I advise the House that item No. 8 is being taken in conjunction with Second Stage of the Bill.
European Bank for Reconstruction and Development Bill, 1990: Second Stage.
I move: "That the Bill be now read a Second Time."
The purpose of the Bill is to approve the terms of the agreement establishing the European Bank for Reconstruction and Development and to enable this country to honour the financial and other obligations associated with membership of that bank.
The agreement to set up the new bank had its origins in a French initiative at the end of 1989 which called for a Community response to the dramatic developments then taking place in Central and Eastern Europe. The initiative was endorsed by the Heads of State and Government of the European Community in December 1989 and the agreement was signed on 29 May last. This was a very short timescale for the negotiation of such an agreement and it is evidence of the degree of co-operation which has been forthcoming in response to the remarkable developments in Eastern Europe. While membership of the bank will cover a much broader international spectrum, it will have a special European character because of the scale of European involvement in it.
The whole tenor of East-West relations has been transformed as a result of the far-reaching reforms taking place in Central and Eastern Europe and the Soviet Union. The changes in Central and Eastern Europe mean that it is no longer appropriate to think in bloc-to-bloc terms. The newly emerged democracies — and particularly Czechoslovakia, Poland and Hungary — carry out independent foreign policies which are based on similar premises to those of Western European countries — respect for human rights and for international law — and which reflect their particular national concerns. They are anxious to increase their links to Western Europe in general and in particular to the Community, which they see as a powerful support for democracy and for economic reform.
However, it must be acknowledged that the degree of progress in introducing reforms is uneven. For example, Hungary, Poland and Czechoslovakia are most advanced while the situation in Bulgaria, Romania and Yugoslavia requires careful monitoring.
The position in the Soviet Union is much more complicated. This is partly because of its size but recent uncertainties surrounding the extent and the pace of the reform process are also a factor.
The Community has been in the vanguard in providing and co-ordinating economic assistance in support of reform in Central and Eastern Europe. A wide range of measures to assist the transition from command to market-oriented economic structures has been agreed. Priority areas in fields such as agriculture, trade, investment, environment, energy and training have been identified in line with the real needs of these countries and projects are already under way in most of these sectors. In addition, various instruments at EC level have been put in place, for example, EIB and ECSC loans. In all, G24 assistance to the region, including grants, loans and credits, committed since June 1989 amounts to the impressive figure of $38 billion. That amount includes approximately $13 billion of capital for the European Bank for Reconstruction and Development.
The economies of Eastern Europe must go through a fundamental process of restructuring from inefficient production and distribution systems, based on central planning, to the market system which we take for granted. It is difficult for us to grasp fully the scale of change that is required when whole nations have been conditioned for the past 50 years to a rigid system of planning that stifled initiative and individual enterprise.
One of the perverse consequences of the economic reforms that are now taking place is that output in these countries will stagnate or decline in the short term due to the impact of the adjustments that are required. New structures and new institutions must be put in place. The changeover to world prices and payment in convertible currencies will put an extra strain on financial resources. The elimination of widespread subsidies, with only partial compensation for consumers, and the threat of unemployment add further to the difficulties that arise. There is also a distinct risk of mounting inflation. For the longer term, however, the outlook is much more optimistic and economic performance should improve significantly, provided these countries adhere to sound economic policies during the process of integration into the free market economy. The early indications are that the authorities in these countries generally understand the importance of this but they will have to withstand pressures as people's expectations are not being realised quickly.
Help is needed from the West during the difficult period of transition and is being provided in a number of ways. International and European Community institutions are organising assistance and a number of countries have bilateral arrangements for special aid. Much has been achieved already in a very short period. The European Bank for Reconstruction and Development can have a powerful influence on the transition process. There are many projects waiting for assistance. It is most important that no time be lost in providing the necessary resources for the new institution to enable it fulfil its mandate.
The objective of the bank is to promote private and entrepreneurial activity in those Central and Eastern European countries which are committed to multi-party democracy, pluralism and market economics and to foster their transition towards open market-oriented economies. The bank will have a broad range of functions: it will provide loans, guarantees and technical assistance, make equity capital investments and underwrite the issue of securities. It may also accept special funds and deploy them in accordance with whatever agreement is reached with the donors of such funds. The bank's financial assistance will be directed towards specific projects. It will not lend to Governments to support programmes of economic adjustment or to finance balance of payments deficits. These will remain areas for the continuing attention of the International Monetary Fund, the World Bank and the Community itself. The main emphasis in the bank's operations will be on the private sector and on State-owned enterprises which are being privatised.
However, the bank will be able to assist the State sector for certain purposes, such as infrastructure, subject to a limit of 40 per cent of its operations both in the individual countries and overall.
Central and Eastern European countries meeting the conditions set out in the agreement are eligible for assistance. The sheer size and potential demand for resources of the USSR raised the question, at an early stage of the negotiations, of the extent of this member's access to the bank's funds. The difficulty was finally resolved by the USSR limiting voluntarily their access to funds over the first three years. The relevant request from the Soviet authorities is reproduced on the last page of the Bill.
The effect of this arrangement is that the USSR will not be able to receive funds from the bank in excess of what they will have already paid in for their shares in the bank over this three-year period. The limit on the amount of funds involved is in the order of IR£80 million. In addition, the range of activities qualifying for assistance in the USSR will be more restricted than for other recipients. Any decision, at the end of the three-year period, to widen USSR access will have to command a majority of 85 per cent of the voting power of members.
The initial capital of the bank will be 10,000 million ECU, 3,000 million of which will be paid-in and the remainder subject to call. The prospective founder membership of the bank and the allocation of its initial share capital are set out in Annex A to the agreement. The main points of interest are as follows. When the agreement was signed there were 42 prospective members of the bank, comprising 40 countries and two institutions, namely, the European Economic Community and the European Investment Bank. The articles of agreement specify that membership is open to European countries, non-European countries which are members of the IMF, the European Economic Community and the European Investment Bank.
The European Community holding— if we count the shares of the member states, the Community itself and the European Investment Bank — amounts to 51 per cent of the shares of the bank. However this does not secure control of the bank in all circumstances as most of the non-routine decisions require majorities of two-thirds or over.
The US has the largest individual country share at 10 per cent; other major countries each have 8.5 per cent; the USSR have 6 per cent and the remaining shareholdings vary generally in proportion to a country's resources, with Ireland having 0.3 per cent. The breakdown of share capital between Community member states is broadly on the lines of their shares in the capital of the European Investment Bank.
Since the agreement was signed, the two Germanys have been reunited. The German authorities have indicated that they will not be taking up the shares allocated to the former German Democratic Republic. Therefore, Germany will continue to have the same proportion of shares as the other large Community members. The former GDR shares will remain unallocated for the present and will be available for allocation to any new members the bank might decide to admit when it is up and running.
On becoming a member, Ireland will subscribe for 3,000 shares at a cost of 30 million ECU or approximately £23 million at current exchange rates. This will represent 0.3 per cent of the bank's total subscribed capital. The paid-in element will be 9 million ECU or £6.9 million at current exchange rates, payable over five years amounting to 1.8 million ECU or approximately £1.4 million a year. This will be paid from the Central Fund. Payment of our subscription will become due after sufficient members have ratified the agreement to allow for its entry into force and after Ireland has ratified the agreement. It is expected that the agreement will enter into force shortly and a first meeting of governors is planned for April. Assuming speedy ratification by Ireland, the cost to the Exchequer of £1.4 million per annum will arise in each of the years 1991 to 1995. Up to 50 per cent of each instalment of paid in shares may be made in promissory notes which will be encashed by the bank as needed for its operations. Ireland's maximum liability to the bank will be the unpaid share of its subscribed capital.
The new bank has a number of unique features in relation to other multilateral institutions and I would like to mention a few of these. Its statutes contain express political criteria in relation both to membership and beneficiaries. These cover a commitment to multi-party democracy, the rule of law and human rights. Its activities will span both the public and private sectors and it will have a wide range of instruments at its disposal. It is unusual in having Soviet, Eastern European and United States participation as founder members. It has a majority Community, and even bigger majority European, shareholding and its capital is denominated in ECU.
In the course of the negotiations a number of candidates for the location of the bank were put forward, including Dublin. It did not prove possible, however, to get a Community consensus on a single location and the wider negotiating conference eventually decided that the bank's headquarters should be in London.
Overall control of the bank will be exercised by a board of governors. Each of the members will appoint a governor, normally the Finance Minister. Governors will meet annually to review progress and decisions on particularly sensitive issues will be reserved for them.
The day-to-day running of the bank will be delegated to the board of directors. This board will consist of twenty-three directors. Eleven will be elected by the Community, its member states and the European Investment Bank. Of the remaining twelve: four will be elected by recipient countries of Central and Eastern Europe; four by other European countries; and four by non-European countries. There will be an equivalent number of alternate directors. Ireland will share a directorship and an alternate with Denmark on a rotating basis.
The bank will not be in competition with any of the existing international financial institutions. Rather, it sees itself both as a complement and a catalyst. It will complement the activities of the existing multilateral institutions in undertaking co-financing with them and in concentrating on individual projects where some of the other institutions take a more global approach. It will work in close liaison with, and benefit from the experience of, the European Investment Bank which is also one of its own members. It will co-operate closely with the European Commission which is co-ordinating a broad range of multilateral aid to Eastern Europe.
Before dealing with the provisions of the Bill itself, I would like to draw Deputies' attention to the fact that under the terms of Article 29 (5) (2) of the Constitution it will be necessary for the Dáil to pass the motion, which is number 8 on today's order paper and which formally approves the terms of the EBRD Agreement. This will ensure that the Agreement is binding upon us in international law.
Turning to the Bill itself, section 1 defines various terms. Section 2 provides for the approval of the terms of the Agreement.
Section 3 contains the financial and other provisions. In particular, subsection 2 provides for the payment out of the Central Fund both of our initial subscription, and of any subsequent subscriptions which might arise if the bank's capital were to be increased and we were to participate in that increase. Subsection 3 provides for the issue of promissory notes. Subsection 4 provides for the disposal of any moneys received under the Agreement, for example, under any distribution of net income that might be decided on. As is customary, the Central Bank will act as depository for the EBRD and subsection 5 makes provision for this. In addition, this subsection also provides that the Central Bank may advance any moneys required for subscription payments. Under subsection (6), the servicing costs associated with any moneys thus advanced will be charged on the Central Fund.
Section 4 contains the short title to the Bill and the terms of the EBRD Agreement itself are set out in the schedule to the Bill.
I recommend this Bill to the House.
(Limerick East): I welcome this Bill and the Minister giving us the opportunity to speak on the Bill here in the House. In terms of recommendations on the expenditure of public funds, it is minor enough and its impact on our finances is small. Our total commitment is, I understand, .3 of 1 per cent of the total capital being allocated to this bank, 30 million ECU according to the Minister's speech and the explanatory memorandum, and the initial commitment is to pay £6.9 million in five annual instalments so, our annual commitment is £1.4 million. In the kind of budget the Minister introduced last week £1.4 million could be categorised almost as petty cash. It is not our contribution to the bank which is significant today. It is significant that we in the Irish Parliament are debating a Bill which involves our contribution to a European bank for reconstruction and which has as its primary object to aid in the establishment and the development of the States in Eastern Europe committed to the fundamental principles of multi-party democracy, the rule of law, respect for human rights and market economics.
It is astounding that 12 months after we saw on our television screens the rapidity of change in Eastern Europe, we are debating such a Bill with an agreement attached in which those words are the first sentence of that agreement. It is extraordinary also when we look at the list of countries that have and are willing to subscribe to the European Bank. It is interesting to look at the recipient countries. As I understand it, all states in Eastern Europe and in Central Europe are eligible to apply for a loan to the bank, but listed as prospective recipient countries are Bulgaria, Czechoslovakia, the German Democratic Republic, Hungary, Poland, Romania, the USSR and Yugoslavia. I note what the Minister has said about the German Democratic Republic and the USSR.
It is astounding that so soon after the most unexpected series of events which took place, particularly in 1989, we are debating a Bill now where all the recipient nations as well as the contributory nations are committed to an Eastern Europe and indeed a USSR which will be based on the fundamental principles of multi-party democracy, the rule of law, respect for human rights and market economics. That is the antithesis of what Eastern Europe and the USSR stood for during our childhood and most of our adult lives. That is the significance of this Bill, that it formally marks in this House the amazing changes in our time. I hope this Bill is successful. We have seen the changes in Eastern Europe and as the television cameras let the light in to allow us in our homes witness these changes, they also let the light into the past of those countries. It was quite clear that the centralised socialist economies were not working. They were not delivering on the kind of living standards which one would expect in Europe in the late 20th century. They certainly were not delivering on the hopes and aspirations of their people. While the rule of law was variously applied, it is fair to say that respect for human rights was less than universal in Eastern Europe and the USSR. The most deplorable example was that of Romania which is still being brought forcefully home to us. Later today we will be debating another Bill with an East European connection, the Bill to change the legal status of children adopted here who had Romanian parents. Any of us who have seen film about the orphanages of Romania need no further reminder of the difficulties which were being experienced in the whole area of human rights in East European countries.
I hope Eastern Europe can be reconstructed and that market economics can flourish there. I hope the rule of law will be applied and that the multi-party system will ensure that human rights are universally respected. There are difficulties which we should not gloss over. The Minister rightly said that the pace of development is different in East European countries. I hope there will be no reversal of the progress that has been made as we go through the decade.
This time last year there was a wave of optimism throughout the world. Changes were taking place everywhere. It was as if freedom had broken out all over, not only in Eastern Europe but in South Africa. Apart from the depressing influence of the Gulf War, depressing things are happening in Eastern Europe as well. The first flush of freedom is departing from Eastern Europe. There are real economic difficulties in many of the East European countries and they will not disappear lightly. They are in need of all the help, both politically and economically, which they can get from those who are strong in Europe and in particular from those of us who are members of the European Community.
In Bulgaria, for example, petrol is not available at present. People on holidays there find that their airplane has just enough fuel to take them across the border to Romania, where it is refuelled for the journey home. Petrol is no longer available from Russia, the traditional supplier to Bulgaria. Turkey sells some fuel there. Their economy is shattered, their standard of living has fallen and there is an enormous need for reconstruction. We are familiar with the situation in Romania and how tenuous the change there might be. There is widespread fear among many sectors of the community that there will be a reversal to traditional central control on the democratic socialist model. We know there are difficulties of other kinds in Czechoslovakia, Poland and Hungary whose economies need enormous reconstruction.
We also know the success story of East Germany and the pace of unity which surprised everybody. It is very revealing that in the agreement which is attached to the Bill East Germany is listed as a separate state and as one of the potential recipients from this Fund. Before the Bill arrived in the House the political situation had changed and East Germany is now part of a united Germany. These are astounding changes and I am glad we have the opportunity to contribute through the European Bank of Reconstruction. I am glad we have the responsibility to take on the invitation and to contribute. I hope we will be able to do more, both in terms of investment of money and maybe by our people travelling to Eastern Europe and helping to build the economies of the East. When the first flush of hope goes and when the brave new dawn arrives and problems still remain, sometimes it is difficult for people to maintain their optimism. We are at that stage now in Eastern Europe. Areas like Yugoslavia are particularly worrying, with competing nationalist groups in conflict in that country.
I am worried about the position in the USSR. On the last page of this agreement the USSR has effectively restricted its own participation in the bank because its needs were so great when the agreement was drawn up that it did not want to be seen to be the main recipient swallowing up a disproportionate amount of the resources available. That was signed at a time when one could be more hopeful about the situation in the USSR than one is now. I wonder what the commitment is in the USSR to multi-party democracy, to market economics. I also wonder as we look at the position in the Baltic republics and in Georgia what the commitment is to the rule of law and respect for human rights in the USSR. I know the difficulties which have been and are being experienced in the Soviet Union. I have read enough history to know the difficulties which Russia experienced in the past. Russia has no tradition of democracy. There was never a democratic state or democratic government in Russia. There is no experience of or faith in the democratic system.
That has always been matched by a parallel fear for the security of Russia. When one looks at the map one sees that the main rivers run north and south, the northern ones going into a frozen sea and the southern rivers into the Caspian Sea or the Black Sea. The Caspian is land locked and the Black Sea, at various times in Russian history, was as good as land locked. Through the centuries ships leaving the Black Sea had to go out under the Turkish guns. There is a constant fear for the security of the Soviet Union. There are no natural barriers in the east or west; there is a fear of being cut off from access to the Baltic and the fear of being cut off from the Black Sea in the South.
If we look at the policies which all Russian Governments have followed for centuries, a number of fundamental factors have not changed. It was always policy to have access to the Baltic and in that context one can understand the fears of any Russian Government of being cut off by the establishment of a series of independent republics along the Baltic. In the late 19th century the states to the south were taken over by an imperial Russia for much the same reason: they needed access to the Black Sea. States such as Georgia, Armenia and Azerbaijan contiguous to the Black Sea are strategically important. One has to understand the traditional fear of the Soviet Union of being cut off from its natural outlets and exposed to danger on both the east and the west. There has always been a fear in Russia of the invaders from western Europe. It happened on a number of occasions. It happened in the time of Napoleon when the French went as far as Moscow. It happened again in the forties when the German army rolled through Poland and into the Soviet Union. If one goes back further there was the fundamental fear of invasion from the East, from Mongolia and, more recently, a fear of trouble on the Chinese border.
Taking all these things into account we must, as a member of the Community and as a country which increasingly participates in a common European foreign policy, take into account the fears of Russia and the security fears of Russia — and I call it Russia rather than the USSR. At the same time we must never miss an opportunity to say that we are committed to an Eastern Europe and to a Soviet Union which will be based on the rule of law, on respect for human rights, on market economics and on multi-party democracy. We should make it very clear, on occasions like this, that the provisions of this agreement and the provisions of this Bill are tied into that prospect in Eastern Europe and the investment funds being made available will not be available unless there is progress in Russia itself towards the objectives which are stated in the initial part of the agreement which is attached to this Bill.
Many people have asked why did everything occur so suddenly in Eastern Europe in 1988 and then why was the great wave of countries in Eastern Europe seeking freedom in 1989. The reason was that for many years systems were kept in place by the army of the USSR. It was when the Soviet Government changed its foreign policy and rejected the Brezhnev doctrine and decided that they would no longer intervene at the point of a gun in Eastern Europe that the opportunity was given for the great outbreak of democracy which we saw in Eastern Europe. There is nothing to suggest, however, that if circumstances changed in Russia, that if what Shevardnadze, Foreign Minister of the Soviet Union until quite recently, said were to come to pass, that we would again have a Soviet dictatorship supported by the army and the KGB, that that state in that formulation would not again seek to exercise control in its sphere of influence and effectively exercise control one way or another over the democracies now emerging in Eastern Europe and which are purported to be helped by the provisions of this Bill.
We have to go slightly beyond the provisions of this Bill today which, in the context of domestic expenditure and international expenditure are quite small — a £1.4 million commitment every year for five years — and we have to look at the situation emerging in Eastern Europe and especially in the Soviet Union. As a country which can be influential within the EC but not particularly influential on the world stage in our own right, we have to put down our markers too. I would urge the Minister for Finance, and in particular the Minister for Foreign Affairs, to take the provisions in the preamble to the agreement at face value and to insist in the European fora and through our influence when the board of this bank is established that the provisions in the preamble to the agreement mean what they say and we expect them to mean what they say. We are for a reconstructed Eastern Europe. We want countries in Eastern Europe that will participate in multi-party democracies where the rule of law and respect for human rights are enshrined in the constitutions of those countries and we want the countries also to be countries where market economics are the norm of the day and reconstructed on that basis. It is on that basis that we are prepared to help.
Very quickly the optimism which was so prevalent last year is beginning to fade away. Our eyes internationally tend to be more on the Gulf now than on Eastern Europe, but there are very disturbing things happening in the Soviet Union at present and we should not let the occasion pass without noting them.
When the Irish Department of Foreign Affairs, as it has done last week, is advising Irish citizens, and in particular school groups, not to visit the Soviet Union because the Department of Foreign Affairs consider that it would be physically dangerous for them to do so, then it is time our attention was redirected again towards the events in Eastern Europe and particularly the events in the USSR. Let us hope that whatever influence we have internationally can be used to prevent a situation which I believe is rapidly deteriorating in the Soviet Union to turn, on the one hand, into outright conflict between the states there or, alternatively, into a Russian dictatorship underpinned by the army and the KGB. That is not the basis for the optimism which we had last year. That is not the way we saw things developing. We should nail our colours to the mast and be prepared to support all those forces in Eastern Europe, particularly in Russia, who are committed to what is, effectively, the commitment in the preamble to this agreement.
The Labour Party welcomes the introduction of this Bill but regrets that due to its nature it is, in effect, a fait accompli from the point of view of parliamentary debate. We have, in fact, a two page four section Bill accompanied by an appendix of an agreement which constitutes 63 articles and three annexes all of which has been negotiated outside this House and none of which, in effect, can be changed inside this House. The Committee Stage of this Bill will be interesting for no other reason than that we will simply be going through something that will have very little capacity for change. I put that on the record so as to alert the Minister that I do not see that this should be a long and tortuous debate but in recognition that there is a kind of democratic deficit implicit in what we are embarking upon.
At the outset I would like to pose some specific questions for him and for his advisers which he might answer either on Committee Stage or in reply to Second Stage. Can the Minister tell me who negotiated this agreement on Ireland's behalf? Who decided on our sharing, our directorship on the alternate with Denmark? What mechanism produced that recommendation and agreement? Who will be our nominee to be that director or alternate — presumably it will be the same person over the three year period? What Irish staff will there be within the bank?
Financial journals, for the last six months to a year, have been full of speculation about the particular presidential style of the president-designate of this bank. It could be said he did not pick it from a stone in one sense. That has raised some concerns, it has to be said, about the mode and manner of Monsieur Attali's method of operation and the very large degree of discretion the bank will have in its operations. While we may be small contributors as Deputy Noonan has said, from the point of view of a current account payment over the next five years our exposure is to the tune of £23 million over the period.
It would be reasonable to expect, if one looks at the tone of the letter at the back of the Bill, that the drawdown on funds will be fairly quick and fairly substantial. Therefore any prudent Minister for Finance would have to assume that the call-down on even 0.3 per cent of share capital will be reasonably quickly if this Bill, and the bank to which it is agreeing, is to achieve its objectives in Central and Eastern Europe.
There are some specific questions which I would like to put to the Minister and his advisers. I have specific questions also in relation to the operation of the bank: what arrangements, and it falls from the dimension of the Irish staff, will there be to guarantee that consultancy contracts and technical assistance provisions and various mechanisms which the bank are enabled to provide to the emerging mixed economies of Central Europe will be offered to all the member states of the bank on a fair basis? Those of us who have some experience of the Commission, and particularly of the DGVIII which ran the European Development Fund, will be well aware of the unique capacity for a French dominated administration to scoop the pool in relation to the more lucrative contracts and the more financially rewarding aspects of work which will be generated by this bank.
Let us be quite clear about this: there is already an enormous amount of consultancy work financed either by the EIB or by the Commission directly, and inevitably by this bank as well, that will properly fall to countries such as ours and others that would be in a position to tender for and efficiently supply those services. If we are going to put up money to the tune of £23 million at maximum, there should be some understanding, if not safeguards, in the operation and practice of the bank that a juste retour would prevail in relation to Ireland's slice of whatever economic action will unfold from this. I would like the Minister to try to respond to some of those questions either at the end of Second Stage or on Committee Stage, whichever is more convenient.
I want to turn to the historical background against which this bank has come into existence. This is very much a political construction. It is not your normal bank in any sense of the word, and to that extent banking criteria and all the safeguards that flow from it have to be taken with a certain degree of circumspection. To that extent the Gallic capacity for the grand gesture concerns me because Central and Eastern Europe no longer need grand gestures. The history has yet to be written in detail about the remarkable transformation across the whole of Europe that has led to stable democracies, but, in effect, the transformation started first in Western Europe with the dismantlement in 1974 of the dictatorship in Portugal, followed by the transition from the Franco dictatorship in Spain through to the Colonels in Greece and, finally, to Central and Eastern Europe with the collapse by the classic characteristics of imperial over-reach that led to the dismantlement first of the Breshnev doctrine.
The Labour Party share a certain sense of victory in the collapse of the command economies — Deputy Noonan used the phrase "socialist economies", but we never regarded them as socialist economies. The collapse of the centrally controlled party state apparatus with a command economy, and rigid and increasingly out of touch central planning, were for internal debate within the Socialist movement in Europe from 1917 with the establishment of the Bolshevik revolution, and the breaking away from most European socialist parties of hard left groups which constituted themselves as Communist parties, which subsequently castigated democratic socialist parties on their failure to adhere to the correct road to socialism and on their obsession with bourgeois parliamentary democracy.
In so far as people can take pleasure from being able to say "I told you so", there is a degree of finality in the great historical debate that dominated the European political stage for nearly 60 to 70 years. It is now over. In bringing it to a conclusion it would be incorrect and unfair to heap all the credit exclusively on President Gorbachev although he must take primary credit for creating the political space within which the transformation occurred. I would like to put on record the remarkable evolution of the Hungarian Socialist Workers Party and their leadership starting with Kadar and then Karoly Grosz that led to that party in government deciding, without any prompting from the streets as was the case with Czechoslovakia and Eastern Germany, to abandon their monopoly in power as a single party state and uniquely to recognise the primacy of their obligations to the United Nations Treaties which resulted in them unilaterally dismantling the Iron Curtain in the summer of 1988 which effectively led to the collapse in Czechoslovakia and Eastern Germany in the reverse order.
My reason for focusing on Hungary is that country, parallel to the political evolution which I described very briefly — and it makes fascinating reading for anybody who is interested in political evolution in Central Europe — was attempting to achieve a liberalisation of their economy and came to the conclusion that you cannot have a market liberal economy unless you have a liberal open democratic society. They are further down the road in Hungary in terms of the transition to market economics than they are in any other Central European country. There are some very major lessons I want to draw to the attention of this House because I fear the work of this bank, and consequently our scarce capital, as shareholders could be at risk.
One of the frequent objectives in the articles establishing this bank is to assist the process of privatisation. Let me draw your attention specifically, without entering into a Committee Stage type debate, to Article 11, page 11 which states:
1. The Bank shall carry out its operations in furtherance of its purpose and functions as set out in Articles 1 and 2 of this Agreement in any or all of the following ways:
(i) by making, or cofinancing together with multilateral institutions, commercial banks or other interested sources, or participating in, loans to private sector enterprises, loans to any state-owned enterprise operating competitively and moving to participation in the market oriented economy, and loans to any state-owned enterprise to facilitate its transition to private ownership and control;
The worry that is emerging very clearly in Budapest — and there is an Irish presence in Budapest in the form of a CTT office — is that the title to state companies, purportedly held in the hands of some people, is extremely dubious and the way in which the state party, for example, in East Germany, apparently absconded with title to or ownership of resources that were properly the property of the state, is a fear that is increasingly being expressed by Hungarian citizens within the Republic of Hungary.
I would like to know what mechanisms that Ireland, as a shareholder in this bank, will have to ensure that we do not get some kind of transfer of capital from a benign and well intentioned western market orientated Europe and the other nations involved, the United States effectively, to facilitate what will effectively become a very sophisticated rip-off by former Stalinist Apparatchiks who, with all the skill and expertise of people who had escaped through the Odessa link to Argentina, managed to take some of the remaining riches of what was then the Third Reich. There is precedent for this. The fear of those people, who politically, ideologically and even emotionally have nowhere to go, is that they will attempt to rip-off. My information from a variety of sources is that already there have been a number of scandals and great controversies about people selling off property, including a major hotel chain in Hungary they did not own but for which they were the beneficiaries of substantial sums of hard currency.
I do not see that it is primarily the function of this kind of bank to allow for the leverage buy out — if that is the correct phrase — of these kinds of assets which are State owned in order to enable them to operate in a market orientated economy. On the participation of the Irish negotiators in the course of the formulation of the articles setting up this bank, presumably such matters were discussed in some detail because obviously the information I would have is considerably limited and is very much second hand. Nevertheless, some of what I am saying is a matter of published record in the financial journals in Western Europe and some of it I was told directly when I led a Labour Party delegation to Budapest last March.
The last point I should like to make relates to how we can ensure that Ireland will benefit from this particular process because there has to be a degree of self-interest — benign and proper self-interest — in making this kind of investment because the other European member states will be doing so with like mind on their part. To that extent I would be concerned that while the Central European economies will open up and provide potential markets for some ranges of Irish products, unless we have within the Department of Finance a willingness to capitalise on the opening of markets for skills and services, I do not think we will maximise the intent implicit in this legislation. Specifically, what I am trying to suggest to the Minister is that this action cannot be taken on its own: it has to be matched by an awareness within the Department of Finance that the role and the resources of the IDA, the role of the Department of Foreign Affairs, the role of CTT and the role of technical assistant for various other companies must now be orientated at a new and emerging market that is, perhaps, far less volatile than Iraq was.
To that extent I find it extraordinary that of all the Central European countries we have chosen to open an embassy in, we chose the poorest, the most chaotic and the most non-commercially attractive from our point of view. Maybe we chose Warsaw because of a certain affection to Lech Walesa and because of the origins of the current occupant of the Vatican. However, it does not make sense from a commercial-marketing point of view to have an embassy in Warsaw, a country which in marked contrast to either Czechoslovakia or Hungary, is perhaps the most far behind of the three Central European countries in terms of their eligibility to apply for full membership of the European Community. Perhaps the Minister could indicate on Second Stage or on Committee Stage — whichever is appropriate — if there has been a recognition within the Department of Finance of the consequences of our participating in this kind of financial institution with the downstream potential for contracts. Perhaps he would tell us, too, what matching and co-ordination there will be between the Department of Industry and Commerce on the one hand and the Departments of Agriculture and Food and Foreign Affairs on the other. If we are not on the pitch or around the territory seeking the sort of contracts and the sort of work that is capable of being put together, either in joint ventures or in all the various ways in which this work can be assembled, we will not maximise the potential that is open to us and to which we are entitled.
Unlike many people I do not regard the opening up of Central and Eastern Europe as a threat to the western periphery of what is the present constitution of the European Community. Now that other major European countries, particularly Germany, formerly the German Democratic Republic — have their own highly under-developed peripheral region — they will be, perhaps, more sympathetic to the problems of structural imbalances and cohesion than they have been in the past.
For those reasons there are conclusions to be drawn from the establishment of this bank that do not necessarily impact directly on the text of the Bill in question and do not necessarily enable this House to move specific or relevant amendments. It is germane to the fact that the House is being asked to make funds available, albeit the relatively small sum which has been referred to already, but these funds can and should be maximised. We should apply to them all the attention and all the combined focus that makes commercial good sense. With those few words I welcome this Bill and I hope the bank will be established and be in operation as quickly as possible.
By way of a postscript the text of the Bill states that the bank will come into operation on 31 March 1991, subject to ratification by all of the signatories to the original agreement. Perhaps the Minister would, in this reply, indicate how many countries are outstanding in their ratification of this legislation and if the deadline of 31 March 1991 will be adhered to.
The Workers' Party fully support the creation of a pan-European multi-national institution to promote the economic regeneration of Eastern Europe and which encourages increased trade on mutually beneficial terms. We see the proposed European Bank for reconstruction and development as only one instrument to deal adequately with the magnitude of problems which may be summarised as obsolete energy — intensive industrial base — weak agriculture, heavily polluted environment, antiquated infrastructure and inertia in public administration.
This is not to suggest, as a number of other speakers have remarked, that the requirements are the same throughout Central and Eastern Europe. The countries concerned are at different stages of development and have different historical backgrounds. No meaningful comparison can be drawn between the relatively sound and modern economy of, say, Czechoslovakia and the appalling legacy of the dictatorship in Romania where, as Deputy Noonan referred, the treatment of children in orphanages is a total betrayal of the humanitarian ethos of socialism.
Therefore a balanced perspective on the region's prospects must not only recognise the disadvantages but also acknowledge the varying strengths: a literate workforce with a long industrial tradition, a rich physical resource base, strong cultural traditions and heritage and generally good networks of social services.
Accordingly there is a vital need for a European Bank to provide equity through laons, at concessional rates, or grants as part of an integrated strategy which would complement the intrinsic strengths and advantages already present. The general principles on which economic or technical assistance should be given, in so far as is possible, ought to be based on co-operation and mutual respect between countries and not become predatory or exploitative. Therefore the new bank should be a catalyst for a dynamic economic renewal process but one which will confer benefits on the many rather than the few, and which underpins genuinely democratic political institutions.
An examination of the schedule to the Bill gives rise to serious questions as to whether the proposed EBRD will be the antithesis of the model of development bank I have described above. This would be a tragedy because here we have the first opportunity to create a post-cold war forum which could forge a partnership between East and West, and possibly lay foundations for future institutions of a genuinely pan-European nature.
Instead we are presented — as Deputy Quinn remarked — a fait accomplit, an institution which may do little in the direction intended but which may facilitate the economic annexation of Eastern Europe by the dominant interests of corporate finance in the West. The new bank may very probably replicate on a wider scale the recent take-over of the East German economy by its Western ‘Big Brother’ through the Bundesbank.
It is already apparent that the new and emerging leaderships in Eastern Europe not only view the prospect of embracing rampant free enterprise through rose-tinted spectacles but their enthusiasm for the new nirvana is often positively naive.
It is apparent that giant economies like Japan and Germany view the peoples of Eastern Europe as a potential major new market and investment opportunity. It is not clear to me that the principle of mutuality features very prominently, if at all. I would refer the House to an article in last Friday's issue of The Guardian on this general subject which concluded that the probability was that Germany would supply this vast new market with the machine tools for regeneration and that Japan would supply the consumer goods to what will be a vast new market.
Indeed, the terms used in the Bill reveal that the motives of the main promoters are more concerned with market penetration, consumerism and commercialism than with social equity or democratic empowerment of working people in Poland, Hungary and so on. Terms like "privatisation, market orientated economies, underwriting share issues" and so on are prevalent throughout the Schedule to the Bill. Where are the reference which acknowledge that there will be human casualties of the transition and that there is a need to manage that transition with a social dimension?
Are we really asking the people of Eastern Europe to exchange the failure of the command economy for the anarchy of the unregulated market? To illustrate why the fears I raise are real I should like to quote from an exceptionally frank address by a director designate of the new bank, Mr. Paul Krukowski in Dublin on 29 November last he stated:
As the bank will not provide concessionary funds; the EBRD will support only those operations which will ultimately be able to turn in a profit and reflect a true example of a private enterprise operating in a market economy.
He went on to say:
The bank shall charge, in addition to interest, a commission on loans made or participated in as part of its ordinary operations.
It seems that this is tantamount to usury, adding further to the already huge debt burden of the countries concerned. Hungary's debt is already 60 per cent of gross national product while that of Poland is about 56 per cent. We should seek to avoid the danger of the loans of today becoming the crippling debts of tomorrow and imposing upon the people of these countries the kind of difficulties our own economy has had to struggle with because of the extent of our national debt.
We can already see the dangers in Eastern European countries of the headlong rush to embrace the unfettered free market as they flee from the manifest failures of the command economy. This is probably most evident in the case of Poland. About a year ago Poland's Solidarity Government adopted the capitalist shock treatment prescribed by the Harvard economist Jeoffrey Sachs who has been described by the Los Angeles Times as the “Indiana Jones of economics”. Sachs has persuaded Poland's leaders to gamble their country's future on one gigantic dose of free market medicine. Sachs holds out the prospect of what he calls a “Slavic Sweden” but which many others, including Jon Wiener, for example, has described as a “bleak Baltic Bolivia”.
In the January 1990 issue of The Economist Sachs is quoted as regretting “any lingering ideas about a third way between Soviet style command economies and American style capitalism”. He said that Poland must not experiment with democratic controls, public ownership, market socialism, co-operatives or worker self-management; the country is to establish a market economy in a single year by abolishing price controls and subsidies, balancing the budget, making the currency fully convertible and introducing tough limits on wages — in short, freedom for the owners for the free market and direct controls on the workers. The Sachs plan has succeeded in slashing the Poles standard of living. According to Business Week, since January last year Poles have suffered a 40 per cent drop in real wages. According to the Financial Times smallholders “may have seen their living standards halved” and, according to The Economist, Poland is now experiencing a far deeper than expected recession.
The Workers' Party believe the new European Bank for Reconstruction and Development should become the stimulus towards humanitarian co-operation between East and West, which is so profoundly desired by ordinary people on both sides. I am afraid that the conditionalities being imposed by the EBRD as preconditions to making loans are tantamount to political interference in the internal affairs of these countries. I do not recall such stringent conditions being legislated for when Portugal, Spain and Greece woke from the dark light of Fascism. Rather we were quick to clasp them in the full embrace of membership of the Community. Is there resistance to the prospect of Hungary, Poland and Czechoslovakia becoming members of the Community? A country such as Czechoslovakia, for example, is in better shape to rapidly meet its Community obligations than were either Portugal or Greece. I enthusiastically support the creation of a properly structured development bank. I do not wish to see that objective being eroded in favour of creating a vehicle which can do little more than open up new markets for the more powerful economies and new investment opportunities for these same economies.
Deputy Noonan said in his contribution that the optimism of last year was beginning to fade and referred to what he called the disturbing events under way in the Soviet Union. As he rightly said, we ought to use the opportunity of this debate to record our views on those cataclysmic events and in doing so to remind ourselves that were it not for the courageous leadership of Mikhail Gorbachev we would not be considering these matters at all. The Workers' Party have enthusiastically supported from the beginning the campaign for perestroika and glasnost. I now view with some alarm the emerging new consensus which is seeking to suggest that their original view of Gorbachev and his reforms was mistaken. The Gorbachev reforms are being sabotaged. Rather than joining in the incipient chorus of criticism of Gorbachev, we should use whatever small influence we have to maintain the pace and direction of the reforms which are under way.
I would like to quote briefly from an article by Eric Foner in the 24 December 1990 issue of The Nation entitled, “The Romance of the Market”. I make the point in reference to the historical point that Deputy Quinn referred to in terms of the evolution of the Soviet Union and its implications for where we are today. This author makes the point in this way:
Ironically, the romance of the market arises as much from the successes of Soviet socialism as from its all-too-apparent failures. Karl Marx expected capitalism to give birth to its gravedigger — an exploited, class-conscious proletariat. In fact, socialism has sown its own seeds of discontent by wrenching the USSR, at tremendous cost, from backwardness to modernity and by creating, almost from nothing, a vast class of professionals, intellectuals and white-collar workers.
These academics, journalists, artists, scientists and managers stand at the cutting edge of demands for economic change. Unlike their counterparts of an earlier generation, who measured in their own lives how far the Soviet Union had travelled from the widespread illiteracy and social misery of czarist days, this generation compares its conditions of life with the contemporary West. Thanks to glasnost, thousands of them have travelled abroad for the first time. And coupled with the crisis of the Soviet economy, their encounter with the Western standard of living has been a shattering experience. To remind such persons that not all Americans share in capitalism's bounty is beside the point. They are interested in their own equivalents overseas, not the plight of the poor or the homeless.
That about sums up that it is quite proper that we should play our part in contributing to the creation of a vehicle that facilitates the regeneration of the economics in Eastern Europe countries. It would be misleading to give the impression that because these countries are in the process of embracing a mixed economy all their troubles are over. We know by pointing to our own historical and economic experience that that is not going to be the case. We know by looking at some of the major capitalist economies in the West that that is not going to be the case. If one has a look, for example, at last Sunday's Observer which featured a man sleeping under the snow in London — one of a thousand, we are told — we know that is not going to be the case.
I see Deputy Cullimore in the House. He was a member of a recent deputation to visit the House of Commons as members of the Committee of Public Accounts when a report was submitted to our opposite numbers there to show that there are 70,000 such homeless people in the Britain that Thatcher created. That is the balance we need to take into account. There seems to be no regard in this measure to the fact that there will be need for a safety net, that there will be casualties of the transition and that that transition needs to be managed with a social dimension. I accept that this is only one instrument in that process and that it seeks to do no more than it states, but it is important that that balancing point be made.
I am also interested in underlining the point made by Deputy Quinn concerning whether the principle of juste retour operates in respect of our contribution; in other words, whether there is any proportionality in terms of the contribution we are making as regards the possibilities for technical consultancies or whatever that we would have in this country. Ultimately the best possible economic assistance which can be given is one which encourages increased trade on mutually beneficial terms.
We have already seen an excellent example of this through the Aer Rianta-Aeroflot link up on the duty free activities in the Soviet Union. That provided a practical example of how co-operation can lead to improved exports for Ireland, an exchange of expertise and at the same time assist in the development of effective international enterprise in the Soviet Union. In that regard we should perhaps seek to expand the role of Shannon Airport as a gateway for further economic and trade links with the Soviet Union, particularly at a time when there is increasing pressure by the major European and US airlines to by-pass Shannon on the transatlantic routes.
I am delighted the House has the opportunity of debating this Bill because the ramifications of what we are providing for are far wider than any system of aid or assistance that we have debated here. I hope the world community, and indeed ourselves in the European Community, will look on this measure as being in a sense a headline for things that should be done elsewhere. It is not in any sense to take away from the importance of this Bill that I observe it is a great pity we have not had the same systematic approach to dealing with the general issues of Third World development as is now being taken by the European Community in setting up this bank. There has been a coherence and a purpose about the action that is being taken here that we could very well import into the way we go about the other issues of Third World development which tend to be pushed to the backburner and the back of people's minds, which I regret.
One commentator, Paul McCracken, an American economist who has been involved in drawing up plans for the economic transition to be carried out in Hungary, described what is happening in the following terms:
The countries of what we here in America have traditionally called Eastern Europe are engaged in an effort of absolutely cosmic proportions. One searches the annals of history for an era of comparable significance. The Congress of Vienna in 1815 would perhaps come to mind, but what we see taking shape today is of vastly greater portent than that structuring of Europe that took place now almost two centuries ago.
That expresses very well what we are facing and what the people of Eastern Europe are facing. It puts in a nutshell the importance of our approach to the setting up of this bank and to the way it goes about its activities.
I had the opportunity recently to read an interview with the man who is going to be President of this European Bank for Reconstruction and Development, Jacques Attali. In the course of that interview he set out his objectives. When pressed to list his priorities he listed agriculture, housing, communications, energy, tourism and development of chemical industries as among the most important. He also prioritises education and training through both western institutions and the bank's own training projects. There is an element in that which I would like to come back to in a moment, that is Mr. Attali's insistence on the importance of training, which was not mentioned in the Minister's speech. I know the Minister cannot mention everything but that seems to be left out of his list. It is an area that deserves a good deal more attention than it seems to have got up to now.
The Minister has rightly pointed out that the planning and structuring of this bank is based on a commitment by the countries that have set it up and on their perception of a commitment in the countries that will benefit to the development of democratic structures and market economies, and it is perfectly right that that should be so. I find it difficult to understand Deputy Rabbitte's hesitations about that. If I understood the Deputy correctly a moment ago, he seemed to be asking why should we impose conditions like this on the countries of Eastern Europe and why did we not impose similar conditions on Spain and Portugal when they came out of their night of totalitarianism and joined the European Community. The answer to that is, of course, perfectly simple. At the time Spain and Portugal joined the European Community we did not need to make those specifications because they had already converted themselves into functioning parliamentary democracies with functioning market systems regulated by more or less free formation of prices. That is not to say, of course — and I say this for Deputy Rabbitte's comfort if for nothing else — that the Community did not play an important part in bringing that about; indeed it did. My own colleague and former leader of my party, Deputy Garret FitzGerald, as President of the Council of Foreign Ministers, played a central role in the efforts of the European Community to help Portugal, for example, to come out of the night of fascism it had suffered and to come into the family of true parliamentary democracies.
Indeed the European Community in the past — and in relation to Western European countries — has played its role in making sure that true parliamentary democracy and free markets can emerge and it is perfectly proper that the European Community, with all the other countries involved in the enterprise of setting up this bank, should make those specifications in relation to the economies of Western Europe. In insisting that this aid should be tied into democratic structures of parliamentary democracies, with freely functioning market systems, that is not to say that those countries still do not have a wide range of choice as to how they manage their economies or enjoy their democratic systems.
I have no reason whatever — nor has anybody else — to suspect or to fear that there will be any less variety in mature parliamentary democracies with free market systems in Eastern Europe than in Western Europe or indeed elsewhere in the free and democratic world. I do not see anything particularly constraining in the manner of enjoying democracy or in managing their economies for the countries which will be the beneficiaries of the kind of programmes which this bank is intended to support. Of course, the move in that direction, which most of those countries started of their own volition, will involve those countries in enormous changes. Very few of us have come to the realisation of just how great those changes will be. The Minister touched on this during the course of his speech and he pointed out some of the more inconvenient consequences which we can foresee in the short term. He talked about the danger that, during the process of economic reforms, output in these countries would stagnate or decline in the short term. That is a definite danger.
The Minister went on to talk of other difficulties which will be caused, for example, by the elimination of widespread consumer subsidies with only partial compensation for consumers. He went on to say: "There is also a distinct risk of mounting inflation". That is probably one of the understatements of this debate; there is not just a distinct risk of mounting inflation, there is the certainty that those countries will pass through a period of rapid and very severe inflation. Indeed, in some of them, not only will they pass through a period of rapid and severe inflation, they will have that kind of inflation while they are in the middle of a monetary reform, which most of them will have to go through. The market economy needs free formation of prices to get from where those countries are now, basically command economies, to the free formation of prices; it is a fundamental change in the nature of the economy and in the way it works.
We should bear something else in mind — the Minister touched on it — in listing the problems which we can expect. He said that the early indications are that the authorities in these countries generally understand the importance of the kind of change that will happen but that they will have to withstand the pressures as people's expectations are not being realised quickly. That must be the second understatement of the debate because we can already see just what that means in practice.
Deputy Quinn spoke earlier about Poland and in that country we have seen a case before our very eyes of a country which has gone through very substantial changes, where people have suffered a great deal as a result of those changes, have had to strive to bring them about but are now saying — and have been saying for the last year —"What has been the point of it all so far, we are still not any better off than we were under the old regime"? People's expectations will not be realised very quickly and we should bear that in mind when we are designing programmes to assist those countries in the transformations which they must make.
We have seen in Poland, but more of it will be seen in Romania and probably in Yugoslavia, the rising sense of fury among the people of those countries as they see just how — and to whose benefit — they were exploited for so long. Talking, as I have, to Christian Democrat colleagues from those countries, I have found over the last year or 18 months that there has been a mounting anger as, with access to records and files of what previous Governments did, they have found out more and more about the exploitation, corruption and cynicisms of the Governments that were in office before. They found out why it was unnecessary for people to suffer — as they did — in many of those countries. There was deprivation and discrimination of all kinds, all to no useful purpose and to the profit of very few people.
It has been widely remarked — it is no harm to record the lesson — that although the capitalist economic system is frequently criticised for corruption, and we all enjoy the scandals from time to time, the payola deals and the kickbacks, all the evidence from the recent history of Eastern Europe points to the fact that if scandals of that kind can proliferate in a capitalist system, in a command economy they thrive and flourish, and there is one of them to be found in almost every single deal done somewhere along the line; it is an inevitable concomitant of that kind of system because, where economic decisions are made by individuals rather than markets it is always in the individual's interest, somewhere along the line, to try to make a bit out of it for himself. Indeed, a great many of the inefficiencies of the command economy arise from the fact that the rigid structure encourages inefficiency, stultification and corruption. It may indeed be one of the uncovenanted benefits for the people of the countries of Eastern Europe that this kind of development will get them out of the clutches of people who, for years, have been exploiting them and ripping them off in the way that a command economy allows them to do.
There will be a need in many of those countries for major currency reform. Quite a number of them have a very big currency overhang — that is what it is called these days apparently in the jargon — and it results in the very simple fact that, even if people are low paid, in economies where there is not a substantial and a continuing supply of goods and services, they sometimes have more money than they can spend. Although they have needs and wants which they cannot fulfil they simply cannot get their hands on the commodities they need and they build up large savings. That happened in the Soviet Union, for example, and that currency overhang, that big mass of savings waiting there ready to be unleashed on the market will be — indeed is — a major headache for the people who are trying to reform the economy of the Soviet Union. The approach they took to it recently does not seem to be the best one. It is totally different from the approach taken in Germany in 1948, for example, when 100 old Deutsche Marks were converted into one new Deutsche Mark. I accept that it was a bit more complicated than that but that was a measure which soaked up, without causing huge inflation, much of the latent demand in the economy and allowed a market to begin to operate with prices that actually meant something.
During the past few months I spoke to a Polish Minister about the process to make Poland's currency convertible as part of their drive to marketise their economy — another jargon word we have imported into economics. As part of marketising their economy they will eventually have to think about full convertibility for their currency. He said to me that they were almost at their wits end, to know how to do it, that they had prices which were not really prices because they were managed and administered and a currency which was not really a currency. In many ways many of those countries almost have to invent the wheel from basics and invent and construct a new economic system. Of course, the needs vary from one country to another. Poland has already begun the process and it is probably fair to say that of all the countries of Eastern Europe Hungary is probably the furthest along the road to marketisation followed, perhaps, by Czechoslovakia. If we look at the Soviet Union, and all the Republics within it, we will see that they are a long way away from marketisation or having a currency which can really be called a currency.
The question which needs to be addressed — the proposal before us addresses it in the correct way — is whether we should go about this process of developing market economies in Eastern Europe gradually or whether we should adopt what economists call — this is another term they have imported from astronomy — the big bang theory. The gradualist process is one which frequently commends itself to people. It commends itself to economists because they can observe the changes, it commends itself to politicians because it means they can change their minds if it looks like it is not going the right way but it is almost always the wrong way to do it.
It was expressed very neatly to me in January last year, again in a discussion with some Polish Christian Democrats, when they said they have to change their system, they have to move from being a command economy with prices which are not really prices and a currency which is not really a currency and convert to a market economy. They said they had thought about it long and hard and had come to the conclusion that they must do it all of a piece. They gave an example of the way they thought about it. They said that if one decides to start to drive on the other side of the road from where people drive one cannot just start with the buses, everything would have to change at the same time or else it would be more chaotic. That is very true of the economic system, one cannot just start with the economic buses and have some bits of the economy working in a market system with the other bits working in a command system. Either the whole economy works in one way or it does not. The approach which seems to underlie the Bill before us and the objectives of the bank is the correct one. It is that even though the process of marketising these economies and making their currencies convertible is fraught with difficulties, and is going to cause enormous problems which will have to be resolved, it should all be done as quickly as possible or otherwise there is the danger that it will not be done at all.
If we adopt a gradualist approach to this there will be so many reasons at all stages during the process for changing our minds that it will not work. Indeed, McCracken, whom I quoted earlier on, made a very pithy comment on this and I quote:
On this issue of moving quickly to dismantle controls or trying to move more slowly, one prediction can confidently be made. Whichever strategy the country follows, it will probably conclude later that it must have been the wrong choice.
That is something we will face. It is inevitable when one makes so many changes in an economy that there will be losers and gainers but people will question the whole process.
We have to get hold firmly of the idea and it is there before us for all to see beyond any doubt — what has happened during the past two years in Eastern Europe and everything we have now found out about what was going on there for 50 years before that proves it — that if there is to be an efficient economy which serves people it has got to be a market economy, that there has to be free formation of prices and it should, if they have any sense be run with a parliamentary democracy. It is important to bear in mind the need to keep the parliamentary democracy as far away from day to day decisions about the economy as one can as there is always the temptation, which we give in to in the west, even in the home of free enterprise, the United States, when a problem comes up to say that the Government must do something about it. We have a proliferation of Government agencies of various kinds who are working away earnestly and solemnly with most of them achieving very little for the economy they are serving. That is something the countries of Eastern Europe, and this bank in particular, must avoid.
The other point which needs to be looked at very carefully and which should be built into the operations of the bank — this may seem today to be a far-fetched concern but it is not all far-fetched — is that these economies as they marketise themselves should look for export markets. There is always the danger, and it is the safe thing to do in the short term — we did it ourselves here for too long before we found out how wrong be were — that we will say what we must do is produce import substitutes. The old doctrine says that import substitution is just as good as exports which is nonsense but that is not the issue before us today. It is tempting to say that we should produce imitations of what we import to displace imports. That is folly. We did it here for a long time and we ended up with a whole bunch of industries which were grossly inefficient and we had to rationalise them afterwards.
The economies of Eastern Europe should avoid that temptation. They should look at the experience of economies such as Taiwan and the Republic of Korea which marketised themselves over a very short period of time on the basis of deciding that they were going to get into export markets. They have lived by exporting and they have done it very successfully. They have been great innovators, another area which will need attention in Eastern Europe. These countries need to go for exports because if they are to produce efficient economies at home which can serve their people then by definition they must be competitive economies. If they are forced to go for exports, if they deliberately take that choice, and accommodate themselves to being able to export successfully then by definition they are going to be efficient economies at home which can serve their people well.
One of the greatest needs in Eastern Europe and the president of the bank, whom I quoted earlier, has identified this, is for training in a whole range of management skills because people must learn to manage. Managing a business, indeed managing an economy, in a market system is very different from managing a business in a command economy. I remember a good many years ago now as a student reading about the development of economic policy and theory in the Soviet Union in the thirties and on into the fifties. I cannot recall the name of the author but I was very struck by one example he gave of the difference between management in a command economy and management in a market economy. He gave the example of a nail factory.
There was a great fashion for many years in the Soviet Union of setting quotas not only for whole industrial sectors but they went to the trouble of setting out quotas for individual firms, and some of that still goes on. A manager of a nail factory who had begun to feel he knew something about making nails and making better nails and doing a little market research to find out what type of nails people wanted, tried to tell the commissars what he had found out and that he believed he should be making a few different varieties of nails. They said to him, "No, your quota is X thousand tonnes of nails for this year, that is all we are interested in". He became so frustrated that one year he produced his whole quota in the form of one gigantic nail that weighed the number of thousands of tonnes set out in his quota. He was fired for his pains but he made a very eloquent protest against the nonsense of a command economy and illustrated very neatly how it takes management totally away from any concept and understanding of what the market might need.
We are now dealing in all those countries in Eastern Europe, the three Baltic Republics, Poland, Czechoslovakia, Romania, Bulgaria, Yugoslavia and less so in Hungary than in the others. We are dealing with generations of managers in industry, in services, and even in public administration, who have been used to having their thinking done for them by the bureaucrats, apparatchiks and the central planners and who have very little acquaintance with what is involved in finding out what people need, how much they are prepared to spend on it, what varieties of products they want and how to package products to get them to the consumer. They know very little of that but if they are going to make a successful transition from the command economies to the market economies they are going to have to find out, and the quicker they find out the better.
Are there ways that this bank, for example, can help in that? This is where I come to my question about the Minister. The Minister in enunciating what the bank is to do indicated priority areas. He gave a whole list of the various things the bank will do. It will provide loans, guarantees, and technical assistance, make equity capital investments and underwrite the issues of securities. The bank's assistance will be directed towards specific projects,. That is all very useful. The bank, however, will be able to assist the State sector for certain purposes, such as infrastructure. I wonder what is meant by that. However, nowhere in the Minister's speech do I find any reference to education or training in any shape, yet the president of the bank has said he will give priority to education and training. This is essential.
It is being remarked, for example, that West German industry is now finding it difficult to fill vacancies in middle management and even in senior management because good managers from what used to be West Germany are finding they can make good careers for themselves in business, often on their own account, in what used to be East Germany, because they are used to living in a competitive economy. As the old seanfhocal has it, even a moderate middle manager can go from what was West Germany into what was East Germany and find that in the kingdom of the blind the one-eyed man is king. He knows more about management than they do and he will command a premium and get himself a corner in some piece of the market. Indeed, it is desirable that it be so. The more rapidly we can extend and expand management skills to the Eastern European countries the more easily they will be able to make the transition they need to make.
It has also been suggested — and is probably worth thinking about — that there may be a way in which the Western countries and managers from Western countries could help without causing great dislocation to their own economies. There is an enormous pool of experience and talent among people who have recently retired from business at the retirement age in the West of 65 and there may be many people in that category who would like at that stage of their lives to involve themselves for a few years in the adventure — and it is an adventure — of bringing Eastern Europe into the world market economy. There might be a way in the Western countries in which we can make a special and very useful contribution to accelerating the development of those countries and — who knows? — make the operation of this European Bank for Reconstruction and Development more fruitful.
I would like the Minister when replying to the debate to address this issue of education in management training and so on. I believe that is going to be a crucial area. It may be that with the move towards a market economy we will see a sudden flowering of entrepreneurial ability in Eastern Europe. We should never rule it out, and the experience with limited reforms that have been carried out in all the command economies has been that a certain level of enterpreneurship reveals itself once controls are relaxed. That has been found in agriculture in China, for example, where the relaxation of the previously very rigid system has allowed the beginning of a private sector in agriculture to emerge in China. From the literature to which I have access that seems to be — although the government do not like to admit it — by far the most productive part of Chinese agriculture. There have been much more limited attempts to get external private partnership involved in industry in China and again it seems from all the literature on the subject that that is the most productive part of Chinese industry.
The same is true in the Soviet Union. We see the newsreel photographs of empty shops in Moscow and elsewhere and side by side with them are flourishing markets where there appears to be an abundance of products, much more expensive, mind you, but people seem to be able to respond to that stimulus of the market. However, I do not think those economies can rely only on that kind of native ingenuity or inborn entrepreneurship of that kind to make the really big transition they have to make from command economies to living in the market system. Therefore, I hope there will be a very definite focus in this bank's activity on developing management skills for the economies of Eastern Europe because without those management skills a great deal of the money we are going to spend and they are going to spend themselves is going to be wasted.
Incidentally, I should remark in passing that, while we may congratulate ourselves on the level of funding that has been made available through this European Bank for Reconstruction and Development, let us not forget that the main investment, however much assistance they get from outside, is going to be made by the people of those countries themselves. They are going to make the principal financial investment and the principal intellectual investment and they are going to invest their own labour in these changes. Let us not get carried away with the idea that we are going to steer the whole thing. They are going to do most of the work, but we must make sure in assisting them that we assist them to acquire the skills that will make that work most effective and produce the best results in terms of developing their economies.
There is a question as to how we should go about giving assistance to those economies and a number of issues arise in that connection. I start with one which has to do with community effort and efficiency.
I intend, if I may, to quote a passage from an article written in a Christian Democratic journal in the Soviet Union by one Viktor Aksyuchits, who is a Christian Democratic Deputy in the Parliament of the Russian Federation. He asks the question: what can the West do to help Gorbachev and the perestroika process? He gives his answer, and I quote:
In the first place, any help it gives must not be directed solely through the central government. For it is primarily in the form of the central government that the Communist regime continues to exist, and everything that falls into its hands is used in the end for the internal or external expansion of the regime. At best — and this was always the case — the departments of the central government just squander any credits they receive in a completely uncontrolled way. Any help from the West, be it cultural, political or economic, would be at its most productive if it avoids the central government and comes into the country via the following routes:— directly to democratic parliaments and governments in the republics and cities; through the private, joint stock and co-operative sector in support of the programme to privatise the economy;...
Those are the two principal examples. He continues to say, again in relation to the effective use of resources and I quote:
Any credits will be at their most effective if they are mostly directed towards privatisation programmes which have been worked out by economists...
— some of whom he names——
...Conditions where credit can be offered should include the privatisation of the economy, land and housing stock of the USSR. Credits can be made available through already existing and newly-formed commercial joint-stock, co-operative and private banks. Credits for the privatisation of agriculture will have the greatest and most rapid effect, through agricultural commercial banks, which will finance co-operative and joint-stock farming initiatives.
He adds the thought — and this is an interesting sidelight on the whole business:
The economic effect of such a programme would help to reduce social tensions in our country.
—an area we have not really look at as yet in this debate. That is a view from inside the Soviet Union, from a democratically elected parliamentarian — I am happy to say of a Christian Democrat party so that they are moving in the right direction in that regard also — as to what is required, how assistance should be made available and channelled.
Indeed, the President of the Bank for European Reconstruction and Development, Mr. Jacques Attali, seems to have that kind of idea very much in mind. He speaks about the need to develop a banking sector. I quote from the interview with him in an article entitled "Banker for Eastern Europe" published in World Link, No. 1, 1991 as follows:
To have a really sound market you need banking and financial institutions and solid property laws such as those existing in the West. You need central banks, stock market regulations, legislation governing financial operations and fundamental accounting and control systems.
It seems self-evident that all of those things should be part of a market economy. But I would like to know if, in the provisions of this Bill and the Agreement setting up this European Bank for Reconstruction and Development, there is going to be any focus on the development of a financial sector or sectors in these countries in Eastern Europe because we all know it is impossible for a market economy to work without financial institutions that basically ease the flow of money from savers to those who will invest it and produce goods and services, indeed welfare for the rest of the population.
The science and art of commercial banking or of merchant banking, as we know them, are almost totally alien to any of the economic operators in Eastern Europe. They have banks and, in numbers of cases, substantial operations overseas, that engage in a fairly wide range of transactions, but their head offices are not banks as we know them; they are not dealing with markets as we know them; they are not even dealing with currencies as we know them. Therefore, the kinds of things we take for granted cannot be found in most of these Eastern European countries. They have not got people with the skills or experience in banking who will be required if their economies are to become market economies. They are going to need to develop functioning financial sectors, not exactly necessarily on the lines that we have them — they do not have to do it the same way we do it — but their financial sector will have to perform the same kind of function that the financial sector performs in our western economies because, without that, there will not be functioning market economies there and the functioning market economy is the sine qua non of development in those countries.
There are some political questions needing some attention in the context of this discussion. In the course of his remarks the Minister drew attention to the particular understanding there is in relation to the role of the Soviet Union in this new European Bank for Reconstruction and Development. There has been an agreement that, for a period, the USSR will not take more out of the bank than they put into it; that is subject to review. I would have to ask the question: should they be involved at all? I do not pose that question just to be mischievous, far from it. The Minister has his reservations, or there are questions in his mind about this. He has enumerated for us all the things this bank will do, but he says:
The objective of the bank is to promote private and entrepreneurial activity in those Central and Eastern European countries which are committed to multi-party democracy, pluralism and market economics and to foster their transition towards open market-oriented economies.
Speaking of the different positions of the various countries in Eastern Europe he had said earlier, and I quote:
The position in the Soviet Union is much more complicated. This is partly because of its size but recent uncertainties surrounding the extent and the pace of the reform process are also a factor.
I would have to say that is another one of the under-statements I find in the course of the Minister's remarks, the third I have identified but the first he used. It is an under-statement to call recent events in the Soviet Union "uncertainties surrounding the extent and the pace of the reform process...." In fact, what is happening, in spite of the periodic decisions we get, in spite of the periodic victories of differing kinds, won by Mr. Gorbachev, I do not believe he is in control of the reform process. I do not believe there is now a coherent, steady, central thrust to that reform process. That is one of the reasons I wonder whether the Soviet Union are really in a position to be regarded as qualifying for assistance from this bank. I wish they were. I would be delighted to see a settled and coherent reform programme being pushed through. But everywhere one looks one finds uncertainty; one finds either an inability or an unwillingness to face the real problems that need to be faced. I suppose none of us in this House has a comprehensive knowledge of these things but we can begin to see what is happening if we look at the vast torrent of literature emanating from the Soviet Union, written by people inside and by observers outside. Look at agriculture: no decision has been taken about what form of land tenure will exist under a new reformed market system in the Soviet Union. It will be a very difficult decision, but no decision has been made. True, attempts have been made and a number of different formulae have been tried, but there is no clear idea where they are going. It will be extremely difficult, in fact impossible, to get on with the business of making Soviet agriculture more productive unless there is some clear idea on how land is to be owned or how it is to be held.
Look at the service sector. In the last four years there have probably been about 20 different laws adopted to deal with the way some element of private enterprise will be allowed in the service sector. What typically happens is that the bureaucrats see that somebody has found a way of operating an enterprise and suddenly they find this kind of activity is making a profit. Profit is anti-socialist; it should not be allowed. That is still their culture. So what they do is try to find a new way, a new tax system or some new regulation, that will take the profit out of the business so that particular business folds up. Such is human ingenuity that somebody else gets involved in a different enterprise on a semi-private basis and again starts to make a profit.
There have been umpteen different tax laws in the last four years to deal with situations where people are running what are in fact private businesses and making profits. The system still has not said to itself, "yes, we agree that people should be allowed own the means of production and be allowed make profits to remunerate the means of production", and until they say that, we will not see any fundamental reform of their economic system, just as we will not see any fundamental reform in Soviet agriculture until the system acknowledges that it will allow people to own land and make their own enlightened decisions about what they will do with that land. None of that has been done yet and until it is done there have to be serious question marks not only over the morality of assisting the Soviet Union but over the efficiency with which funding, both Soviet and other funding, is used to try to develop the Soviet economy.
It is an open secret that Soviet agriculture under-performs grossly because it is so badly organised and it is sticking out a mile for anybody who wants to see it, that both Soviet agriculture and industry could perform a lot better if they were managed in an entrepreneurial way and if they were subjected to real competition from people, from enterprises both outside and inside their own economy.
I can see that for a number of political reasons a deal has been done with the USSR about setting up this bank. I can see all the reasons those who negotiated this deal would say to themselves that even though they may have reservations about what he is doing, even though there is no clarity about Mr. Gorbachev's reform, it is a good thing to help him, that it is a good thing for the western world to be seen to be supporting what he is trying to do so, they should make this kind of deal. But, there has to be some consideration of whether it will be worthwhile for the people of the Soviet Union to have money spent where there is no clear coherent reform programme. I wonder if the Minister might allow himself to be tempted a little bit into indiscretion, to talk to the House about that, because there is a political issue there and it will not go away simply because we choose to ignore it, or we sit silent because we do not want to make life difficult for Mr. Gorbachev. We need to make life a good deal easier for Mr. Gorbachev and for all the citizens of the USSR or whichever bit of it they happen to want to belong to at any given moment.
There is another aspect we should look at in this House. Is there anywhere in the agreement or in the bank's intention, or in the way it will be directed in going about its business, that gives any importance to environmental considerations? That must be a very important part of our thinking because we have seen that — and I say this not in any sense to be sanctimonious or smug or to vaunt the superiority of the capitalist system over any other, but as a matter of fact — over the last 50 years the industrial and agricultural processes in the command economies have raped the environment of these economies. We may think we have done grave damage to our environment in Western Europe, which we have, but we have been only in the ha'penny place compared to the agricultural and industrial systems that have been allowed to develop and flourish in Eastern Europe. One day, and the sooner the better, that process will have to be reversed.
Perhaps we will get some gain from the fact that from here on the development of those economies should be on the basis of our latest technologies and what we now know of the effect of those technologies on our environment. It may be that we will have a system that allows, for example, the Hungarian steel industry to be modernised so that it will not be the same kind of steel industry that is now badly polluting the rivers, streams and lakes of Hungary. It may well be that the concern of the western world about the quality of the environment will begin to affect the way motor cars are built in the Soviet Union, or the way they use pesticides and combine fertilisers in agriculture. But, it should be a proper part of our concern when we are designing programmes and approving projects on which the European Bank for Reconstruction and Development will spend money. It should be a proper part of our concern to make sure that money is being spent in a way in which, as far as we can make it, will contribute to the process of cleaning up our environment. Mind you, even that is a vain hope because the best we can do, unless we make fundamental changes in the way we run our economies, is to stop dirtying our environment at the rate we have been doing for the last 40 years. However, that is a concern that should come into the operations of this bank.
We have seen example after example of what has happened to the environment under the command economies. Lake Vaikal for example, is totally dead. It was once a source of livelihood and perhaps pleasure for a great many people. We have all seen the pictures of fishing boats in what used to be fairly deep water now lying stranded on salt flats because lakes have dried up. We hear of cases time and time again. Only last year a worker at a chemical factory accidentally set fire to several miles of river because on his way home he threw his cigarette butt into the river which was full of oil. That kind of thing is commonplace.
When units of the Soviet army left bases in East Germany they did not want to bring back with them the waste oil in their maintenance workshops. They simply punched holes in the cans and tanks in which it was stored and let the oil pour into the ground. I suppose a division of the Soviet army would have a fair amount of waste oil at any given time. That may not happen on a large scale but it is indicative of a lack of thought about the environment that should properly be a concern of ours when considering the kind of projects this bank should support.
The Minister when replying might give us the benefit of his view, and that of the Community Ministers for Finance, on how soon we can expect to see this bank in operation, how soon we can expect to see projects beginning and when, politically, they expect to see the different countries of Eastern Europe in a position to draw down some of the funds made available. My feeling is that the day is probably fairly far away for Romania, Bulgaria and Yugoslavia. It is nearest of all, perhaps, for Poland and Czechoslovakia. Of course, East Germany has been taken out of this loop. I think the Community was wrong to allow eastern Germany to be integrated into the European Community the way that Chancellor Kohl wanted. I regret to have to say that. It is not necessarily any criticism of Chancellor Kohl's intentions but we would all have been better off and could be happier about it if it had been done in a way agreed by the European Community, even if at the end of the day that was Chancellor Kohl's way and nobody disagreed. East Germany has been taken out of the loop of the operation of this project.
The Minister might give us some idea as to when these things will happen. I should like to know if he agrees with what I believe to be the sensible approach to marketising these economies. I should like to know the Minister's view as to the appropriateness of the "big bang" theory. I hope to hear him say he agrees with it and that gradualism and taking things slowly, one step at a time, would be the worst possible way forward for these countries.
Before I begin my speech proper I feel bound to comment on Deputy Dukes' outrageous suggestion that import substitution is not the answer in Eastern Europe. I would remind Deputy Dukes, and other Members, that when we had our import substitution in the fifties unemployment was at the rate of 50,000 or 60,000 a year as against the present rate of 250,000. I suggest that these extraneous matters should not be dealt with in such a superficial way in a debate which has nothing whatever to do with the advantages of exports over import substitution. It degrades and superficialises a very important subject.
There is a whole book in that.
Yes, there is. It should not be dealt with in two minutes.
The Deputy will get the first copy when I write it.
I look forward to reading it.
Do not hold your breath.
I must express grave reservations about this Bill. While it may appear satisfactory on the surface, on further reading it is shown to be full of contradictions. This country is being asked to contribute almost £7 million to the bank's capital. We have very little control over how this money will be spent. Will loans be given to arms manufacturers, perhaps to chemical and biological research centres? We do not know where this money will go. The bank is not amenable to democratic control.
The Minister said that the bank is very important in restructuring the economies of Eastern Europe which have been decimated by over 40 years of Marxist totalitarian dictatorship. In that, all Members can agree. I wonder what will replace the centralised State economies of Eastern Europe. Is this bank a stalking horse for the large multinational corporations who are now hungrily looking at vast markets in those countries? What is surely needed is support for indigenous industry which would be small and labour intensive, at least to start with, rather than capital intensive industries beloved of banks everywhere.
Deputy Dukes rightly referred to the serious environmental and ecological problems which have been caused in Eastern Europe. We in this House can agree on the severity of these problems. What do we propose to put in their place? It is the consumerism of Western Europe, the McDonald's syndrome, which, perhaps, in a superficial way does not cause the same number of ecological problems which were caused in Eastern Europe by the command economy but they do cause very serious problems with regard to the use of our fossil fuels, the profligate way in which we use energy in western Europe. It looks as if this is to be replicated in the east, with the many problems caused by it. We seem to be determined to export the type of growth economics which are clearly unsustainable and are destroying our planet.
There are some inherent contradictions in the functions of the bank. Article 2 deals with creating a competitive environment and raising productivity, living standards and conditions of labour. There is nothing here about the quality of life which is essential if the further aim of promoting activities which are environmentally sound and sustainable is to be realised. This inherent contradiction is not being dealt with in this Bill.
The Minister did not advert to the question of interest rates. Deputy Rabbitte mentioned this point. What interest rates are to be charged by this bank? Does the Minister know? Perhaps he will tell us in his reply. Is Eastern Europe to finish up on the same treadmill as the developing countries who are being crucified by debts which they owe to western banks? Are we to see a similar situation? I shall be interested to hear the Minister's reply.
I am heartened by the tone of the debate on this innovative element in the Community's and the wider western world's, assistance to central and Eastern Europe in their path-breaking and painful transition to market economies. Ireland has played her part in the negotiation of the agreement setting up this new institution and we have signed the agreement on behalf of both our country and the Community, of whose Council we were President at the time of this critical period in the modern history of central and eastern Europe. I should like to stress the necessity for a speedy ratification of the agreement on our part.
The initiative for this bank came from within the Community. The Irish Presidency played a constructive and unstinting role in bringing about agreement on the statute of the new bank. There were times when the negotiations were difficult and this to some degree reflected the innovative nature of the task being undertaken. In the course of achieving agreement among such a broadly-based worldwide grouping of members, some compromises were necessary and the statute of the bank is probably a little different from the seminal idea of late 1989. The concept matured in the course of the negotiations and the agreement reached bears witness to the willingness of all parties concerned to meet each other half way and augurs well for the future of a Europe based on mutual understanding and reconciliation.
I will comment briefly on some points raised by Deputies in the course of the debate. While the agreement to set up the bank is clearly welcome I can accept the fears of reversion to the old system which have been expressed in this House by Deputy Noonan and others. I sincerely hope that progress will continue in Eastern Europe and that where it appears to be faltering it will pick up again. I would simply remind the House that under the agreement it is possible that the entitlement of any recipient member to the bank's funds be limited under Article 8 where that member is judged to be implementing policies which are inconsistent with Article 1 of the agreement, and any such limitation would require the support of two-thirds of the governors representing three-quarters of the total voting power. The basis on which any such judgment will be made will also take account of the sentiments expressed in the preamble particularly in regard to human rights.
Deputy Pat Rabbitte referred to the political conditionality involved for the recipient countries. These countries themselves were quite happy to accept such conditionality as full members of the bank.
In reply to Deputy Quinn's questions I can say that the agreement was negotiated in the full conference of the 42 participants by officials on behalf of the Government. Many of the issues involved arose also at the ECOFIN and the General Affairs Council within the Community. No decision has yet been made on who might be our alternative director. The Danes will be taking the first directorship and the reason this uncertainty is still there is because no decision has been made as to whether initially there will be a permanent alternate director, a temporary one or part-time one. We have agreement with the Danes; they asked to take the first directorship and we agreed to it. Our exposure will be limited initially to the paid in capital and the full call is more by way of guarantee. The bank's capital is 10 billion ECU of which 3 billion will be paid in, and if they go to the limit of the 10 billion the remaining 7 billion will be raised on world capital markets.
On the question of Irish staffing and the possibility of consultancy programmes on behalf of the bank, I would like to tell Deputy Quinn and others that we are actively involved in the interim team in setting up this bank and we will certainly involve all the appropriate Departments and agencies in the question of seeking contracts and such work. While there will be no formal quota system I can assure the House that we will be pushing Irish interests vigorously through our members on the interim team.
There has been some comment here about the supposedly restricted nature of the activities to be undertaken and I would like to deal with it. The focus of this new institution is on the private sector. This is clearly because the countries concerned do not have a private sector and are trying to develop one. I stress that the countries themselves are trying to develop a private sector because they have seen that the centrally planned State system which was foisted on most of them has simply not worked. The new bank is not purely a development bank; it is a combined merchant and development bank, one of a number of other players in the field.
The EBRD is not confining its activities purely to the private sector. Some 40 per cent of its activities can be directed towards the public sector. There will be other institutions also working in the field, like the European Investment Bank, the Commission which is the coordinator of the assistance coming through the G24 group of donor countries and, of course, the Bretton Woods institutions, namely, the IMF, the World Bank and the International Finance Corporation who are also now operating in Central and Eastern Europe. The World Bank concentrates entirely on the public sector and is not confined to dealing with individual projects as this new bank will be. The IFC deals also with the private sector. There is an obligation on the new bank to co-ordinate its activities with these bodies and it is likely that it will undertake a substantial amount of co-financing with the World Bank and the IFC.
Deputy Quinn fears a sophisticated rip-off. Indeed, that is a question raised by others as well. This is always a matter for concern and is being addressed in the overall economic assistance programme to Eastern Europe. There is an emphasis on creating favourable conditions for investment including investment protection agreements. The EBRD will also have specialist staff working on the ground in order to avoid getting involved in any dubious operations.
Deputy Rabbitte referred to consessionary finance. In its ordinary operations the bank will act on a totally commercial basis but, of course, any special funds that come from donors or donor countries can then be treated and used for concessionary finance. Deputy Rabbitte appeared to want the bank to provide a safety net to underpin the social and human dimension of the transition. The European Community and the G24 group are very much alive to the problems which are arising. The International Labour Organisation is involved in the work of the G24 group and under the EC PHARE programme there is the possibility of technical assistance aimed at the development of an aggregate social welfare system.
I welcome Deputy Dukes' reference to training and technical assistance. I can accept that I may have understated the possibilities in this area by referring simply to technical assistance. Within this term the bank expects to include a wide range of technical education and broadly based consultancy work including marketing and so forth. This is one of our strengths in providing educational facilities, training facilities and everything like that.
I think I have dealt with all the comments raised and I thank the Deputies for contributing to the debate.
Question put and agreed to.