Vol. 678 No. 4
1 Deputy Richard Bruton asked the Minister for Finance the borrowing targets for the emergency budget; if the decision that 9.5% borrowing must be met is still in place; and the information that he will publish in advance to allow Dáil Éireann make the optimal choice in the budget. [12765/09]
The restoration of Ireland's public finances to a stable and sustainable footing presents a significant challenge, but one the Government is determined to meet. Already steps have been taken to meet this challenge but the deterioration in the domestic and international economy has demonstrated that there remains a need for further action.
Many countries are facing challenging budgetary positions. This week the European Commission, when opening the excessive deficit procedure for Ireland, also did so for Greece, Spain and France, while the UK and Hungary have had a procedure open for some time now. I have already stated current indications are that economic activity in Ireland will be very weak this year and the publication of today's annual growth figures for last year underlines this point.
Lower levels of economic activity will obviously have implications for future tax revenue receipts and, consequently, the borrowing requirement. Internationally, the latest prediction by the IMF forecasts that global economic activity will contract by between 0.5% and 1% this year. This would be the first decline in activity in 60 years. For advanced countries, which constitute a large part of our export markets, GDP this year is projected to decline by over 3%
Our position as a small, open economy means that we attract a high degree of international attention, particularly from the markets on which we are increasingly dependent for borrowing because of our budgetary position. These markets need to have confidence that we will take the necessary budgetary measures to restore the public finances to a sustainable footing. We cannot look outward for solutions. The primary source of our recovery must be found from within. We will have to adjust our cost base, improve our competitiveness, restore order to the public finances and revitalise the Irish economy.
The addendum to the stability programme update, published on 9 January last, forecast total tax receipts in 2009 of approximately €37 billion. However, in light of the continuing weakness in the Exchequer returns, my Department now anticipates that there could be a shortfall of up to €3 billion on this figure. This would mean that only €34 billion in tax receipts would be collected in 2009, representing a year on year decline of over 16%.
Additional information not given on the floor of the House.
In light of this, the Government decided to announce further measures to stabilise the budgetary situation. This will involve the introduction of additional taxation and expenditure measures in 2009 to address the continued deterioration in the public finances. The supplementary budget will be presented to the Dáil on 7 April and will set out a multi-annual plan to restore stability to the public finances. The scale of the challenge we face means that all options must now be on the table, including action on both current and capital expenditure, as well as revenue raising measures.
The Government has already taken significant action to restore stability to the public finances and the supplementary budget will continue this process. Taking action now will ensure that confidence in our public finances can be restored and that we are positioned to take advantage of a recovery in the international situation when it occurs.
As the Taoiseach stated yesterday, in formulating the supplementary budget in the context of what is best for the economy, the Government will seek to be as close as possible to the general Government deficit target of 9.5% of GDP. Regarding the details of what will be presented in the supplementary budget, it is not the usual practice to speculate in advance on the content of any budget and I do not propose to deviate from this practice now.
However, the Government has sought to engage all parties in our efforts to address the difficulties in the public finances. With this in mind I have made my Department available to the Opposition on an unprecedented scale by arranging for officials to brief the main Opposition spokespersons on the latest available figures and on the emerging position. The Opposition has also been asked to submit any proposals it may have to the Department of Finance for costing by officials. I am open to considering what further information that can be made available can be put into the public domain in advance of the supplementary budget.
In that context, I have noted that during this week's pre-budget debate Deputy Bruton outlined proposals on dealing with the structural deficit. I believe that there is some common ground between us and I would be happy to engage further with him in the next week.
Are the Government's commitments to the EU couched in terms of the budget deficit or what is commonly known as the structural deficit, which makes allowances for the stage of the business cycle one is at? What information has changed which led the Taoiseach to withdraw from the commitment he was very categorical about in early March that 9.5% of GDP would be the borrowing target?
Will the Minister give the House more information than we have seen to date so that we can have an intelligent discussion about the options that face us? Will we see what happened on the last occasion, where the Minister came in with budgetary announcements and promptly had to do U-turns on many of them because they had not been subject to proper scrutiny or teased out?
The Government sought to engage all parties in the effort to address the difficulties in the public finances. With this in mind, I have made my Department available to the Opposition on an unprecedented scale by arranging for officials to brief the main Opposition spokespersons on the latest available figures and on the emerging position.
I am not briefed on the content of the briefings my officials give the Opposition parties. By convention, I am not made aware of what has been discussed by Deputy Bruton and my Department and I can assure him I have every confidence in the protocols it follows that it provides him with all the information it can regarding these matters.
The Deputy has only to request the information he seeks from my Department and it will be made available to him. The one item which cannot be disclosed to him relate to the preparations for the Government itself because the Government, under the Constitution, is entitled to confidentiality in the exercise of its deliberations. I do not know if the Deputy has made such a request because my Department does not disclose to me what its discussions with him have been. My Department cannot disclose materials to the Deputy which have been prepared for the consideration of the Government in the assessment of the options open to it.
Who does the Minister think he is fooling? He knows as well as I do that the so-called deliberative process is excluded from all of the rest of the House. His officials would throw a complete blanket over anything under discussion. Any of the options from an bord snip nua and any of the tax options will be excluded and we will not get any information.
I wrote to the Minister on 13 March and have had no reply to any of my requests for information. The notion that we are being brought in to engage in an intelligent debate is entirely spurious. We can go to the Department to get proposals costed, as we could in a general election. That is nothing. It does not tell us anything about the state of the economy. It does not give us the Minister's revised forecasts for tax, the economy or spending projections. It does not tell us about the costs of different proposals which have been developed by Mr. McCarthy and his colleagues.
If the Minister wants an intelligent debate, that is the sort of information which should be here on the floor of the House. Let us subject it to scrutiny and try and make the best decisions.
I have arranged for the Deputy to meet with myself and an official today so that information, in so far as it can be provided, will be provided. I am prepared to engage with him on a political basis regarding matters which cannot be disclosed by my officials. I cannot go beyond that at this stage. I received the Deputy's letter earlier this week, I have been considering it and have arranged a meeting. I will endeavour to meet him and the Labour Party spokesperson, from whom I received a letter dated 23 March today, on the same basis. That is as far as I can progress this matter.
The Deputy mentioned in the House the day before yesterday the fact that in his estimation the structural deficit accounted for approximately 8% of the total borrowing requirement this year and that was the position in January. My Department is revising that estimate. None of these calculations stand still, as the Deputy, who is an economist, well knows. The calculations made in December are not relevant in April. The commitments made in the addendum in early January were based on a December analysis which, in light of the economic deterioration and the worsening economic conditions, no longer holds for today.
The science of economics is much like the science of meteorology. One is predicting future weather patterns. The patterns have changed since the addendum for growth was produced. Even this morning the disclosure that there was substantial economic decline in the latter part of last years changes our assessment of a number of positions, as the Deputy is well aware. I am willing to discuss these matters with him and I am also willing to provide from within my Department the information which will enable him to make choices and options. I am prepared to discuss any choices or options he wishes to put to me.
2 Deputy Joan Burton asked the Minister for Finance if he will set out and explain the economic priorities he identified to a newspaper (details supplied) including his proposal to clamp down on crony capitalism as reported on 17 March 2009; and if he will make a statement on the matter. [12684/09]
As regards economic priorities, there has been extensive discussion in the House of all aspects of the economic position. In my interviews with the media over the St Patrick's Day period I did not say anything that I have not said before. As Deputies will know, Ireland has been the subject of much unfavourable comment in some foreign media and my concern was to counteract that by presenting a more balanced view of the Irish economy.
Regarding corporate governance, I explained my belief that the Government should tackle the issue of cross-directorships in financial institutions. By that I mean that situations where there appears to be a reciprocal distribution of directorships between companies, albeit not on a formalised basis, should be appropriately restricted and controlled to ensure that good corporate governance is not prejudiced. I also indicated a concern about the ability of financial institutions to select, as chairpersons, individuals who have had extensive executive responsibilities within the same institution. Again, this could lead to weaker governance and should be controlled.
I will be discussing the development of these ideas and how best they can be translated into practice with my Cabinet colleagues shortly. The Government will also, of course, be considering how these issues may be relevant beyond the financial services sector. These are important issues and require careful study.
In the meantime the Government has considered provisions to deal with certain specific things that have come to light, including new requirements in relation to loans to directors and connected persons. However I believe it is also necessary to consider the issue of corporate governance from a wider perspective.
I would favour a review to be carried out by the Company Law Review Group which would consider the revision of the existing combined code on corporate governance. Deputies might wish to note that the UK recently announced an independent review of bank corporate governance including the balance of skills, experience and independence required on boards, the effectiveness of board practices and the role of institutional shareholders in engaging effectively with companies and monitoring of boards.
I thank the Minister for his reply. A front-page article in the international edition of the Financial Times on St. Patrick’s Day — exactly a year after the St. Patrick’s Day massacre in regard to Anglo Irish Bank shares — stated that Ireland is planning to introduce tough legislation to clamp down on “crony capitalism and excess bank lending” in the wake of the property bubble that has “hammered” its leading banks. The article refers to a statement by the Minister, Deputy Brian Lenihan, that there is a problem in all small countries in that there are “too many incestuous relationships” within their financial systems. This is an extraordinary statement for a Minister for Finance to make about his country’s banks.
Would the Minister include in his definition of "incestuous relationships" the relationship of Mr. Seán FitzPatrick to the Irish Nationwide Building Society in regard to the warehousing of loans of €122 million? Would he include in this definition a situation where the board of the Irish Nationwide Building Society, even after it had been guaranteed by the taxpayer to the tune of billions of euro, paid out a bonus of €1 million to its chief executive officer and persisted with pension arrangements for this individual which appear to amount to some €27 million? We should bear in mind that one quarter of this pension will be tax free and that most of the pension arrangements involve further mitigation of tax, particularly in regard to estate duty taxes and inheritance taxes.
I have a particular concern that large companies — particularly banks, for which I bear ministerial responsibility — are overly reliant on a small circle of persons for appointments to their boards. It is important, in the long-term interest of the companies themselves and in the interest of the public and stakeholders, that there should be an opportunity for new voices to be heard and fresh thinking to be deployed. Where a relatively small group is meeting and working together over time, an accepted way of working and viewing issues tends to become established. Many of us could produce examples from different areas of life where it was a newcomer or outsider who first identified something that was missed by all the insiders.
Clearly, in a relatively small company, the number of suitable people for promotion to senior positions will be always limited. However, I am of the view that we must do more to encourage boards to bring in those with a wider range of views and backgrounds. I am also of the view that alignments between bank directors and other companies — in other words, cross-directorships — are not helpful to the proper management of the banking system. That is why I have raised this specific issue. It is one of the lessons we must learn from the events we have witnessed in the past year.
The circumstances of the loan between Mr. FitzPatrick and the Irish Nationwide Building Society are under investigation by the regulator. We must await its report, which I have no doubt will establish the facts, as it has established the facts in regard to other matters. In regard to Mr. Fingleton's pension arrangement and the payment to him of a bonus, we must distinguish between the two transactions. My Department is in correspondence with the Irish Nationwide Building Society on the matter of the bonus payment. I have also asked for further information about it. It seems the bonus arrangement was sanctioned before the guarantee was given but paid afterward. I want to be in a position to assess my options in regard to that bonus payment to see whether it can be recovered, first by the society itself, or, in the absence of a power in the society to do so, what options are available to me as Minister to deal with it on foot of the guarantee arrangement.
In regard to the pension fund, again, the full facts will have to be established. From the limited information available to me on the basis of such conversations as I have had with the two directors appointed at my request to the board of the Irish Nationwide Building Society, the value of the amount transferred into the pension fund in the first instance is substantially less than the figures quoted. The current value of the pension fund has substantially diminished with changes in stock values. That being said, this matter requires further examination and establishment of the facts before further assessment can be made of the options open to the institution and, in default of such an option, the options available to me as Minister for Finance.
Does the Minister not agree that the best way to break up an incestuous relationship is to get rid of some of the parties to the relationship? Does the Minister accept that he has shown himself to be extraordinarily slow in bringing about change in the bank boards and that such change is a critical measure in terms of showing international bond holders that we are serious about bank reform?
The Minister introduced the legislation guaranteeing the financial institutions at the end of September. Since then there has been much talk from both the Minister and the Taoiseach about due diligence. Some of us have even begun to believe it is a person. Where was the due diligence when it came to discovering that this chief executive officer and others had accumulated extraordinary entitlements at a time when they were coming cap in hand to the Minister, on behalf of the taxpayer, to bail out their institutions? Why did "due diligence" not step into the frame, from wherever she was, to point out that this guarantee arrangement is subject to an oversight, which is a common arrangement in business deals? Did the Minister have the benefit of legal advisers when he offered the guarantee and left himself absolutely naked in regard to the rights — very expensive rights from a taxpayer's point of view — that were accumulated by the chief executive officers and board members not only of the Irish Nationwide Building Society but also of Anglo Irish Bank?
I refute the Deputy's assertion that there has been little change in the management of the six institutions which were guaranteed as and from 30 September 2008. In the less than six-month period since then, there has been a change of chairman or chief executive officer, or both, in five of those institutions. There have been substantial changes in the board of Anglo Irish Bank. This represents a significant amount of change in the leadership personnel of the six institutions in the period since the guarantee was given.
There has been no change in the largest institution.
I am not willing to get into personalities on the floor of the House. I am making the point that there has been substantial change in the board management structure of five of the six institutions since the guarantee was given. The Attorney General, the legal adviser to the Government under the Constitution, was present throughout the discussions on the guarantee. Lest there be further misrepresentation of my position, let it be clear that neither the chief executive officer of the Irish Nationwide Building Society nor the then chairman of Anglo Irish Bank made any representations to me whatsoever in connection with the guarantee.
3 Deputy Kieran O’Donnell asked the Minister for Finance when his attention was first drawn to the bonus payments being made to bank executives after the taxpayer guarantee was put in place; the steps he is taking to recover these bonuses; and his views on whether further changes at board and executive level are needed to restore confidence in the banking system here. [12766/09]
I received the report of the covered institutions remuneration oversight committee, CIROC, on 3 March. It was common knowledge that remuneration levels for senior bankers based on salary, bonus, pension and other payments were high long before the Government guarantee. Some of the relevant material was in the public domain. The CIROC was established as part of the guarantee scheme for the covered institutions and its report has provided additional specific details in regard to remuneration levels in the banks. The committee reported that with the exception of the Irish Nationwide Building Society, where the chief executive officer was paid a prearranged incentive bonus of €1 million for 2008, no bonuses have been or will be paid to chief executive officers and senior executive management teams in respect of their performances in 2008-2009.
Recent detailed disclosures in regard to the remuneration of the chief executive officer of the Irish Nationwide Building Society require investigation. I wrote to the acting chairman of the board on 12 March stating that I considered the payment of the bonus to be potentially a breach of the guarantee scheme and seeking an immediate reply as to what the board intended to do. While the reply to that letter indicated that the payment concerned was contractually committed before the Government guarantee, I have asked that the two directors appointed by the board nominated by me should review all these issues and that I should receive a report within one month. I have also requested the board to brief me next week on its plans for the society, including the review of management and board personnel.
Under the provisions of the guarantee scheme, two non-executive directors nominated by me were appointed to each of the covered institutions. In nationalising Anglo Irish Bank, I have ensured an overhaul of the board. Also, under the terms agreed on the recapitalisation of Allied Irish Bank and Bank of Ireland I can appoint up to 25% of the board members subject to the finalisation of the recapitalisation proposals announced in February. As the Deputy will be aware, there have been changes of chairperson and CEO in Anglo Irish Bank, Bank of Ireland, Irish Life & Permanent and EBS.
Was this bonus paid prior to the appointment of the Government-appointed directors? Was the payment of the bonus brought forward to a date earlier than when the person in question was entitled to receive it? The year end for Irish Nationwide Building Society is 31 December and Mr. Fingleton would appear to have been paid the bonus well prior to that date.
It is unusual, as I see no great difference between this case and that of the CEO of Irish Life & Permanent, whose removal was far more forceful as the Minister indicated his expectation that the board would live up to its responsibilities. When it did not, the Minister asked the members to meet him and made certain that Mr. Denis Casey stood down. Why is the Minister not taking the same line with Mr. Fingleton? A Government guarantee scheme has been put in place but if it had not been, would Irish Nationwide have been able to pay the bonus?
The Deputy asked a number of interesting questions. With regard to the position of the two directors appointed to the board of the society at my request, neither held the office of director at the time of the payment of the guarantee or execution of whatever arrangement was arrived at to promise the bonus.
When will the bonus be paid?
I do not have the date to hand in my brief today. On receipt of detailed information I will be in a position to advise the Deputy. He will appreciate I do not have the information at this stage. The two directors were not members of the board at the time when any payment was made, so they are entirely strangers to this transaction.
In regard to the position of Mr. Casey and Irish Life & Permanent, I went to great lengths during those board meetings to make clear that I would not be drawn out on whether I had indicated to any directors or the board my attitude regarding his status. It is correct for the Deputy to draw the comparison but I behaved in exactly the same way on this occasion. It is not appropriate for a Minister for Finance, in his communications with a board or directors while meetings of the board are pending, to express a view about what a board should do.
I made it clear on television at the time that it was quite impossible to do so given the possible legal exposures for the State. I am sure Deputy O'Donnell would appreciate that as a deputy Opposition spokesperson on Finance. A Minister for Finance who has guaranteed institutions should not put himself into a position where he exposes the State to any liability by injudicious comments about what should or should not be done by the boards, which have the responsibility of performing their duties in the management of these societies and banks.
If the Minister sees no great difference in the cases, will he now tell the board members of Irish Nationwide Building Society that he expects them to live up to their responsibilities? Will he pursue every legal avenue to ensure this €1 million bonus is repaid to Irish Nationwide by Mr. Fingleton? Will he, if necessary, introduce retrospective legislation or a form of legislation like that being brought in by President Obama relating to AIG?
I have made it clear in my reply that all options will be considered. In the first instance it is a matter for the society and its board to investigate these transactions and see what options are available to the society. In default of any action by the society I will, on legal advice, see what options are available to me.
4 Deputy Richard Bruton asked the Minister for Finance his revised forecast for the numbers and rate of unemployment for end of year 2009; the way this forecast compares with the forecast unemployment rate for the EU as a whole; and if he is considering measures to stem the rate of job losses. [12767/09]
The latest forecasts for EU labour market developments are those published by the European Commission in January. At the time, the European Union unemployment rate was forecast to average 8.7% this year. On a survey basis, the latest data show a sharp contraction in employment in the final quarter of last year — employment in this quarter was over 4% lower than in the same quarter a year earlier. In the addendum to the stability programme update published in January, unemployment was forecast to average 9.2% in 2009. The assumed end-year figure was for an unemployment rate of around 10%.
The quarterly national household survey was published last month. Unemployment on a survey basis rose from 4.5% in the final quarter of 2007 to 7.7% in the same quarter of last year. Although not designed to measure unemployment, live register figures give an indication as to more recent developments. On this basis, when account is taken of seasonal factors, the number on the live register rose by 33,000 month-on-month in January, and by 26,700 in February. The implied unemployment rate, using this measure, in February was 10.4%.
My Department will publish revised unemployment projections in the forthcoming supplementary budget and these will involve a significant upward revision to the January forecasts. The sharp increase in unemployment is the most worrying aspect of the economic downturn and I want to assure Deputies that the Government is doing all in its power to limit the loss in employment.
First and foremost, we are working to generate the conditions necessary for an economic recovery, which includes the restoration of order to the public finances. We have brought in additional fiscal measures and will bring in more in the forthcoming supplementary budget in order to put the public finances on a more sustainable structural path. This will help restore international confidence in Ireland as a place to invest. We are working to improve competitiveness through investing in infrastructure and in education and skills. The recent pension levy in the public sector will also have a favourable impact on competitiveness through a positive demonstration effect.
Finally, we have taken measures to get credit flowing. For example, as part of the recapitalisation package announced on 11 February, Allied Irish Banks and Bank of Ireland reconfirmed their December commitment to increase lending capacity to small and medium enterprises by 10% and to provide an additional 30% capacity for lending to first-time buyers in 2009. If the mortgage lending is not taken up, the extra capacity will be available to small and medium-sized enterprises. Allied Irish Banks and Bank of Ireland have also committed to public campaigns to actively promote small business lending at competitive rates with increased transparency on the criteria to be met. Compliance with this commitment will be monitored by the Financial Regulator.
We are also taking measures to ensure those losing their jobs have access to retraining. The Department of Enterprise, Trade and Employment in conjunction with FÁS are working together to respond quickly and effectively to the rising numbers of people who are now unemployed.
I am sure the Minister was disturbed to see the latest GDP figures published today.
Yes.
They show that compared to the same quarter last year, GDP has fallen by 7.5%, with investment falling by 30.5%. The consequences of these trends are extremely worrying. Reflecting that, we are seeing unemployment numbers rising by 1,000 per day.
Does the Minister agree that it is not sufficient for the Government to chase down the economy with further tax cuts? There must be a positive investment plan designed to protect and create employment. Fine Gael has today put forward proposals for such a plan, which would make investments on a commercial basis that would not draw on the Exchequer. Will the Minister consider the need for such a programme so that parallel to the fiscal correction, we can have a genuine job strategy?
I agree with Deputy Bruton that the protection of existing jobs and the retraining of those who do not have jobs must form the cornerstone of our job strategy. We already have programmes in place to protect businesses already providing employment through the Department of Enterprise, Trade and Employment. We already have training and retraining arrangements in place. We must examine how appropriate and focused these are in current circumstances.
I also agree with Deputy Bruton in that there is clearly a shortage of investment funds available for the Government for the implementation of the national development plan. In that context I will examine any constructive proposals for alternative financing for important public projects.
I welcome the Minister's willingness to do so as we have put forward a detailed programme that focuses on key arteries that are vital to long-term competitiveness, like the communications and power networks. The Minister has indicated we have strategies to protect jobs but if we are seeing an attrition rate of 1,000 jobs lost per day, it does not sound like the strategies are very effective. Is the Minister considering specific proposals designed to help employers get through a very difficult period and protect jobs in the short term?
Again, I am examining various proposals but Deputy Bruton will appreciate that these matters are not easy to resolve because the reason for the drop in the numbers in employment is the international downturn which has impacted severely on a small open economy such as ours. There is clearly a global banking crisis which is not unique to this country. There was a pre-existing housing contraction which impacted on the construction industry before the global downturn began, but it is now clear that we are in a global downturn and this has had a severe impact on our small, open economy.
The measures open to the Government in these circumstances are limited but one of the most important initiatives that has been taken is that taken by businesses and workers themselves, namely, their willingness to take pay reductions to maintain the competitiveness of the goods and services they provide and to attend to their cost base. That is being done in many private enterprises in Ireland and it is being done by the State as well. It is essential the State does this in order that the general competitiveness of Ireland can be improved on the global stage.
5 Deputy Kieran O’Donnell asked the Minister for Finance the status of the recapitalisation plans for covered institutions; and if he has assessed the options to isolate impaired loans within banks in order that good banks can be put in a position to resume lending with a clean balance sheet at minimum cost to the taxpayer. [12768/09]
As the Deputy will be aware, the Government has agreed the recapitalisation terms to be offered to Allied Irish Banks and Bank of Ireland, and these terms will be put before shareholders of the two banks in the coming weeks; indeed, in the case of Bank of Ireland, I understand they will be put before a general meeting of the bank tomorrow. The recapitalisation package will provide €3.5 billion in core tier 1 capital for each bank. The State will receive preference shares with an annual coupon of 8%, as well as warrants for the purchase of shares in five years' time at predetermined prices. The terms of the recapitalisation include a bank customer package which includes additional capacity for mortgage and small and medium-sized enterprise lending. The Government is in discussions with the other covered institutions concerning their respective capital positions.
With regard to impaired loans, the Government is conscious that in current market circumstances there is a need to bring greater certainty and transparency to the operations of systemically important financial institutions, in particular in regard to specific asset classes currently perceived as carrying a higher than average risk. Irish financial institutions have very little exposure to the sort of complex financial instruments which are weighing on the balance sheets of many banks internationally. However, Irish institutions have engaged in lending for land and property development, and construction, which has exposed them to a specific risk at a time of falling property prices and difficult economic conditions. The Government, therefore, announced on 11 February, along with its recapitalisation programme, that it would examine options for risk mitigation in this area. This work is currently under way.
In this context, I have asked Dr. Peter Bacon and the National Treasury Management Agency to report to me on the management and reduction of risks of bank balance sheets. I have seen the initial report prepared by Dr. Bacon for the NTMA. The proposals, with ongoing work at EU and European Central Bank level, will inform the considerations and any decisions the Government may take in this area. I will bring forward proposals in this area as a matter of priority.
As with all of the actions taken by the Government to address the issues faced by the banking sector, a key objective in the consideration on impaired assets will be to ensure that any State involvement will protect the interests of the taxpayer.
Have discussions taken place with the banks to deal with the issue of setting up a toxic debt bank and what has been the outcome of those discussions? Has the report from Dr. Peter Bacon been considered by Cabinet? Will the Minister explain, if he is considering setting up a toxic bank, what will be the cost to the taxpayer in terms of write-downs on developers' loans?
There is no proposal to establish what Deputy O'Donnell described as a toxic bank. No such proposal is among the options being considered by the Government. The position of the Government is that the Cabinet has been briefed in an informal way about the nature of the options involved. The Government's consideration of this matter has not gone beyond that and, as I indicated in my reply, I will be bringing proposals to the Government in due course following a detailed consideration of the report from the NTMA and Dr. Bacon.
The Deputy asked about the position of the banks. Discussions have not been entered into with any of the guaranteed institutions or other institutions on any formalised basis in regard to this. I cannot and am not briefed to answer in regard to what contacts have been made between Dr. Bacon and-or the NTMA in the context of the preparation of his report. It may be that he has made informal contacts with different financial institutions for the purpose of assembling the information and making the assessments he makes in his report.
How does the Minister intend isolating what is now familiarly termed toxic debt? If I might make a proposal, when the Minister is examining considerations, Fine Gael has put forward a position which is, effectively, that instead of setting up a toxic bank, one would allow the toxic debt to remain in the existing banks and set up fresh banks, which would cost the State less. The Minister still has not quantified what will be the cost to the taxpayer of dealing with the situation in regard to toxic debt and of ensuring funds flow to small businesses. Will the Minister give consideration to the Fine Gael proposal?
Deputy O'Donnell insists on using the expression "toxic debt". Toxic debt in banking discussion generally relates to the kind of paper instruments which were generated in the United States and were common in the United Kingdom banking sector — derivative instruments and the like. They do not exist to any substantial extent and, in fact, exist to a minimal extent in the Irish banking sector. As I pointed out in my reply, the exposures of the Irish banks relate to property, which is not a toxic asset and has a residual value. It is important the Deputies understand this. It is accepted by most international analysts and by those who examine these questions.
The continued use of the phrase "toxic", while popular from a political point of view, does not characterise the nature of what we are dealing with here. We are dealing with substantial exposures to property loans where moneys were advanced in the context of falling asset prices. The various options being canvassed at the NTMA and analysed by Dr. Bacon are being analysed in that context. No final decision has been made by the Government on this matter and, as I indicated in my reply, any final decision will take into account and be based on the best interests of the taxpayer and the economy.
When does the Minister expect to make the decision on this? The Minister refers to not using the term "toxic debt". We can call them under-performing or non-performing loans. When one is talking about write-offs of 60%, they are highly toxic. The Minister continuously tells us that the world is looking in on us. The world is looking at the Minister also. These are regarded as toxic debts. When will the Minister deal with the issue?
It is interesting that the credit default swaps with regard to Ireland narrowed dramatically in the past week or two. The market judgment in that particularly speculative market — a market for which I do not have great regard, although it is worth noting since it was recited at length in the House in recent times — is that these particular instruments have now narrowed where Ireland is concerned, and, therefore, the level of speculative, crazed gambling on the future of this country has disappeared somewhat. One of the reasons it has disappeared is because of the recent visit to Ireland of the President of the European Central Bank and the clear and unequivocal position he took that Ireland is a member of the eurozone, like any other member.
When will the Minister deal with the issue of non-performing loans?
I indicated I will bring proposals to the Government in due course but, as Deputy O'Donnell would expect, the interests of the taxpayer have to be safeguarded in any analysis we are conducting of this question.
