It is certainly not a risk to our reputation because we have absolutely no reputation left. It is like the situation in libel in that one cannot sustain a defence against libel if one has no reputation. Our reputation is gone. We discover from a report by Barry O'Halloran in The Irish Times that the Republic's deal with the IMF and EU explicitly bans the State from defaulting on guarantees. That is an extraordinary statement. The report states: "the Government cannot fall into arrears on either its contracted or guaranteed external debts, meaning the debts of the banks that it has guaranteed". We are not allowed to do so. In other words, external, unelected sources are directing that the Irish taxpayer cannot even negotiate a situation with these bondholders who, by the way, received additional interest on the basis they were taking a risk. Why do we not take it away from them? I voted against that. There was some confusion and an attempt to rectify the situation in terms of the report, but from the very beginning I said Anglo Irish Bank should be let go.
If we get into arrears, the National Treasury Management Agency will have to report to our bosses. NAMA has now become mama, who will report to teacher, and teacher will give us a smack every so often. Naturally, as a proud Irishman, I do not like that. I like even less the idea that we may be directed to sell Bord Gáis and the ESB, which are the vital life of our country. Industry cannot keep going and homes cannot remain heated without gas and electricity, yet we are going to let this shower of foreigners dictate to us that we have to flog them, as we did with Eircom, which was picked clean. Sir Anthony did not kill himself investing in broadband, despite the fact we are not allowed to mention that as it might offend him.
We are to be given dribs and drabs of money - pocket money - which will be doled out if we are good boys and girls. We have been good and we have been punished for it. No good deed remains unpunished. To come back to the point on Bord Gáis, we definitely should not do that because it would be an utter betrayal. We should take on the big boys. We should also take on Shell. That would see €500 billion flowing out of this country over the lifetime of the wells, of which we will not get one red cent because it was sold as well. Why can we not renegotiate that one? Are we always to be held to this idea of financial rectitude in the interests of these people but it is suspended when the interests of the small people are involved?
The only reason I have been able to put accurate figures on the record is owing to people like Peter Mathews. Let us have a committee of elders, such as Peter Mathews and Constantin Gurdgiev, not these trashy, sensationalist journalists but this solid type of person who has been very clear and accurate. Every time they prophesied, they got it right. In fact, I withdraw the word "prophesied" and instead say they theorised, because the proof of a theory in science is that one can predict the consequences of the next series of actions. They predicted with astonishing accuracy, so let us have them involved in the situation.
The ECB flooded this country with loose cash it was dying for people to take up. We have heard much about stress testing. It stress tested our banks and said they were perfectly all right. Does anyone remember that? The ECB has some culpability too. Let us not delude ourselves that we have great friends in Europe. We have people who are still competing for their own interests and they are not necessarily taking into account the needs and interests of the people of Ireland.
We have given away the strongest card in our hand, namely, we could have brought the entire system down. That would not entirely break my heart because it will come sooner or later. The whole financial system has been called into question because of its utter and manifest lack of justice, ethics, principle, integrity, decency and humanity. We are dealing here with the welfare of ordinary people right across Europe. As Senator Donohoe pointed out, we will be bearing the brunt of much of the pain and much of the backwash from the fact Ms Angela Merkel came out with that notion. At the same time, I happen to agree with her, although the Senator is right to say the timing was unfortunate for Ireland which has been made to pay. I hope the incoming Government finds it has some room for manoeuvre. Account should be made to this House and the other House of the actions of Government in this matter.
I have listened with interest to the previous speakers and was present for the duration of the address by Senator Norris. He concluded by apparently expressing his view that should the whole system collapse, it may not be the worst thing for Ireland and Europe. Simultaneously, he asked us to ensure the welfare of Irish and European citizens would be paramount in all of our deliberations. From the perspective of the citizens of Ireland and Europe, a complete collapse of the structures of economies and plans would certainly not be in anyone's interest.
We are in a crisis, as is much of Europe, and we must work our way out of it. The word "work" is one we need to concentrate on because the areas of job creation, growth and stimulus must be very much at the centre of any recovery plan.
The Minister of State, Deputy Mansergh, with his previous hat as an expert on Northern Ireland, will recall that when the British army came to the streets of Northern Ireland in 1971, they were initially welcomed with open arms as people bringing help, support and succour to the under pressure minority community. When news broke some weeks ago about the possible intervention of the IMF in our economy, there was a certain degree of comment along the lines that we, through our Government, had made such a mess of the economy that outside forces could do no worse. In fact, some people welcomed that assistance would be sought and obtained from outside sources. Now that the reality has dawned and we realise fully what an IMF-EU bailout plan means, in the same way the mood turned against the British army in Northern Ireland, the mood of the Irish public is one of anger, distaste and distrust in regard to the package before us. To use an awful cliché, we are where we are, and we must now see how we can move forward.
When we reflect on the language of the various items of correspondence from the Minister and the Central Bank Governor in regard to Ireland facing an economic crisis without parallel and the root of our problem being in the domestic banking system, which at its peak was five times the size of the economy, this shows the scale of the problem. We must all live in the reality that we are in an enormously difficult financial, economic and political place. This House and, more importantly, the other House await the next instalment, which is next week's budget. In a sense, a reading of the document gives us, more or less, a total picture of what will be in the budget next week.
The Government is subject to a very strict agreement with the European Union and the IMF, and economic and financial flexibility have been removed from our hands.
We must ensure the measures required to bring the public finances under control will be introduced. We must ensure this will be done fairly but we cannot escape the need to have a genuine job stimulus plan to address the jobs crisis. The mantra about such a plan can sound glib and unrealistic but, as a society, we cannot continue with 450,000 people out of work. With every single job lost, taxes are forgone. Social welfare payments cost the taxpayer approximately €20,000. We must, therefore, try to put employment creation at the very top of our agenda.
If there is to be a positive development in this time of despair, despondency and rampant pessimism, we must make certain commitments to our people. We must commit to applying the fiscal and financial measures as fairly as possible. We must ensure our word will be our bond in claiming employment creation measures will be pursued vigorously. We must reflect on the fact that our political system, which is very much at the core of the problem, will be transformed. A much more experienced politician than me, of whose identity I am unsure, said, "Never waste a good crisis." We should apply this in respect of our current political system. I hope that, over the course of the coming years, we will have the maturity in this House and throughout the parliamentary system to recognise that massive changes will have to be made at national and local government levels if we are to have a political system that is responsive and fully accountable for decisions that need to be taken.
The Minister of State has expressed views from time to time on our current political system, which is characterised by considerable inter-party constituency rivalry and multi-seat constituencies. These phenomena allow the electorate to have what in betting parlance would be called a pound each way. This does not provide us with the possibility of electing a government with a sufficient policy foundation and electoral strength to adopt the measures often required and which are now certainly required.
It is clear we will have a general election soon and that a Government, almost certainly a coalition Government, will be formed thereafter. It will start out with a reasonably comfortable majority. If we are to look not only three months ahead but up to ten years ahead, we will note politics urgently needs to be reformed. The political system needs to be reformed if we are to have a Parliament that is able to debate and make the tough choices that will be required. This may seem a long way removed from the EU-IMF document. Notwithstanding what the Minister of State says about our domestic banking system being the root of our problem, the real root of our problem was a political system that responded to every interest group during the so-called good years and did not have the maturity or political flexibility to consider the bigger picture and plan for the future. Bankers are to be blamed for many of our difficulties but we, the politicians, must take more than our fair share of blame.
We have often debated social partnership agreements, which were so effective in 1987, 1988 and 1989. Social partnership almost took over as the alternative form of government. Policy debates and political debates did not really take place in this Chamber or the other House but within the confines of the partnership process. Much of the current problem stems from incorrect political choices, which in turn stemmed from a lack of political debate. The generation of the partnership and consensus approach caused difficult decisions to be postponed at first and then suspended totally.
The actions required over the coming years are clearly outlined in regard to the quarterly reviews. The hands of whoever is in government, no matter what the combination of parties, will be fairly tightly bound. There will be some degree of flexibility but, from taxation and budgetary perspectives, I presume the very precise figures that have been agreed will have to be adhered to. All the political parties, especially those about to enter government, will face a major challenge in meeting the targets reasonably and fairly.
The structural reforms are quite interesting and necessary. I note the reforms in respect of the legal and medical professions. Such reforms should have been achieved many years ago but, because of our archaic way of doing business and willingness to seal off certain sectors of business and society from reform, they were not. I welcome the fact that those areas will now be looked at.
Facilitating adjustments in the labour market and reducing the minimum wage are referred to in the document. It is stated that measures are to be introduced by May 2011. If it were as easy as reducing the minimum wage, I am sure the problem would have been resolved a long time ago. We know from the number on the minimum wage that savings in this regard will be minimal. The cuts will be painful for those on the minimum wage. "Facilitating adjustments in the labour market" is an economic phrase. We need to proceed in a much more humane manner. We must do everything we possibly can.
It was stated in the House that, Department by Department, we would consider job creation measures, initiatives and approaches. I am not an expert on the announcement by FÁS during the week of a new programme involving schools. It may not be perfect but we require that sort of flexibility across all Departments if we are to provide the public with some hope in respect of this overwhelmingly depressing document.
I welcome the Minister of State to the House. I am delighted to be present to speak on this matter. It is an honour to do so in the present company because the Members present are very fair minded. I very much welcome Senator Bradford's speech and concur with much of what he said.
In my speech I would like to examine the past, present and future. This document is an appalling one. Most would agree it is necessary but no one in this House or elsewhere in the country is remotely pleased that we are where we are. It is dreadful we are in such circumstances and that we require the EU-IMF package. There is much to be learned. The only way we will be able to prevent ourselves from making the mistakes of the past is by considering them. A great saying I love implies that the only thing man learns from history is that man never learns from it. Unfortunately, being in politics, I do not wish to buy into that saying because I believe politics can make a difference.
With regard to Senator Bradford's contribution, systems, especially political systems, are rarely reformed from within. Political systems require a good cross-party consensus, but in order to be reformed they also require an outside impetus. It is rare that a political system is changed dramatically from within. The system under which people were elected is what they tend to protect, particularly if they want to remain where they are.
I am of the view that our difficulties began prior to 2000. I was not in favour of the level of federalism in Europe at the time or the introduction of the euro, particularly in the context of the way in which it was being put forward. However, I am a very strong advocate of the European project. I wrote about this matter at the time and indicated that bringing together in a very loose affiliation a number of economies at different stages in their cycles and underpinning the project by introducing a new currency - the euro - was a recipe for danger rather than disaster. I considered it would not be a disaster because there was always the hope the economies would come together and that their economic cycles would come into alignment. In the absence of a clear political direction, however, this was always going to be difficult to achieve. My party's leader alluded to this matter in a well publicised speech he made in recent days. I accept that our points may not be exactly the same but they are similar.
This country experienced a boom up to the year 2000 approximately. We had never experienced such a boom before and made a great deal of money, particularly in the area of IT systems in which I was involved. In fact, money flooded into the country and people who had previously emigrated and garnered great skills while abroad began to return. They used the skills to which I refer to help to create the Celtic tiger, of which everyone was so proud at the time. Unfortunately, between 2000 and 2002 we reached a plateau and our economic cycle appeared to be coming to an end. What we needed to do, therefore, was to begin to dampen things down. Instead, we joined the euro and gained access to much cheaper interest rates than should have been the case. We did not have devaluation, rather we joined a currency that was underpinned by a different economic cycle. From what I can gather, the upshot of all of this was the beginning of our wonderful housing boom. We used unsustainable funding to fuel wage inflation and boost the economy in a way which was inevitably going to cause the entire thing to come crashing down at some point.
The systemic problem we are facing is not purely Irish in nature. It is actually a worldwide one. In trying to understand this problem I would be prompted to consider as causes the end of the Cold War and the issue of peak oil and the massive increase in oil prices which preceded the collapse of Lehman Brothers. If one does not take account of the ecological and natural worlds in one's analysis or take a holistic view of economics and society, one will never see the full picture with regard to what is likely to happen. As a result, one will not be in a position to make proper predictions.
We used the housing boom to insulate ourselves for a number of years, but, unfortunately, this was never going to last. I recall Mr. Michael McDowell desperately suggesting stamp duty should be abolished for first-time buyers and reduced for others in order to further fuel the boom. Thank goodness, this did not happen because it would have placed us in an even worse mess. We must learn the lesson that the idea of paying less tax, having more income, paying higher wages and providing better services all at once is just fantasy. Those who pointed this out during the period to which I refer were pilloried. There are some who state this matter was never mentioned at the time. It was and many articles were written about it. A number of famous - now infamous - journalists and commentators highlighted what was going to happen. However, the prevailing wind was very much in their faces. I seem to recall a certain former Taoiseach stating those who talked down the economy should contemplate committing suicide. That was an outrageous statement to make.
Up to 2007, estate agents continually appeared in the media in order to state the housing boom would never collapse but would instead level off. These individuals were given airtime to make their case, which was obviously nonsense. I recall telling people that what was being suggested would be unprecedented in the history of the planet. The estate agents to whom I refer appeared to be of the opinion that the laws of gravity did not apply to the Irish building boom. What they suggested would have equated with one throwing a stone up into the air and expecting it to stay there. The laws of gravity tend to apply to every single building boom. Eventually, the stone fell out of the sky and the building boom ended.
What has happened in the years since 2001 has caused us to be less capable of dealing with the global crisis. It is not the case that we caused the latter and we should not take the blame for doing so. The monetary difficulties being experienced are global in nature. They are being experienced in Europe, the United States and across the entire western world. There will be grave problems in the coming years, but I hope these will be solved.
Ireland is in the first tranche of countries to be affected by what has occurred. That should not have been the case. We should have planned for the future and not acted like children in a sweet shop when the euro was introduced. Unfortunately, we made a large number of mistakes and did not make adequate plans for the future. That is the legacy our political system has left us with. Senator Bradford hit the nail on the head in that respect. The key lesson we must learn relates to the reform of the political system. That reform must be the outcome of the current crisis.
The political system is not coping with the crisis and no one in this or the Lower House is prepared to state it is coping. Before I entered the Chamber, somebody pointed out to me the irony of Ministers trying to deal with queries from their constituents relating to housing, potholes or snow drifts at a time when we were trying to deal with such a major crisis.
The idea that under our clientilist system senior politicians should be obliged to deal with anything other than the current financial and economic crisis is both atrocious and wrong.
Major political reform is required. This must come from across the various parties and outside the political system. Matters will be very difficult for the next Government, but I would genuinely hate to see a situation where people would be accused of not doing what they said they would do when in opposition and others stating the position was much better when they were in office. That is an absolute waste of time.
There is a need for a list system to be established. People such as the Minister of State, Deputy Mansergh, must be elected to serve. Individuals who are capable of making serious intellectual contributions must be elected to Parliament. We cannot rely on those who operate at county council level in a national context. That is not the way forward. If matters continue as they are, we will not extricate ourselves from our current difficulties. There is a need for people from all walks of life who possess great imagination to be elected to serve.
Systemic reform should come about as a result of the EU-IMF Programme for Ireland. There are many items in the programme which are absolutely appalling. However, we are obliged to work through them. My key message is that the system requires radical reform.
I welcome the Minister of State. Senator Ó Brolcháin said people of a certain calibre must be elected to Parliament and that our parliamentary system was not working. What we need are people who will provide answers and Ministers who will indicate that the buck stops with them. There is no doubt that the buck stopped with no one during the terms of office of recent Governments. The buck does not stop with local authorities, the HSE, the National Roads Authority or any Minister. It is this which got us into the situation in which we find ourselves. As a public representative, while one can go to one's local authority, the HSE and various Departments, or write or submit questions to the Minister, the problem is one will get no answer. I have heard politicians and commentators state how a certain type or class should be a TD or Minister. When one looks back at all the Government appointments over the years and considers that the Government has appointed all types of people to various bodies that advise Departments and Ministers on issues, what kind of an input have these appointees made or is it that the individual Ministers of the Government have not taken heed? There have been people from all brands of society appointed to various boards and quangos. I do not go down the road with Senator Ó Brolcháin. I think the reason is that the buck does not stop. The buck should stop some place. We must have a Government whose members will say a person is answerable.
Since we resumed in September, there has not been a week that we have not discussed finance and the state of the economy, but we have not got any answers to any concrete questions. The man who is full of bluff and bluster is the Minister for Finance. He is the king of them all. He has not given us any straight answers to questions that have been asked over the past two years, and that is on the record. Everything he has proposed has failed.
I raised this question on two previous occasions, once with the Minister of State, Deputy Mansergh, and once with the Minister for Finance, and got no answer. The question concerns a plan put forward previously by the Government which allows for €2.7 billion of funds over the period for advisers, legal and otherwise, and valuers to look at the valuations in banks. How much of that money has been spent? I raised the level of payments being made daily or weekly. I am led to believe that in some cases senior advisers who went into banks to value loans were paid approximately €3,500 a day and juniors were paid between €700 to €1,000. That is incredible.
The Minister of State stated:
The Government will also undertake a process of significant restructuring and right-sizing of the banks to reduce their balance sheets. In this context, all land and development loans below €20 million in Bank of Ireland and AIB will be transferred to NAMA.
Incidentally, he might explain what "right-sizing" means as well. If that is the case, must those advisers and valuers value all those loans as well?
Recently at the Committee of Public Accounts, NAMA accused the banks of giving misleading and false information on valuations. I believe that if there is no market, one cannot put a value on anything. If there is no market, how can one value anything? NAMA put in its own advisers to value something that has no market and when there is no market, it has no value. NAMA has reduced the capital in the banks and applied too large a haircut, which has greatly reduced the viability of the banks. That is what has happened. Now NAMA is accusing the banks of giving false and misleading information at the Committee of Public Accounts and we heard only this week that the Garda is going in to investigate the matter as well. Where will this all lead? Will the Minister of State inform the House whether all the loans below €20 million in Bank of Ireland and AIB have been or will be valued and whether this will increase the burden of cost above the €2.7 billion previously outlined by the Minister for Finance? He might also confirm the daily rates being paid to those advisers because some of them are the ones who got us into the problems we are in. In my view, they are the exact same people. There are some property valuers among them who said there would be a soft landing. How can one have a soft landing in property? If there is word of a soft landing, everyone will wait until the market is at the bottom. They will purchase on the way down.
The biggest problem is finding a floor for the property market. When will NAMA, which is probably the biggest owner of property in the world, probably bigger than those such as Mr. Warren Buffett, start selling property in order that we can get a floor to the market? This is where it is at. If we get a floor and if property starts to sell in some shape or form, there will be solicitors' fees, auctioneers' fees and stamp duty, and money will start to flow. If it does not, we are doomed. We are borrowing money from the IMF and selling the State-sponsored bodies just to plug a hole in the banks which has the effect of making countless properties available which are of no value because there is no bottom to the market. The Minister of State, who stated on several occasions that this is a valuable House and who was a valuable contributor when he was a Member, might give some of those answers in his reply because I certainly want to know them.
I cannot understand the Government's approach to the tourism industry. This is one of the areas where we can get money flowing in the economy. Several commentators have advised the Minister to abolish the €10 travel tax. A long time ago the Government could have made that decision, stating it would come into effect from 1 January next. As the House will be aware, many of the tour operators and the airline operators give their prices a number of months in advance and if this decision had been taken, airlines and tourist operators could have taken it into account in their promotions from 1 January. If this is announced in the 7 December budget, it will be too late by at least two or three months for 2011. I cannot understand why the Government will not make some decision. Of course, the Government has suffered from paralysis for the past two years. That is biggest problem that has faced the country.
I look forward to the legislation on the Anglo Irish Bank buy-back, which the Minister of State said the Attorney General is examining. He might give Members the date on which this legislation will be presented. Will it be in the House before Christmas or what is the story?
Link to this: Individually | In context
I thank all the Senators who contributed to this debate. I have sat through many debates over recent days in the other House and once again I pay tribute to the quality of debate in this House. On the whole, the sort of shrill partisanship that is, unfortunately, characteristic of the other House, or some of its deliberations, is absent from this House. That is part of the value of the House, that there is more reasoned debate. Conscious that it is snowing and people may wish to get home, I will try to answer and go through as quickly and briskly as I can the great number of questions raised. As always, Senator Twomey had quite a long list of sharp questions. He wanted me to elaborate on NAMA, as did the Leas-Chathaoirleach. To assist the banks in the process of deleveraging it has been decided that land and development loans intended to remain in the banks will now be transferred to NAMA. This transfer will include approximately €16 billion in land and development and associated loans in AIB and Bank of Ireland which had previously been excluded from transfer as they were below a value threshold of €20 million. The size of the loan book that NAMA will now acquire will be in the region of €90 billion, and it will categorise all land and development and associated loans in Bank of Ireland and AIB under the €20 million level, roughly estimated to number 10,000, by reference to asset type and region. NAMA will then apply various discounts to each category based on NAMA's loan valuation experience. It is anticipated that all loans will be transferred by the end of March 2011.
AIB and Bank of Ireland will realise losses on the transfer of these assets and the increased capital requirement arising from the transfer will be injected by the State as part of a programme that is included in the aggregate €10 billion capital number that was announced. Both banks will have increased liquidity as they will receive additional NAMA securities.
As I am sure Senators will be aware from previous discussions on the issue, the management of these smaller loans will remain with the institutions and NAMA will build on the existing outsourcing arrangements with the banks for the management of these loans, and performance with respect to ultimate realisation will be incentivised by NAMA to the participating institutions as appropriate. The discounts will vary in line with asset type and the geographical region in which the asset is located.
The main thrust of the final contribution from the Leas-Chathaoirleach was to do with the cost and operation of advisers and valuers. If he will forgive me, I will take down the blacks of his remarks and get a reply for him and write to him. I will not bluff a reply at this point.
A question was asked about the purpose of the bank contingency fund and whether we will need it. A total of €25 billion is provided on a contingency basis for banking system reports. This is a prudent measure for the Government to take in order to address any potential downside risks that may arise through the course of the programme.
The issue of banking bonuses was raised and as we know, the Central Bank issued a report yesterday on the review of remuneration policies and practices. It found little evidence that banks have self-consciously made a link between their risk appetite and their incentive structures. It also found that governance and oversight of remuneration practice is poor with little or no consideration for preparing for the implementation of impending European requirements and guidance on remuneration. Obviously, this is disappointing. However, it is important that the Central Bank highlights ongoing deficiencies in remuneration policies and practices with a view to addressing these issues. There will be individual follow-up with the respective institutions by the Central Bank and this is to be welcomed. Owing to legislative changes implemented by the Government under Central Bank legislation, enforcement action is now available for non-compliance.
I will not go into the question of other taxes. The documentation released yesterday contains targets on other taxes. This does not mean to say that the European Commission is targeting other taxes because it finds something objectionable; it is simply targeting them as a source of additional revenue to cover the fiscal gap.
A point was made on the more cautious growth forecast, and a growth forecast will also be attached to the budget next week. A good deal of discussion has taken place elsewhere about the Government's strategy to boost growth. The reduction in the minimum wage is seen as removing a barrier to job creation, as are reforms in the welfare system to incentivise work and eliminate unemployment traps and to reinvigorate activation policies to ensure unemployed people can make a swift return to work. Senator Bradford made a point on the importance of more rigorous competition in the professions and measures to reduce legal and medical costs. This is long overdue and it may well be the case, as he put it, that sometimes a crisis is needed to break the logjam in such issues. The most important dynamic in growth will come from strong export growth, and its performance this year was 6%.
Unfortunately, the cuts being made in capital expenditure are necessary. What we need to take into context is that there has been enormous capital expenditure over the past ten to 12 years. It would be preferable if we could maintain it at 4.5% to 5% but at present unfortunately something has to give. Given this level of past investment, and we are not realising the value of it as yet, unfortunately it is unavoidable.
The interest rates will depend on market rates at the time we draw down a tranche of the loan and the duration of each loan. To answer the question on sequencing, the loans will be drawn down proportionately from each of the various lines of funding being made available, namely, the IMF, the European financial stabilisation mechanism, the financial stability facility and bilateral loans. The actual interest rate from each line of funding is determined by the rules governing their establishment and operation as well as by the terms of the funding. To modify what I just stated, the full sequencing of drawdown has not yet been decided but it is believed that the logical drawdown would be to begin with the National Pensions Reserve Fund, NPRF, given that there would be no interest repayments. However, if one wants to be realistic about it, the NPRF produces a certain return so the idea that putting it in would be entirely cost free is not the case and I would not wish to pretend that it is.
Senator MacSharry raised aspects of the Croke Park deal and increased flexibility and redeployment. He also complained about the nine-month deadline. I believe something will be said on progress to date in this regard in next week's Budget Statement.
Senator Ross put forward the case for default and compared us with Spain, Portugal and Italy. The situation of each country is different. The economies of Spain and Italy are much larger than ours and the particular terms, hypothetically, they might be able to negotiate is a matter for speculation. One cannot simply equate Ireland with Spain or, indeed, with Greece. It is the other way round in the case of Greece and it is trying to see whether it can improve its terms comparative to those for Ireland. I have two quarrels with the argument for default, which was not only made by Senator Ross but also others, including by the Financial Times correspondent, Wolfgang Münchau. The people who make that argument never spell out in more than the vaguest detail the consequences of that would be. I would regard default as disastrously irresponsible and as a kind of gamble. It is easy for commentators or those with no responsibility for the decision or who are unlikely to have responsibility in an executive governmental sense to make that argument. Also, when the argument comes from outside of Ireland, it is often because the people making it have different interests and perspectives, coloured by whether they are German or American, and particular ends in view. Sometimes, as hinted in Münchau's article, they would like a catalyst to a much fuller fiscal and monetary union. He questioned whether that would happen. It will not.
We must seriously discount such comments, but people keep citing them. Even in the Dáil this week Members were mentioning Nobel prize winning American professors and so on. Do those American professors write primarily from what they think is best for Ireland's interest or do they think in much broader terms of what might be in the interests of America or their perspective of the world economy? I would be inclined to discount heavily some of the outside commentators. When people in the country make these comments, however, they should spell out the consequences. It is easy to comment. Newspapers do it all the time and throw out wild suggestions that may sound good to the public at large. Senator Norris did the same and spoke about the moral argument. Of course moral considerations should inform public policy, but they cannot dictate it. If we look around the world today, we will see, unfortunately, with Wikileaks and the like, that there are all too many instances of Governments and agencies that are far from operating on any sort of recognisable principles of public morality.
We have a moral responsibility towards the people of this country to try to do as best we can. We have been trying to do that since September 2008 and I suspect our successors will continue to do the same for a long time in the future. We are trying to protect people to the best of our ability and trying to protect the things we value from the fall-out of this difficult crisis. One of the good things about this support programme is that it allows us, by giving us the loans we need, to support our basic services. We are in a situation that has gone beyond our control, perhaps because it is a European-wide situation, but we now have the means to support our basic services, although perhaps on a significantly more economical basis than previously. A default would mean we would face unpredictable, cataclysmic consequences. It would mean a breach of faith and if we defaulted, why should anyone ever trust this country again? We were involved in a negotiation with other agencies which had to take account of the possible knock-on effects in other situations and countries across the eurozone. Senator Ross cast aspersions on the senior officials of the Central Bank and Department of Finance who were involved in the negotiations on this deal. I believe, as the members of the next Government will find out, that we have very high calibre people. It is quite true, as Senator White said, that things have not turned out as we would have wanted or expected. However, he at least had the decency to give credit to the Government for its efforts. He did not accuse the Government of having lied through its teeth for two and a half years. He accepted that things had not necessarily turned out the way we wanted and predicted, in good faith. I appreciate that approach and feel it is more characteristic of this House.
Senators Boyle and Ó Brolcháin raised the matter of how things were. We and many others in the country bought into the vision that we could spend more, have lower tax rates, continue collecting higher tax revenues and remain financially healthy based on our dynamic economy. I do not suggest that was an unworthy idea, but it was too ambitious and, perhaps, unrealistic. It has certainly crashed to the ground and we will be wiser in the future. Senator Norris suggested that the fact the agreement was not put to a Dáil vote constituted an infringement of the Constitution. No fewer than two lawyers, on successive days, dealt with that argument in The Irish Times and broadly supported the Government's position that the IMF is very careful not to do treaties but to do memorandums of understanding. The sanctions it has are not to resort to the law but to withhold further funding. Members, especially those who have been a long time in the House, should not use phrases like "shower of foreigners". There is no maturity in such comments. We have partners in the European Union and many of them are our friends. However, they too must look after their interests, just as we look after ours. That sort of xenophobia will not advance our cause an inch. He referred by name to certain economic and banking commentators who he would like to see advising the Government. We have called on far-seeing experts such as the special adviser to the Minister for Finance. The next Government will have the liberty to hire the individuals to which the Senator referred if it so chooses but it will need people who have the right temperament to work as part of a team and who do not behave as if they are Moses bringing the tablet from Mount Sinai.
Senator Bradford attributed to me a zeal for electoral reform which I confess I do not have. The system of election to the Dáil has many merits. It is fair and, more than many other systems, it allows for the displacement of individual incumbents without displacing their parties. I could, of course, be a victim of such displacement in the near future.
I would not be wise to neglect the contribution from the Leas-Chathaoirleach because he might ask me to continue instead of cutting me off. In regard to his main point, I will respond to him in writing. He mentioned the tourism industry and the air travel tax. I am also a Minister of State at the Department of Tourism, Culture and Sport, although my primary responsibility is the arts. There has been considerable debate in this House on the air travel tax. The Minister of Tourism, Culture and Sport has indicated that she would like to hear from some of the transport companies but I am not sure whether she has received an answer on the matter. Wearing my other hat as Minister of State at the Department of Finance, I am conscious that the €140 million that the travel tax raises would have to be replaced by some other means. We will wait to see how the Government deals with that issue.
With regard to banking legislation, the memorandum of understanding provides for legislation on a special bank resolution regime to be presented in the first quarter of 2011. There is also a commitment to introduce legislation in the second quarter of 2011 to enhance bank regulation and the Central Bank's supervisory enforcement powers. I presume that will be one of the first Bills to come before the new Dáil and Seanad in 2011.
I wish to be associated with the good wishes expressed this morning by Senators on the departure of Shay Byrne from the Houses. He has spent almost 40 years here. He has been very courteous to me, has acted always with discretion and has always been a man of action. I wish Shay, and Liam Lynch who is also retiring, the very best of luck.
When is it proposed to sit again?