Thomas Byrne (Fianna Fail)
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The purpose of this Adjournment matter is to get some clarification from the Government on the proposed role of the KfW bank, a German bank which the Taoiseach mentioned in his speech announcing that the Government would not seek a so-called backstop financial arrangement upon leaving the agreement with the troika and the Commission. KfW is a public interest bank with various roles in Germany and beyond. The Taoiseach gave scant detail when he said that it would be of assistance to the Irish economy, including granting finance to small and medium enterprises, SMEs. This led one commentator to speculate wildly that it could be a backstop for the Irish Government and its sovereign debt requirements. It is accepted that will not happen but the lack of detail has allowed that type of speculation to grow. I want confirmation that this will not happen because the person who made the allegation in one of the national newspapers could well have read the Taoiseach's speech as giving that role to KfW.

We want to know several things about KfW. Is it applying for a banking licence in Ireland? Will it operate on the high-street insofar as there are high street banking services for SMEs? Has the Government drawn up a memorandum of understanding with the German Government? KfW is mainly owned by the federal government and partly by the states in Germany. Does the Minister for Finance have a memorandum of understanding with the bank or with its chairperson who is the German Minister for Finance? What is the expected level of credit that KfW will make available for Irish business and will it lend directly into business in Ireland or will it provide finance to the banks to then provide finance to business? Is there any guarantee that the finance will come out of the banking system? We have had bad experiences over the past few years in that regard and in regard to lending targets. Will KfW compete with the banks or will it fund them?

When the Labour Party proposed a strategic investment bank in the last Dáil - and it is in the programme for Government - KfW was mentioned as an example of what could happen in Ireland. Will this bank complement the proposal in the programme for Government for a strategic investment bank or is it in fact the strategic investment bank? I look forward to the Minister of State's reply.

Jan O'Sullivan (Limerick City, Labour)
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I am taking this Adjournment matter on behalf of my colleague, the Minister for Finance, Deputy Noonan.

The Taoiseach mentioned in the Dáil last week when announcing Ireland's completion of the programme, that he had held discussions with Chancellor Merkel on Germany's offers to help. The discussions included a specific focus on finding ways to reinforce Ireland's economic recovery by improving funding mechanisms for the real economy, including access to finance for Irish SMEs. In that context, the German Government has asked KfW, the German development bank, to work with the German and Irish authorities swiftly, in order to deliver on this initiative at the earliest possible date.

Officials of the Department of Finance have already exchanged working papers on this subject with KfW and the German Ministry of Finance. On Monday of this week a productive consultation was held with the German embassy in Dublin. This helped pave the way for discussions between the Department of Finance officials and officials of the German Ministry which were held in Berlin this morning. Further work on this will continue with KfW and other key stakeholders over the coming weeks both here and in Germany.

The Minister for Finance is keen to see the establishment of a healthy and balanced relationship. As the Department of Finance is trying to ensure that any initiative that comes out of this process is as effective as it can be, it will discuss approaches that meet the strategic objectives of both States and ultimately facilitate lending to the real economy, in particular to SMEs in Ireland. This relationship may take the form of a memorandum of understanding or a contract or indeed we may formalise that relationship in some more appropriate fashion. That is not yet decided.

KfW's model in Germany is to lend through commercial banks. In the case of its agreement with Spain it provided a loan to ICO, the Spanish state investment bank which then lent the funding on to the commercial banks in Spain. In the Portuguese instance there is not currently an established state investment institution and so KfW is assisting the Portuguese authorities in establishing an appropriate organisation and structure for facilitating lending to SMEs. All appropriate options will be considered in the course of the discussions with KfW for the Irish case.

KfW holds a banking licence in Germany and under the rules of the EU can passport into Ireland if this is deemed necessary without a requirement to obtain an Irish banking licence. I should note that KfW's import export, IPEX, bank notified the Central Bank of its intention to passport into Ireland in January 2008. This, however, is not related to the recent announcement, rather it is part of ensuring that KfW can fulfil its mandate as an import support for German businesses.

Additionally, the Government has decided to establish the Ireland strategic investment fund, ISIF, which will absorb the National Pensions Reserve Fund, NPRF. Using the ISIF, the Department of Finance will maximise our resources to enhance growth in the Irish economy and improve key infrastructure to maintain Ireland's attractiveness as a place to do business and to create employment. Officials of the Department of Finance are preparing the necessary legislation which the Minister anticipates will be enacted early next year. Already, in the lifetime of this Government, the NPRF has established funds that support strategic projects and a number that support SME financing.

Further assessment of the need to create a strategic investment bank over and above the contribution expected from the ISIF will be informed by the requirements of the economy once the Government's key immediate objectives for the repair of the banking system have been completed. The Department of Finance has not set targets for any strategic investment bank as its role has yet to be fully defined, and due to state aid considerations, its potential market is likely to be somewhat prescribed. Experience in other countries suggests that any lending facilitated by a state investment institution like KfW or an Irish state investment bank is generally complementary to lending already taking place in an economy and can in fact assist commercial banks with access to cheaper credit lines such as from the European Investment Bank.

Marie Moloney (Labour)
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Does Senator Byrne have a supplementary question for the Minister of State?

Thomas Byrne (Fianna Fail)
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No, thank you.