I propose amendment No. 2. Today will be regarded as an infamous day in Irish history. It is the day on which the costs and consequences of crony capitalism, Irish-style, have come home and on which the burden is to be laid on the shoulders of every man, woman and child here, in addition to future generations not yet born. Today is a day about socialism for bankers and developers. It is not for ordinary people because they will be the ones who will carry the €22,000 per head of taxpayer debt for the Anglo Irish Bank arrangement. Today is the day our national debt is likely to be doubled, thanks to the phrase first used by Dr. Peter Bacon, which the Minister for Finance employed last St. Patrick's Day in his Financial Times interview when he confessed that crony capitalism was inherent in Irish society. The Financial Times carried the headline on its billboards around the world, “Irish Minister confirms crony capitalism as part of the cause” of our banking collapse.
On Sunday, the Sunday Independent published an Irish rich list of several hundred, perhaps 1,000 rich. One person looking out from the bottom end of the rich list was “Mr. Fingers”, Michael Fingleton, who was said to have about €30 million. Around the country a farmer, a doctor, a housewife, secretary or a low-paid civil servant will be conscious tomorrow that he or she is taking on a massive burden of debt gifted by Fianna Fáil while people such as “Mr. Fingers” can be on the published rich list. I do not know where now stands Mr. Seanie FitzPatrick. We know, however, that Mr. Derek Quinlan, who was a partner in the ill-fated Irish Glass Bottle site venture, is in Switzerland. We understand that Mr. David Drumm, the recent and former managing director is in somewhere such as Cape Cod in the north-eastern part of the United States. Mr. Johnny Ronan, after the rumble in Ranelagh, went for a pricey weekend to Marrakesh — €60,000 or €80,000 — and he announced afterwards that he was going to disappear out of view for a while.
Does the Taoiseach understand why people feel angry? Unlike other jurisdictions we have seen no justice in terms of the taxpayers taking the burden. Everybody in Ireland understands that our legal processes are slow. They have to be slow and thorough. However, how can the Taoiseach stand over what is being announced for these people today, in terms of a confirmed bail-out and at the same time we are giving up our schools and hospitals of the future? There is so much opportunity lost in terms of the fraction of the money we should like to have seen available, on this side of the House. That, in a way, is the tragedy of today's announcement. Like a Shakespearean tragedy it began in hubris and this has carried on — only in this case it has not destroyed the main characters, the bankers and developers. It is, however, helping to destroy so many ordinary people, and this is a peculiar Irish tragedy.
The Taoiseach may suggest that this is a tragedy for every country in the world and is due to failures of international capital, new financial instruments, derivatives and so on. However, it is not, rather it is due to an old-fashioned bust stoked by a series of Fianna Fáil Ministers. I understand and accept that he inherited a train that he could not stop when he was Minister for Finance, and indeed, when he became Taoiseach, but it is painful for ordinary people.
In a previous Budget Statement on an emergency budget, I recall the phrase which was popular among British and Irish soldiers during the First World War, namely, "lions led by donkeys". This is the sixth time today that the donkeys in Fianna Fáil have asked the lions of Irish taxpayers to leave the trenches to go over the top, face the withering fire — as Irish soldiers did in the First World War — and take on the chin the mess that Government has made of the banks and the economy.
This is not a formal Budget Statement, but let us be in no doubt that Deputy Brian Lenihan has today set the parameters for every budget for years to come, perhaps for as much as a decade. Every autumn from now on, whenever a Minister for Finance has to frame a budget, that will incorporate the true year by year cost of today's and previous announcements. Here is an example of one small thing that will pop up on the agenda of every Minister for Finance. Some €8.3 billion is going into Anglo Irish Bank today, as provided for by a ten-year promissory note. That means that every year for ten years a Minister for Finance will have €830 million as a given item being taken out of current spending and reserved for Anglo Irish Bank. If the later €10 billion the Minister talked about has also to be provided, that will mean an extra €1 billion a year. This means that within a few years a Minister for Finance will face an annual current transfer for Anglo of €1.8 billion a year for ten years, or €18 billion.
We will also have taken out €36 billion of its bad loans, at an average discount, yet to be confirmed of 15%. All this for one small bank which specialised in lending to developers and builders. It is not a systemic bank, and has very few branches around the country. It is now a fantasy bank, with a fantasy plan that will be re-resurrected for small and medium enterprises.
It would be better if we could move into levels of honesty as regards what the future is likely to hold. There is no future for the brand, Anglo Irish Bank. It is a destructive brand, which destroyed itself through greed, weak regulation and lack of compliance. Forget the fairy stories, there is no bright future and the people there are intelligent enough to know that.
What about Irish Nationwide Building Society? That is going to get €2.7 billion, again by promissory notes, in tranches of €270 million a year for ten years. Therefore, if I am an incoming Minister for Finance I shall see €830 million a year for Anglo Irish Bank and €270 million for Irish Nationwide for ten years. That is more than €1 billion a year and if the extra €10 billion the Minister has jotted in for Anglo Irish Bank is true, that will mean another €1 billion a year. This will be €2 billion a year. In addition to all the other costs, we are also facing annual costs of €5 billion from this year for payments because of increased interest costs along with the other elements of the packages that have to be financed.
Bear in mind that as a country this year Ireland hopes to take in something like €30 billion in revenue. This means that the Minister for Finance will find that some €7 billion has gone out of that €30 billion before the Government can even think of building a hospital or school or providing for old age pensions. That is the level of the financial depredation we are in.
The figures are awesome. We heard about "shock and awe" as regards the Iraq war, but these figures are on the same level, and I am shocked and awed. I did a table of the figures earlier as we were being briefed — €16.83 billion is being transferred in the first tranche involving ten developers. That is an average of €1.6 billion for each of them. Between the ten they have 1,200 loans, an average of 120 loans per developer.
The total transfer to NAMA will be €81 billion. It was originally estimated to be €77 billion but because of the rise in the Anglo Irish Bank figure and some small falls in the AIB and Bank of Ireland figures, it is now €81 billion. At an average transfer of 47%, that is a write-down, loss in value or black hole of roughly €40 billion.
Then there are the capital requirements listed by the Minister. I totted them up at €23 billion. It is €7.4 billion for AIB, €2.7 billion for Bank of Ireland, €8.3 billion for Anglo Irish Bank, €2.7 billion for Irish Nationwide Building Society and €875 million for EBS. Then there is the footnote that the Minister expects another €10 billion to be required later for Anglo Irish Bank. That is a total of €33 billion in addition to the losses of €40 billion on the NAMA transfers. The figures resemble monopoly money, and not just for Irish people. The Taoiseach spoke about levels of bank debt throughout the European Union and mentioned a figure of €300 billion. This is a small country among 27 and the Taoiseach should be aware that the figures we are discussing today are actually colossal in European terms for a small country. The Taoiseach suggests that Ireland is hardly a blip in the grand scheme of things. He should think again; he is simply not correct. I beg to differ with him.
This will be the top item in every budget for the next ten years. I expect that with future budgets there will be an inspector from the European Central Bank sitting in the Minister's office saying with a grim smile what can and cannot be done. If the ECB and the European Commission have acceded to this, it is only because they know that realism has finally begun to strike about the values. The Germans want their money back. They might have been foolish in lending to Irish banks but Frau Merkel wants her money back. That is what today is about. Frau Merkel wants her money back and this is Brian's arrangement to give it back. There will be a historical loss of national financial sovereignty that will infuriate all who value with pride the independence of our nation. One thing everybody in this House shares is a love of our country.
Greed has brought us to the point where recovering from this is possible but it will mean that every man, woman and child in the country will have to put their shoulders to the wheel. We will have to devise a political social framework that offers the little people something, as well as the bankers and the developers. It is all gain, care and consideration for the latter, with the little people left to shoulder the burdens. Recall the €4 billion adjustment last December. The Minister said he did not want a reference to that, but the adjustments today are multiples of that figure, regardless of whether they are in current spending, in banking, on balance sheet or off balance sheet.
The State is now the hapless and reluctant owner of dominant shareholdings in all the main financial institutions in the economy. "I own the banks" is a hollow boast. Every extra percentage of ownership is an admission of policy failure and, in their hearts, the Taoiseach and the Minister for Finance know this is the truth. It will be acknowledged internationally as a bitter truth. They do not own the banks, however. The truth of today is that the banks own them. They dictate every element of policy, their interests take precedence over everything else and financial resources that ought to be challenged into economic recovery are directed instead in particular at protecting two rogue institutions, the Irish Nationwide Building Society and Anglo Irish Bank. Consider that a tuppence ha'penny little building society has €9 billion in bad loan transfers and requires a €2.7 billion capital injection to be paid for each year from our annual budget.
Since late 2008 the Minister has thrown billions of precious public savings into bailing out these institutions from the consequences of their reckless casino operations. He did not spend much money rescuing indebted homeowners or indebted manufacturers or offering a lifeline of credit to small businesses. The announcements made by the Minister have been made in every budgetary statement. Of course, they are welcome but this is about the fifth time we have heard most of them. We heard in the last two Budget Statements about arrangements for people from Enterprise Ireland and so forth to meet with the bankers and tell them how to get credit flowing again. We have heard several times about the €100 million for innovation and the €100 million for green projects and so forth. This is recycling; we have heard it before.
The Minister has devoted the entire stock of family silver, even the curtains and carpets, to these banks because they told him they were too big to fail. He was panicked into believing them by their sinister threat to unleash Armageddon should he refuse to give in to them, particularly Anglo Irish Bank and Irish Nationwide Building Society. Today is end game day. The end game in chess occurs when there are only a few pieces left on the board and the remaining pawns take on a special importance. We are certainly close to the end game in this protracted chess game, which has gone on for two full years since the fateful St. Patrick's Day massacre of Anglo Irish Bank share values in March 2008. That event triggered the unwinding of that bank's business model, with all the consequences we now experience to our cost.
On St. Patrick's Day 2008, the Taoiseach was in Vietnam, on one of the annual St. Patrick's Day trips. Afterwards, he travelled to Malaysia. At that time, the country, and presumably Fianna Fáil, was intensely embroiled in considering the future of the then Taoiseach, Deputy Bertie Ahern, and whether he could continue in politics. Was that the reason the current Taoiseach took his eye off the ball on that St. Patrick's Day and afterwards? The share price of Anglo Irish Bank had collapsed. That was the time for the regulators to go in and sort out the bank. Had the Taoiseach done that, the collapse of the other banks might still have happened but not to the same degree. The Taoiseach lost a valuable six months. He will recall that he became Taoiseach-designate and then Taoiseach, after which people went off to celebrate. We then segued into the night of the guarantee.
In many ways the downfall of Anglo Irish Bank lay in a complex series of transactions. The Quinn family group took a 28% position in Anglo Irish Bank shares through contracts for difference. Two years earlier the Taoiseach and I had a rather bad tempered exchange about contracts for difference when I warned him about turning the Irish Stock Exchange into a casino for casino capitalism. However, it seemed like good business and the Taoiseach would not even put a 1% stamp duty on it. He withdrew the notice about the stamp duty which the Revenue Commissioners had drawn up.
I remind the Taoiseach that, according to the public record, on 24 April that year he went to a dinner at Heritage House on St. Stephen's Green, the then, and perhaps current, headquarters of Anglo Irish Bank. He cannot have been unaware that the shares in Anglo Irish Bank had collapsed in value. People in the Department of Finance, the Financial Regulator and the Central Bank had to know. They are not incompetent. They might not have great knowledge about banking in some cases but they had to know that the share price of the third largest Irish bank, bidding perhaps to be the first or second largest, had collapsed. We have no explanation yet as to who knew what when and to what extent the Minister was briefed and knew about it. However, the Minister is a clever person and a diligent politician; he had to know and the organisations that reported to him as Minister for Finance had to know.
We had the guarantee on 29 September and then the nationalisation of Anglo Irish Bank. The third event was the €7 billion recapitalisation for AIB and Bank of Ireland and another €4 billion then went into Anglo Irish Bank and was lost. We then had NAMA and everything to do with that. Following that, we had the recent announcement concerning the preference shares, which I remember those like Deputy Fahey sold on television and radio stations as being a wonderful investment because the preference shares carried a dividend or coupon rate of 8%. Those of us who suggested this was a bit of a chimera were laughed out of court. What has come to pass today? All of the preference shares are being held in reserve for use in the tier 1 capital of AIB and Bank of Ireland, which shows the truth of that suggestion. While the Minister tells us the promissory notes might carry a rate of interest of 4%, I suggest we will wait and see whether we will ever achieve that 4%.
Today, we have Fianna Fáil's final solution. One question stands out: is there the slightest shred of credibility left in this Government's banking policy? Today's massive bailout announcement is the natural consequence of decisions made that fateful night of 29 September 2008. We are exactly 18 months and one day on from that fateful night. That night, the Minister was surrounded by bankers and he took advice only from bankers. He meekly promised to jump through whatever hoops they put in front of him, and the Taoiseach even went on radio to say no cheque would be big enough for him to sign if it was necessary to meet the insatiable demands of the banks.
The "too big to fail" doctrine, applied with no economic justification even to Irish Nationwide Building Society and Anglo Irish Bank, has taken a savage toll on the economy according to the raw evidence highlighted in the Central Statistics Office information last week. This was supposed to be the cheapest bank rescue in the world. The Taoiseach said that no cheque was too big to write to save our banks. Today, we are beginning to get a more rounded picture of the cheque he is proposing to write today and over the next ten years — a €36 billion bank bailout package on top of NAMA, which is €50 billion plus or perhaps a little less because the discounts are higher, although we do not yet know.
Mr. Jim Kemmy, the late Labour Party Deputy, once joked that while politics might seem easy to some, others had to come by the scenic route. Fianna Fáil is certainly taking the scenic route to nationalisation, via a mega-NAMA bailout, as taxpayers look set to be full or majority shareholders in the four institutions listed today. All nationalisation projects are not created equal, of course. We had the panic nationalisation of Anglo, and now we have the belated nationalisation or part nationalisation of the rest.
The Labour Party proposed a different approach. Following the model of the successful Swedish bank rescue, and as articulated by Bo Lundgren when he spoke in Dublin, the Labour Party proposed taking our key banks — I repeat, our key banks — into temporary public ownership before cleansing their balance sheets for return to the private sector. The key attraction of this approach was that it would have eliminated the valuation risk and the bailout element of NAMA. That still stands. It is not too late to rethink NAMA. There would not have been any need for the fantasy of long-term economic value. There would have been a much higher prospect of an uplift and gain for the taxpayer at the end of the process, which is what happened in Sweden, as the Minister for Finance has confirmed on many occasions.
Having taken the scenic route, we will now be left with the worst of both worlds — a nationalised banking sector alongside the risky NAMA bailout. Not only was the scenic route the longest route, wasting 18 valuable months, it was also the most costly.
The failures of our financial system demonstrate the more general failures of our entire economic system. It is inevitable that changes will come from the events of recent years and the decisions of the new regulator are the first examples of a tighter regime that will move us into line with the more general regime that will now follow the new Basel approach. Nevertheless, there remains one fundamental issue that is only partially treated today. The Government has worked on the assumption that the banks are favoured institutions that must be secured at any cost, even when they become insolvent by their own decisions. This House will have to set out new rules in law for future bank collapses, and these laws will need to be among the toughest ever brought to this country. We have endured enough from bad banking behaviour in the 1980s and 1990s. I would not now take on trust anything the banks promise.
Ireland has paid and, from today's announcements, will go on paying an horrific price for the banking policy disasters of the Government. Youth unemployment in Ireland has risen 170% in the past two years. There are more than 85,000 people under the age of 25 on the dole. When he visited Dublin some time ago, Professor David Blanchflower, who was on the Bank of England monetary policy committee but who is also an expert on youth unemployment, spoke very feelingly in public, to me privately and possibly to the Government about youth unemployment. He suggested that all the research shows that for young men in particular — young women are not affected to the same degree — who become unemployed for more than six months and remain so for one or two years, the effects are not temporary but last for the rest of their lives. Young men lose intrinsic confidence, belief in themselves and the ability to get up and go if they face a prolonged period of unemployment. In many ways, the young men of Ireland are the principal victims of the banking disaster, not just now but into the future.
The Labour Party has offered a series of suggestions from different Labour spokespersons on, for example, internship schemes, training schemes and graduate employment schemes — anything to give the young people who are in this country, particularly young men facing long-term unemployment, an opportunity to get up and not have to give in to a kind of despair and loss of confidence that will affect them for two or three decades. The offer is still there. The Labour Party is willing to work with the Government to see that happen but it is getting very late. We are now two years into the building bust. So many young men who lost their jobs in the building industry, unless they had a chance to go abroad, which some had, are reaching a crisis because they have nothing to do other than collect unemployment assistance. Our country has had to experience an horrific recession involving lost jobs, lost pay, lost taxes, lost investments in infrastructure, lost prosperity and lost personal happiness for tens of thousands of our citizens.
The Minister began his contribution on the bank bailout today by referring to complimentary and encouraging remarks made by various international figures in regard to Ireland. In the eyes of market analysts, however, the announcements today exacerbate the fiscal problems faced by the Irish State. One question I have for the Minister, Deputy Brian Lenihan is: what is the impact of today's statements on the entire strategy agreed with the European Commission to reduce the deficit to 3% by 2014? For all practical purposes, the Government is about to issue bonds amounting to one third of our entire GDP for distressed bank assets of dubious or no intrinsic value. The Taoiseach may have negotiated an arrangement to keep this off the formal balance sheet but markets and rating agencies are not that easily misled. While the Minister, understandably, wanted to refer to people who were encouraging to Ireland in their public statements, key articles have been written in the past month, particularly by Simon Johnson, the former deputy head of the IMF, advising America not to become like Ireland. The Taoiseach must have seen this article because it was doing the rounds when he was in the United States. Paul Krugman wrote an article which was very understanding in a certain sense. He wanted to be favourable towards Ireland but he pointed out the serious difficulties we have inherited through the bank bust. He warned other countries to avoid being like us if possible. People in the ECB and in the European Commission want to encourage Ireland but we must be realistic about the impact of today. Ireland's sovereign debt to GDP will be over 100% during 2011. The Minister did not say but it is a fundamental indicator.
We have been very smug about Greece's problems and many commentators have been smug about the fact that we are not Greece. The interest rate we pay on our national debt is the second highest in the eurozone, higher than Spain, Portugal and Italy. The Taoiseach will know that Greece is one of the few good things to happen to Ireland. Because of the difficulties in Greece, the euro has been under pressure and has fallen somewhat against the dollar and sterling. One of the best things that can happen to Ireland would be a fall in the euro so that our exports and export of services would gain.
There is evidence of anxiety in the markets about Ireland's debt exposure, therefore, new borrowing and any debt that has to be re-financed may face higher interest rates. This will add to our day-to-day spending. I do not know if the Government has been open and up front about this aspect of today's decision.
What will be the long term impact of today's decision on the international rating of Irish sovereign debt? It begs the question as to who calls the shots in Irish public policy. All the banks, but in particular, Anglo and Nationwide, looked after the developers. In turn, the developers looked after Fianna Fáil, in the classic manner of crony politics. A powerful lobby of these same developers, the investors who bought the bank bonds and Government politicians with links to the failed developers, have conspired to have our taxpayers rather than the bank creditors, carry the cost.
I understand from the briefings we received today that the tier two subordinated debt is about €10 billion; €2 billion in the case of Anglo Irish Bank and possibly €4 billion each in the case of Allied Irish Bank and Bank of Ireland. Tier two subordinated debt is risk. These are investors looking for high rates of return with a very high level of risk. Yet, the Government guaranteed them all and €10 billion is outstanding. Why do we hear nothing about a negotiation with them?
Mr. Alan Dukes said to me the other night on television that a negotiation with the Anglo Irish Bank tier two subordinated debt of €2.4 billion would only save €1 billion. What is the crazy economics whereby €1 billion no longer counts as a saving? What is the rationale? Is this discussed between the members of the Government? As for the other €8 billion, the Taoiseach has not explained why it is not possible to sort out that tier two subordinated debt at a very heavily discounted rate. He has not told us whether the senior tier one bonds are €30 billion or €40 billion. Has he even attempted to suggest a negotiation with the senior bondholders?
If there is improved international sentiment towards Ireland, today's measures could put it all at severe risk as people wonder how a country facing so deep an economic crisis can casually add a vast sum to its national debt.
No details of the administration are as yet known, other than the legal announcements about the Quinn group. The Quinn group owes a possible €2.5 billion to Anglo Irish Bank. What happened in the case of the Quinn group was central to the fall of Anglo Irish Bank which in turn was central to the fall of the other banks. What are the consequences of the announcement today of the administrative process with regard to that €2.5 billion? Anglo Irish Bank will transfer €36 billion to NAMA. The €2.5 billion of the Quinn debt may be as much as 10% of Anglo's loan portfolio remaining. The Quinn group was trying to suggest it would pay Anglo over an eight to ten-year period. This was reported in the media and it was not denied so presumably there is some veracity to it. What is the Taoiseach's analysis of this situation? Is this another Pandora's box? The Financial Regulator indicated that half a billion was at issue with regard to the fall in the value of investments in the Quinn health and insurance group and has looked for administration. It is ironic that just as the Quinn group was involved at the start of the story its administration comes today as we hear the Government's final solution yet there has been no comment from Government. Perhaps this will happen tomorrow or on Thursday. The Taoiseach should make a detailed statement to the House about the Quinn group. It is an important employer with 5,000 or 6,000 employees. Several thousand of those jobs are in the insurance-related companies which are primarily affected by today's announcements.
The Minister for Communications, Energy and Natural Resources, Deputy Eamon Ryan, spoke on radio last Saturday. He suggested that Ireland could be asked to leave the euro. Deputy Ryan is the link person for the Greens in the Cabinet group dealing with banking. Is this what the Cabinet group is suggesting to Fianna Fáil backbenchers? I do not think the average Fianna Fáil backbencher would believe that because it is not provided for anywhere in the treaties. That is economic illiteracy from the Green member on a Cabinet sub-committee dealing with the banks. I think we are entitled to know what the various Government parties believe to be the Irish situation.
We heard about hair cuts today. In the material given to us today we saw a new concept called CoCo — special instruments which may or may not be part of this rescue deal. I wondered if it was not so much a visit to a barber for a hair cut as a visit to a head shop that inspired some of the people judging by some of the fantasy economics we heard today and continue to hear. However, it is ordinary people of this generation and the next who will bear the brunt.