Dáil Éireann debate -
Tuesday, 18 Nov 2008

Vol. 667 No. 3

Leaders’ Questions.

Deputy Enda Kenny

It is six weeks since the guarantee given by the Government and approved by the House and 10,000 jobs are being lost around the country per month, the vast majority in the private sector. The small business sector, which comprises businesses that employ low numbers — three, five, ten or 20 — is in crisis because it is unable to get credit. Banks have called in overdrafts, credit lines have been tightened and machinery is being seized. Business cannot operate in such circumstances and many people believe that they cannot go on.

Unless the Government acts to allow credit lines to flow through the financial systems and business to be conducted, the sector is facing a jobs decimation over the next six months. I am not the only person discussing the protection of thousands of jobs in small businesses. The Small Firms Association has rightly pointed out that, unless the Government acts, there will shortly be a jobs implosion. What are the Government's proposals to recapitalise the banking system so that thousands of jobs can be protected in the near future?

The Taoiseach

Six weeks ago, we decided on a guarantee scheme to provide improved liquidity in the banking system because we wanted to ensure that sufficient lines of credit would be available to small, medium and large businesses. Were the decision not taken, we would be facing a difficult situation. The situation continues to be difficult.

As a result of the scheme's agreement in the House, business plans and capital ratios are being investigated and the question of liquidity in the banking system is being examined at the behest of the Financial Regulator and the Central Bank. This work is at an advanced stage and reports to the Minister are imminent. It is important that we act on up-to-date and accurate information. I want to make it clear that the Government stands ready to make decisions that are in the interests of the economy and business and to consider all options, not just a specific option. Much of the information involved is commercially sensitive and it is important, therefore, for the House to realise that the work which is ongoing and which is being advanced will be considered by the Minister for Finance, in the first instance, and the Government in the coming days.

Deputy Enda Kenny

Since the Taoiseach entered office, the process of government has been characterised by indecision. An economic lifeline is required for small businesses. There is no point giving a blood transfusion when the patient has died or in providing capital flows through the banking system after businesses have closed. Some 10,000 people are joining the dole queues each month. I travelled throughout the country in the past two weeks and discovered that small businesses everywhere are in crisis. These businesses cannot obtain credit and their overdrafts are being called in. They will be obliged to shut up shop early in the new year.

This is a crisis and if the Government does not act quickly, thousands of jobs will be lost. This matter is not about the banks, it is about their customers and the protection of Irish jobs in Irish firms. The Government has ignored all the warning signs, from the events of the property boom through to the adverse financial indicators. We have reached the stage where people will be obliged to pass the keys of their houses back to the banks in the new year if the Government does not act. The Government must find a formula in respect of recapitalising the financial system in order that credit might flow through it and that business might be conducted.

People in every county are approaching Deputies from the Taoiseach's party, my party and other parties and stating that they cannot continue as they are doing at present because the position is too tight. Banks cannot lend on a long-term basis unless they can secure capital on the same basis. Does the Taoiseach accept that there is a need for recapitalisation, that there is a need to have credit lines flowing through the banking system and that thousands of jobs in the small business sector are on the line and will be lost unless the Government takes action?

What is the Taoiseach's plan with regard to recapitalising the banking system so that small businesses might survive and remain in operation and in order that jobs might be protected? It is about those jobs that I am concerned. I would like those involved in small businesses throughout the country to hear the Taoiseach's response with regard to what the Government intends to do to save the jobs to which I refer. What are his intentions in the context of recapitalisation?

The Taoiseach

I made it clear that the Government will continue to act in the overall interests of Irish business in order to ensure that employment remains at the maximum level and in order to maintain financial stability. We will do so on the basis of the most up-to-date information and accurate analysis of the material provided by those acting on behalf of the Financial Regulator, the Central Bank and Financial Services Authority of Ireland. We will not act in any other way. There is a number of major options available to the banking sector.

Capitalisation alone does not guarantee the access to credit we desire for Irish business. Recapitalisation has taken place in respect of certain banks and this has enhanced the capital adequacy ratios of those institutions without necessarily changing their lending policies. I will be insisting that in the business plans that have to be devised by those institutions covered by the State guarantee scheme, adequate lines of credit must be provided for Irish business. If the banks fail to make such provision, their business plans will not be accepted by the Government. We will be insisting that this mechanism be used as both an effective practical step and a means by which we can ensure that the banks meet their wider responsibilities.

The idea that recapitalisation alone can provide the means by which increased lines of credit might be accessed by business interests is not, despite the Deputy's suggestion to the contrary, a comprehensive one. There is every indication that the acquisition of capital might, as already stated, improve the capital ratios of the banks without increasing the lines of credit available to businesses. We are in an extremely difficult situation, the ramifications relating to which are extremely broad. The Government will take whatever decisions are necessary in the national interest.

Deputy Seymour Crawford

When?

The Taoiseach

Those decisions will be in line with the most up-to-date analysis and information. The market acts on herd instinct and not always on full information.

Deputy Enda Kenny

Bank of Ireland shares are trading at 90 cent today.

An Ceann Comhairle

The Taoiseach, without interruption.

The Taoiseach

Yes, but even if Bank of Ireland's shares doubled in value tomorrow, its capital would not double.

Deputy Enda Kenny

I know that.

The Taoiseach

The point is——

Deputy Enda Kenny

I am more interested in jobs.

The Taoiseach

I am also concerned about jobs. I did not interrupt the Deputy during his contribution.

Deputy Enda Kenny

Down in Tullamore as well as everywhere else.

The Taoiseach

What we need to do — this has been happening — is discover the level of impairment going forward in respect of bank loans.

Deputy Joan Burton

We asked about that matter weeks ago.

The Taoiseach

An investigation in this regard is at an advanced stage. The level of impairment to which I refer can affect the capital of banks. On the issue in hand, namely, Irish business, the real question that arises is how we can ensure that lines of credit will be made available. We do so by ensuring the banks' business plans are adequate in this regard.

Deputy Enda Kenny

There will be no point coming up with solutions when businesses are closed.

The Taoiseach

The other matter, which is separate from this one, relates to the capitalisation of the banks. All options are being considered in this regard.

Deputy Enda Kenny

The Taoiseach must act now.

Deputy Shane McEntee

The Government should take control of the banks.

Deputy Eamon Gilmore

I am shocked by the Taoiseach's response to Deputy Kenny. It made him and the Government seem like helpless bystanders.

Deputy Enda Kenny

Correct.

Deputy Eamon Gilmore

There is a credit famine in this country. Businesses are being starved of credit. The position in this regard was outlined yesterday by the Small Firms Association, which indicated that many small businesses have experienced their worst month of trading for 20 years. It also stated that unless specific actions are taken within a matter of days, the small business sector will implode and unemployment levels will soar. The Small Firms Association drew attention to a €15 billion fund established by the European Investment Bank. Banks in 22 of the 27 member states of the European Union have applied for and obtained money from that fund in order to assist the small business sectors in their jurisdictions. However, the banks here, which are fully guaranteed by the State, have not applied to the fund.

On Thursday last, the Tánaiste and Minister for Enterprise, Trade and Employment, in a reply to a parliamentary question tabled by Deputy Bruton, stated that she was urging the banks to facilitate capital and credit for small businesses by accessing the funding available through the European Investment Bank. She also stated that she and the Minister for Finance would be having further discussions with the banks in respect of this matter.

When the bank guarantee scheme was introduced, we were informed — this was explicit in the scheme and the legislation — that the Minister for Finance was taking onto himself all kinds of powers to direct the banks in the public interest. I have not seen evidence that this is happening. Why is it that no Irish bank has sought to access the European Investment Bank fund, which would make available to small businesses the money they so desperately need and which has been accessed by banks in other countries in order to assist their small business sectors? What has been done to direct Irish banks to take action in this regard?

The Taoiseach referred to the examinations under way to establish the level of bad debt that will have to be written off by the Irish banks before recapitalisation can occur. I understand the PricewaterhouseCoopers, PWC, report was made available to the Financial Regulator earlier today. I presume the Taoiseach and the Government are aware of the contents of that report. Is that the case? If it is, will the Taoiseach and the Government be in a position to make decisions in the near future in respect of the recapitalisation of the banks?

The Taoiseach

The Financial Regulator has kept the Government briefed on the report, which was a work in progress until today. The Governor of the Central Bank and Financial Services Authority of Ireland will be meeting the Minister for Finance later this afternoon — if he has not already done so — to outline the position in full. It is important to point out that despite many statements to the contrary there is no question of impending insolvency in our banks. On the question relating to the requirements of Irish businesses, the Labour Party voted against the State guarantee scheme.

Deputy Eamon Gilmore

That is correct and we were quite right to do so as it turned out.

Deputy Joan Burton

We were right to do so.

Deputy Emmet Stagg

We were dead right.

(Interruptions).

The Taoiseach

It was not right. It provided the means by which access to liquidity could be provided to the Irish banks at a time, six weeks ago, when a real problem existed and continues to exist. The issue before us this afternoon is Allied Irish Bank loans. We are continuing to work with the banks to ensure that if they can get access to such loans they do so.

Access to capital, private or otherwise, is a continuing concern for banks. It is not correct to say that the Government is stepping back from the situation. The Government is at an advanced stage in respect of all of these matters, which are commercially sensitive. I am constrained in what I can say in regard to these matters at this particular time other than to say that the Government is seized of this issue in every respect and is considering all options in seeking to find a solution that will ensure lines of credit remain available to Irish business going forward.

To suggest that the recapitalisation of the banks is the solution to that problem is not to see the full picture. Business plans for the future are the best means, in practical terms, of doing this.

Deputy Eamon Gilmore

The Taoiseach does not need to remind me that the Labour Party voted against the blank cheque that the Government decided to give the banking system which——

Deputy Michael D. Higgins

Hear, hear.

Deputy Eamon Gilmore

——incidentally, the Minister for Finance described only a couple of weeks ago as the cheapest bail out in the world so far. He also stated that the guarantee scheme had successfully attracted a lot of liquidity into the banking system.

Deputy Joan Burton

Where is it?

Deputy Dinny McGinley

It is a con job.

Deputy Michael D. Higgins

It has not gone to Irish business.

Deputy Pádraic McCormack

It is a blanket rejection of the scheme.

Deputy Tom Sheahan

It was only a promise of money.

Deputy Eamon Gilmore

If it has, it has not managed to work its way back to Irish business. It now looks as though we are heading into the worst of both worlds, namely, a blanket guarantee for the banking system and, it would appear, an increasing inevitability of recapitalisation of the banks with taxpayers' money, which we were told the guarantee scheme was designed to avoid in the first instance.

I want to return to the first question I asked of the Taoiseach. Will he explain why the Irish banks have not availed of the European Investment Bank fund? What is his response to the call by the Small Firms Association for the establishment of a small business operational fund of approximately €600 million which would make credit available to Irish businesses which are starved of credit from the banks and are facing into an uncertain future, many of whom have stated that may be put out of business in a matter of days?

It is now six or seven weeks since the bank guarantee scheme was introduced and all the Taoiseach can offer is to come into this House and say he is awaiting this and that report and is examining every option; he cannot give direct answers on why the banks are not availing of the European Investment Bank fund. Has the Taoiseach asked them why this is so?

The Tánaiste told us last Thursday that she and the Minister for Finance were in discussions with the banks. What discussions have taken place with the banks and what explanation have they given as to why, unlike their counterparts in 22 other member states, they have not availed of the fund established by the European Investment Bank?

The Taoiseach

The Tánaiste has been in touch with the banks on that matter since then.

Deputy Eamon Gilmore

What was their answer?

The Taoiseach

We are awaiting——

Deputy Joan Burton

Is it in the post?

Deputy Charles Flanagan

That was weeks ago.

(Interruptions).

The Taoiseach

It was not weeks ago, it was last week. Let us be clear about what we are talking about. It was not weeks ago. The bank guarantee scheme was introduced weeks ago, not months ago as suggested by Deputy Kenny when making his initial point.

Deputy Joan Burton

It was introduced a month and a half ago.

Deputy Enda Kenny

It was introduced six weeks ago. We were all here.

The Taoiseach

The point is——

An Ceann Comhairle

Please allow the Taoiseach to finish his response.

The Taoiseach

The point is, and it is a simple point——-

Deputy Enda Kenny

The Taoiseach should ensure he is correct when making the point.

The Taoiseach

The record will show otherwise. I will leave it at that.

Deputy Enda Kenny

It was introduced six weeks ago.

Deputy James Bannon

Which record?

The Taoiseach

As far as the Government is concerned, whatever can be done by the Irish banking system to assist Irish business, will be done.

Deputy Ruairí Quinn

What did the banks say?

The Taoiseach

The second point relates to the stability of the banking system. The party that opposed the decision which provided stability in the banking system——

Deputy Eamon Gilmore

Why have we not heard it?

The Taoiseach

I am entitled to reply. If Deputy Gilmore is entitled to ask a question without interruption, I am entitled to respond with interruption.

An Ceann Comhairle

The Taoiseach, without interruption.

Deputy Eamon Gilmore

Answer the question.

The Taoiseach

I have answered the question and will continue to answer it.

Deputy Eamon Gilmore

The Taoiseach should answer the question I asked and not the question he would have liked me to ask him.

The Taoiseach

I answered the question

An Ceann Comhairle

The Taoiseach must be allowed to finish his reply.

The Taoiseach

If Deputy Gilmore is going to get involved in this type of nonsense——

Deputy Eamon Gilmore

The Taoiseach should answer the question.

The Taoiseach

I have answered the question. In regard to the provision of sufficient funding for Irish business, the Government will do everything it can to achieve that.

Deputy Joan Burton

What will the Government do?

The Taoiseach

The suggestion that recapitalisation is the solution to the problem is not correct. In regard to the European Investment Bank fund, I have informed the House that the Tánaiste has been in touch with the banks and we are waiting to hear if they have been successful in that effort.

Deputy Eamon Gilmore

The Government has some control over them.

Deputy Joan Burton

That is like the discussions with the National Consumer Agency.

The Taoiseach

It is not true to suggest that no effort is being made by anybody to try to improve the situation. That is not the situation.

(Interruptions).

The Taoiseach

We are doing all that we can. We are at an advanced stage in respect of a whole range of issues that I cannot discuss this evening——

Deputy Ruairí Quinn

Time to go, Taoiseach.

The Taoiseach

——but which will ensure the stability of the banking system into the future. We will insist on that. It is what we are going to do in the coming days and weeks.

Deputy Eamon Gilmore

Small businesses are going out of business and the Tánaiste is waiting for a reply from the banks.