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Dáil Éireann debate -
Thursday, 30 Sep 2010

Vol. 717 No. 1

Announcement by Minister for Finance on Banking of 30 September 2010: Statements

My statement issued earlier today, along with statements issued by the Central Bank on the capital requirements of the Irish banks, brings closure to the process of determining the level of State support required to maintain the stability of our banking system. Since the Government's announcement of the banking guarantee two years ago, the State has been required to stand behind the domestic banks and building societies to safeguard the financial system and the economy. In my statement to the House last night on the motion approving the ELG scheme, I recalled that the Irish banking system was teetering on the brink on the 29 of September 2008. In an unprecedented development, international credit markets had ceased functioning. In stark terms, the liquidity that our banking system needed to lubricate normal day-to-day financial operations was running out. In the absence of radical action, the banking system was facing closure within days.

As I reminded the House yesterday, the report by the Governor of the Central Bank, Professor Honohan, confirms this scenario in all its objectively frightening detail. The Governor clearly endorsed in the report, and has recently confirmed his endorsement, of the need for an extensive guarantee for the banks, which guarantee was provided by the Government on 29 September 2008 on a blanket basisin order to send a clear and unambiguous message to what the Governor characterised as hysterical global financial markets that the Irish State would take whatever steps were necessary to ensure the sustainability of our banking system.

My statement earlier today represents the final staging post in the journey initiated by the provision of the bank guarantee by bringing certainty and clarity to the proposed costs for the State for the resolution of our most distressed institutions. It is a key milestone in ensuring that broader-scale restructuring of the banking sector overall is successfully achieved in order that we have for the future a banking system that is firmly focused on meeting the needs of the real economy, sustainable employment creation and the savings, investment and credit needs of ordinary individuals, households and businesses.

The overriding theme of my banking statement and the shared objectives of all the authorities, including the Central Bank and the NTMA, which played such a pivotal role in the process underpinning it, is the urgent need to reinforce international market confidence in the restoration of our banking system to health, and our capacity to take the steps essential to achieving the enduring sustainability of our budgetary position.

International financial markets have been clamouring for some time for greater certainty on the final costs of repairing the very substantial damage wrought by irresponsible and reckless lending practices and systemic failures in corporate governance and risk management. With my announcement this morning and the publication by the Central Bank of the assumptions and methodology underlying the capital figures, this clarity has now been achieved.

The public is understandably and rightly angry about what has happened in our banking system in recent years. I share that anger but anger is not a policy on its own and we must now turn to the resolution of our problems. The information I have provided to the markets demonstrates that the Government's strategy for ensuring that, and although we are recognising these huge banking sector costs in our deficit this year, which is projected to spike at 32%, we have a mechanism to spread these costs over an extended period in excess of ten years. This will ensure that these costs will be manageable in terms of our current requirement to finance very significant levels of public expenditure through borrowing by the NTMA in international markets. The assessment that these costs are manageable within an appropriately revised framework for fiscal consolidation in Ireland is one that has been expressed by the Governor of the Central Bank on several occasions and is stated clearly in his statement also issued earlier today.

I said in my statement that it is imperative that we remain focused on our major challenge, which is to ensure that our public finances are returned to a stable and sustainable path. This objective is not, of course, an end in itself; rather, it is the main prerequisite to returning the economy to a path of stable and balanced growth to ensure the future economic well-being of our society. The fiscal challenges that face us in restoring the sustainability of our public finances are substantial but I am convinced that they are surmountable.

The projected Government deficit of 32% of GDP includes once-off capital support, as detailed in my statement, of almost 20% of GDP. It is crucial to recognise that were it not for this once-off spike, we would broadly meet our budget targets for this year.

I have set out in my statement the steps the Government will take in the coming weeks to demonstrate a credible pathway over a four-year period to achieve our budgetary goals. A high level of certainty regarding the final NAMA discounts for each of the participating institutions has provided us with the detailed basis for concluding our assessment of the capital needs of the banking sector. An assessment by NAMA of the loan-by-loan valuations carried out in respect of the transfer of approximately €27 billion of land and development and related loans into NAMA together with the comprehensive and detailed information now available to it on the remaining loan books has allowed the agency to refine its estimates of the discounts on the remaining loans to be transferred to a high level of accuracy. These final estimates have in turn allowed the Central Bank to update its assessments of the capital position of all of the institutions participating in NAMA following the prudential capital assessment review, PCAR, earlier in the year and the EU-wide CEBS stress testing exercise carried out in July.

As I announced, the Government has agreed a number of steps to provide certainty about the impact of NAMA transfers including that all remaining NAMA transfers should be completed in one single tranche for each of the participating institutions and the accelerated transfer of NAMA-eligible loans to complete the process by mid-October in respect of Anglo Irish Bank. In addition, the Government has decided that where the total exposure of a debtor is below a €20 million threshold in Allied Irish Bank and Bank of Ireland, that debtor's loans will not now be transferred to NAMA. The previous threshold had been set at €5 million. This will ensure NAMA can operate to the highest level of efficiency and effectiveness in the management of its loan portfolio.

All of these actions will be undertaken in accordance with the NAMA legislation and the European Commission state aid approval for the NAMA scheme, in particular the principle of a loan-by-loan valuation of all NAMA transfers. I very much welcome the statement by the Competition Commissioner, Mr. Almunia, this morning in regard to the Irish banks. He welcomed the comprehensive assessment contained in my statement this morning on banking, indicating that it brings clarity with regard to the remaining transfer of assets to NAMA and the capital needs of some banks and building societies. The Commissioner indicated that the announced changes to the way NAMA manages loans are in line with the Commission's approval of the NAMA scheme.

Concerning Anglo Irish Bank, from a competition point of view, the Commissioner said it is clear that the foreseen restructuring and resolution of the bank addresses competition distortion created by the large amounts of aid at stake. Once the Commission receives details of the plan, it will proceed rapidly toward a final decision. Mr. Almunia also welcomes the announcement that subordinated debt holders will make a significant contribution toward meeting the costs of Anglo Irish Bank. This is line with the Commission's principles on burden-sharing since it both addresses moral hazard and limits the amount of aid, to the benefit to the taxpayer.

The Commissioner noted that Allied Irish Bank will require further capital in the form of state aid which will have to be notified to the Commission for approval. He indicated that he will follow this process very closely and he has no doubt that as in all previous cases, the collaboration between the Irish authorities and the European Commission will be satisfactory. He also notes positively that Bank of Ireland will be able to continue its restructuring process without further recourse to State resources and noted the earlier approval of the bank's plan in terms of aid and restructuring.

With regard to the building societies, the Commission remains in close contact with the Irish authorities. In the case of the Irish Nationwide Building Society, the Commission will await the notification of the additional capital as well as details on the institution's future and will assess them thoroughly and swiftly. In regard to the EBS, the Commission is in the process of analysing its initial assessment of the restructuring plan submitted in May.

It is clear from the Commissioner's statement that the relationship between the Commission and the Government in regard to these matters has advanced to a very close level of collaboration. I am confident the various measures we have announced today will secure the necessary approvals in due course.

In regard to Anglo Irish Bank, the Central Bank has carried out a detailed analysis of potential losses in the bank in the coming years. The examination has drawn on comprehensive information and analysis of Anglo's non-NAMA loan book carried out both by the bank and its advisers and independent consultants in preparing the bank's restructuring plan for the European Commission. Information has also been made available by NAMA from a review of assets securing the loans in Anglo's remaining NAMA tranches. This review has enabled NAMA to determine and advise the Central Bank of the expected discount of 67% on the remaining €19 billion of the bank's loans that are due to be transferred.

The Central Bank has therefore established as definitively as possible the level of capital required by the new structure, that is, an additional €6.4 billion in total capital will be needed. This additional capital requirement brings the projected total gross cost of the restructuring of Anglo Irish Bank to €29.3 billion. This additional capital will be provided by increasing the promissory note issued by the State and by appropriate burden-sharing exclusively by holders of Anglo Irish Bank subordinated debt instruments, as I outlined in my statement.

The severe stress-testing carried out by the Central Bank as detailed in its statement, including a 70% discount on the remainder of Anglo's NAMA loans, has concluded that the stress case level of losses in Anglo Irish Bank could potentially be €5 billion higher than in the expected case of €29.3 billion. As made clear in my statement, the stress case indicates the upper boundary of the level of losses; it does not represent the Central Bank's expectation of the likely outcome and is not the basis for the final capitalisation of the bank. The Government will capitalise the new structure to the expected requirement of €29.3 billion through the promissory note structure which extends the cost and the funding burden over a period in excess of a decade. The authorities will also press ahead with the restructuring of the bank with a view to achieving the split of the bank early in 2011.

As I had previously indicated, my statement also clarified the position regarding the Government's policy for achieving burden-sharing by holders of subordinated debt in Anglo Irish Bank and the situation of senior debt obligations. The position is that under Irish law senior debt obligations rank equally with deposits and other creditors. I have no plans to change this position. There is, therefore, no question of seeking to impose losses on holders of such senior debt in Anglo Irish Bank or indeed in any credit institution in the State through any legislative measures.

Indeed the legal competence of this House to effect such changes is very much in doubt having regard to the provisions of the relevant EU directives which prohibit differentiation between creditors and the provisions of our own Constitution which protect vested rights. I am not saying on the record of this House that it is not legislatively competent to impose haircuts on creditors, but were we to impose haircuts on senior bondholders, equivalent haircuts would require to be imposed on depositors. It is important that this is understood in this House. Quite apart from the commercial and economic arguments involved in the location of Ireland as a major centre of multinational investment, the dependence of the NTMA on external funding and the dependence of our banks on external funding are major factors which should be weighed very carefully by Members of this House and by commentators in assessing the desirability of those policies that have been advocated from time to time and which point unequivocally in the direction of default in regard to these bondholders.

As I indicated in my statement this morning, the question of subordinated bondholders is entirely separate and can be addressed through appropriate legislation, which the Taoiseach indicated this morning is listed for publication this year. In any event, all the subordinated instruments in both the Irish Nationwide Building Society and Anglo Irish Bank do not mature for payment of their principal sums for a considerable period of time. In regard to appropriate burden-sharing by holders of subordinated debt, that is a principle with which I agree and to which the Commission subscribes. As can be seen from the figures I have outlined, the losses in the bank are substantial and it is right and proper that subordinated bondholders should share the costs that have arisen. It is my view that a very steep discount must apply to these bondholders. The NTMA will advise me on how to maximise the saving to the taxpayer in this regard. If the issue were not addressed, the principal sums would fall due for payment eventually with substantial hazard to the taxpayer.

Does the Minister expect us to believe this bluff?

It is not a matter of bluff when the solvency of the country has to be protected. In keeping with this approach, my Department, in conjunction with the Attorney General, is working on resolution and reorganisation legislation which will enable the implementation of reorganisation measures specific to Anglo Irish Bank and the Irish Nationwide Building Society which will address the issue of burden-sharing by subordinated bondholders. The legislation will be consistent with the requirements for the measures to be recognised as a reorganisation under the relevant EU directive in other EU member states.

To date €2.7 billion in capital has been provided to cover the losses on lending by the Irish Nationwide Building Society. The NTMA has recommended that I provide a further and final €2.7 billion, representing a prudential estimate of the capital required to cover expected losses on the residual loan book and bringing the total capital support to €5.4 billion

I have accepted the NTMA's recommendation in order to establish a ceiling on the level of support provided to the society consistent with the objective of providing final clarity on the public support required by the Irish banking system. I have asked the NTMA and my other advisers to explore options for the society and to bring finality to the position. Management in INBS was replaced in 2009. This further capital investment by the State will reassure depositors in the institution that all deposits remain secure. Bank of Ireland has already met the Financial Regulator's 2010 capital requirement and the estimated NAMA transfers now announced do not mean it will not need any further capital.

The Financial Regulator determined last March that to meet its capital requirements AIB must raise €7.4 billion by the end of 2010. AIB has already announced the sale of its Polish subsidiary, BZWBK, which is expected to generate capital of €2.5 billion. In view of the increased NAMA discount for AIB the Central Bank has concluded that an additional amount of €3 billion will be required. This brings the new total capital requirement for AIB, after deducting the capital generated on the sale of its Polish subsidiary, to €7.9 billion. In the current stressed market conditions, the bank is unlikely to be able to conduct a traditional privately underwritten transaction on a substantial scale. To afford every opportunity to AIB to raise as much as possible of the required capital from the markets and, to minimise further Government support, it has been decided that this capital requirement will be met through placing an open offer to shareholders of AIB shares to the value of €5.4 billion. This transaction will be fully underwritten by the National Pension Reserve Fund Commission, NPRFC, and is expected to be completed in 2010. If necessary, the NPRFC's underwriting commitment will be satisfied by the conversion of up to €1.7 billion of its existing preference shares in the bank into ordinary shares, along with a new cash investment for the balance of €3.7 billion in ordinary shares. This transaction structure assumes the sale of AIB's stake in M&T Bank and disposal of other assets in due course. In the event that the bank's residual capital requirement is not met through asset sales by 31 March 2011, any shortfall will be met by the conversion of a proportion of the remaining €1.8 billion of preference shares. As a consequence of these actions, it is likely that the State will hold a majority shareholding in AIB.

The high level of State support being provided to AIB is absolutely essential given the central role AIB plays in the Irish economy and the Irish financial system. In the coming weeks, I will be working closely with the board of the bank on behalf of the Government to ensure that AIB successfully overcomes its current challenges and develops a renewed strategic focus on the Irish market following the sale of its overseas operations. In conjunction with the recapitalisation, there will be management and board changes in AIB. The bank's board has agreed with Mr. Dan O'Connor that he will step down as executive chairman within the coming weeks. The bank's board has also agreed with the group managing director, Mr. Colm Doherty, the termination of his contract on existing terms. Mr. Doherty will depart AIB before the end of 2010. I appreciate the efforts of Mr. O'Connor and Mr. Doherty in successfully selling the Polish subsidiary and in helping to manage the bank in the transitional period.

The projected final NAMA discount for EBS is in the region of 60%. The Central Bank has advised that this final discount will have no material implications for the overall capital requirements of the banking system. The society is in discussion with a number of parties about its future and any adjustment in its capital need that arises will be accommodated in the outcome of those discussions in due course.

The Government is committed to restoring sustainability to our public finances. The inclusion in this year's deficit of the banking support measures does not alter this commitment in any way. This target can be achieved in a manner which is consistent with maintaining a sustainable trajectory for Ireland's general government debt and the capacity of the National Treasury Management Agency to fund the Exchequer's borrowing requirement. Today's announcement brings full clarity to the costs and methods of recapitalising the banks.

What is now most important is that we have a credible path to show how we propose to meet our budgetary commitments. Accordingly, a four year budgetary plan will be published in early November, which will incorporate the annual measures.

I now call Deputy Michael Noonan, who also has 20 minutes.

If the situation were not so serious, the catch phrase from Laurel and Hardy would be appropriate, namely, "another fine mess you've gotten us into". This is an appalling disaster. The Government's strategy on banking has collapsed around it and the credibility of the Minister for Finance is in tatters this morning.

Following all the spin and propaganda, the country is left in the situation of having to cancel next month's bond auction. Why? Because the country does not have credit worthiness any more and could not sell the bonds at an affordable price. That is the bottom line on the banking strategy which the Government has pursued for two years. We can no longer trade in the bond market because our sovereign credit worthiness is gone.

It is not difficult to trace the Government's progress to date. Two years ago yesterday, the Government introduced a blanket guarantee for the banks. Not alone was the scope of the guarantee too wide, as indicated by the Governor of the Central Bank in his recent report, but the Government made the calamitous error of guaranteeing all of Anglo Irish Bank's liabilities. It did so without knowing the full extent of those liabilities. Months later, following introduction of the guarantee and the nationalisation at the beginning of 2009 of Anglo Irish Bank, the Minister assured this House that the potential liability of Anglo Irish Bank would not exceed €4.5 billion. I accept the Minister was misled and misinformed and so on but there is a huge gap between €4.5 billion and the €34 billion referred to by the Minister in his statement this morning.

The scope of the guarantee was a major policy error. The more fundamental error made is what has now put the country in such a precarious position. The error was one that no Government should make. The Government put the credit worthiness of the sovereign State at risk to rescue a failed bank. It should never have gotten into that situation. The national interest always requires that one protects the credit worthiness of the sovereign. When faced with the choice of the sovereign and a financial institution, one opts for the sovereign. The Government should not have gotten itself into the situation it did. I accept the Minister was badly served by the then Central Bank, the Financial Regulator's office and some of the advisers brought in at high rates of pay. However, at the end of the day Deputy Brian Lenihan is the Minister. He is the person who holds constitutional obligation for the finances of the State. The role of only two Cabinet members is enshrined in the Constitution. This happened on the Minister's watch and he is responsible for the disaster.

The Deputy knows well that the reckless lending did not happen on my watch.

That is true. I am not saying the Minister is responsible for that; that was the Taoiseach's responsibility.

Yes, it was the Taoiseach's responsibility.

And he will not accept it.

We are saying that the Minister is responsible for the architecture of the banking rescue strategy——

I take full responsibility for that.

——which is now in broken pieces on the floor.

It is not in broken pieces on the floor.

Some months ago, the headline "Can a Bank Bring Down a Country?" appeared in the New York Times. The answer to that is, I regret, yes it can if the Government collaborates with the bank. We have almost reached the point of the rescue of Anglo Irish Bank bringing down this country with the Minister being forced this morning to announce the closure of the bond markets. The closure of the bond market means the sovereign State is in deep trouble because it cannot borrow money.

Anglo Irish Bank was supposed to be too big to fail. On reflection, it was too big to save; that is the real position. Because it was too big to save we should not have gone there. In going there, we should not have covered all the debt. Fine Gael has for two years proposed that bond holders should share the pain of the Anglo Irish Bank rescue and that the taxpayer should not stand alone as the only agent of rescue. The Government has continually argued it cannot do that as to do so would send bad signals to the market and result in a loss of confidence in Ireland. We have followed the Government strategy. Month after month the Minister has given assurances that senior and subordinated debt will be covered in full. Where has this got him? It has got us to the point of not being able to have a bond auction next month. This proves that the Government's guarantees to protect senior debt holders and subordinate bond holders is a failed strategy. The bondholders have been protected by the Government and the Government would not negotiate discounts until after the announcement today. Despite the altruistic policy, we have reached the stage whereby the forthcoming bond auction has had to be cancelled and the credit worthiness of the sovereign State is gone. The Government, like a losing gambler, is doubling its bet in the vain hope of a win on the last race.

This morning's announcement continues with a failed Government policy. The Minister for Finance is committing a further €16 billion or thereabouts of taxpayers' money to the banks and signalling that he will impose further pain on the taxpayer. If I understand his statement correctly, the €3 billion adjustment he has signalled for the forthcoming budget of 7 December will be insufficient and he will have to make adjustments of substantially greater than €3 billion. He has also signalled that he will, in November, profile in detail the tax increases and expenditure cuts he or his successors will introduce in the three subsequent budgets. My understanding of the nature of this type of profiling is that the Government will not be able to do as it did three days ago when it announced plans to create 300,000 jobs because Brussels will not accept smoke and mirrors on budgetary profiles. On the contrary, when the Minister nominates the cuts he will have to underpin every one of them with a policy decision.

It will not be like the Fine Gael Party's policies.

The Government will also have to nominate the taxes it proposes to increase. The Minister has a great nerve, with a couple of months to go in the life of this Administration, to commit a subsequent Government to budgetary profiles for the next four years.

I return to the issue of bondholders because it is crucial to this debate. Negotiating agreed discounts with bondholders is not a novel idea. I recall from the dim and distant past economic lectures on the theory of banking — the Minister of State, Deputy Roche, will also remember them — which featured a straight hierarchy of debt. Those who bought shares were buying risk capital and could lose everything. Subordinated debt holders — the bondholders — who received a higher return and interest rate were next in line for a hit if there was insufficient money in the equity stake to cover liabilities. One then had senior debt holders who were not equated with deposit holders.

We will come to that. The senior debt holders were next in line after subordinated debt holders and deposit holders were to take the last hit. Democracies, in their prudence, have introduced statutory schemes to protect deposit holders. The scheme in place here used to protect deposits of up to €20,000 but the figure was increased to €100,000 during the Minister's time in office, which was a very good idea. This was the hierarchy of debt.

The Minister for Finance is aware, as is the Minister of State, Deputy Roche, that the protocols and regulations governing these matters were negotiated in what is known as the Basel agreement. A new Basel agreement is being negotiated by all the European states. A draft protocol of this new agreement which can be found on the Internet adopts precisely the same policy. Under this policy, the hierarchy of risk is as I have outlined in the event of a bank in difficulty being wound down.

That is not the existing law.

This policy will also be operational across Europe. Therefore, to accuse the Fine Gael Party of suddenly pulling rabbits out of hats and being irresponsible when it advocates that the Minister take the power in law to do what nations have agreed across Europe and are about to implement in a directive——

Is Deputy Noonan suggesting the agreement should be retrospective because that is not the position of the European Union?


Maureen Potter, speaking about Charles Haughey's contraceptive Bill, stated it was a great pity he did not make it retrospective.

I can only protect Deputy Noonan if he wants me to do so.

The Minister has claimed he does not have legal authority to reduce the liability to senior bondholders. Last night, I asked him to give a commitment to introduce bank resolution legislation similar to that being drawn up all over Europe. There is a gap in the statutory policy instruments available to central banks and many countries in Europe, including Ireland, for dealing with the wind-down of a bank. I ask the Minister to legislate in order that the Governor of the Central Bank will have legal authority to act in the manner I have described.

That cannot be done in legislation.

It can be done. The Minister gave me a vague answer last night when he stated he would legislate in the autumn. Two months of the autumn have elapsed already. When I asked him to do this in October he stated he could not do so and he now proposes to do it in autumn. In which autumn of which year will it be done?

I am pleased to note from the Minister's statement this morning that he will introduce such legislation and is in discussion with the Financial Regulator and Central Bank. As with everything the Government does, action on this matter is being taken too late. The Minister claimed several times that he is giving certainty to the market. How many times did he hear us pleading with him to give certainty to the market? How many interviews have been given by me, Deputies Richard Bruton, Alan Shatter, Enda Kenny——

Kieran O'Donnell.

I am glad Deputy Dooley is thinking of his neighbours. The part of County Clare it is proposed to transfer to Limerick is safe with the two Deputies behind it. The Minister of State, Deputy Peter Power, will bring it into Limerick while Deputy Dooley will keep it out.

I accept the Minister is providing some degree of certainty this morning. Why did he not do so six months ago or when bond prices were increasing?

The National Asset Management Agency started its work six months ago.

The Minister could still have done what he is doing now. Instead of using the €2.5 billion provided for in the NAMA business plan to pay smart accountants to go through the files one by one, he could have done what he now proposes, namely, take a tranche of loans, sample it, arrive at a discount and proceed with the transfer.

That is not permitted under European Commission rules.

The Minister stated this morning that he has notified the Commissioner that this will be done in future and that the Commissioner is satisfied with this approach. It must be allowed if the Commissioner has agreed to it. The reason the Minister is able to state that the remaining bad debts in Anglo Irish Bank will be transferred to NAMA in one tranche and will no longer be taken sequentially is that sampling has been done to enable the transfer to proceed.

While certainty has been provided about what will be done with Allied Irish Banks and Irish Nationwide, the Minister's attitude to the Educational Building Society does not provide certainty. This is a very important issue. We all know the EBS is on the market but the Minister did not indicate when NAMA will make a decision in the matter. I do not understand the reason it takes so long to examine four bids.

The Financial Regulator has indicated it does not affect——

The changes with regard to the National Asset Management Agency are good. It was ridiculous that every debt above €5 million was the subject of transfer when all the main banks have large units trained to work out, with the banks' clients, the wind-down of debt that cannot be paid. A threshold of €20 million is much more reasonable.

NAMA also made a mistake in responding to political comment by crystallising major debt much too quickly on the transfers. This was not necessary, particularly given that the liability only arises when the debt is crystallised. While we may praise ourselves for full transparency, if the debts had not been crystallised at such a rapid pace, the bills would not be coming in so quickly.

A secondary effect of raising the ceiling to €20 million is that debts of this order will not crystallise as quickly. There are 620 people who have debts of between €5 million and €20 million according to the figures provided. This gives certainty and is, therefore, worthwhile.

This morning, the Minister referred to the manner in which the money being transferred to the various institutions will appear in the national accounts. I ask him to elaborate on this matter in greater detail.

I understood the Minister to say that the fiscal deficit in 2010 will be 32%, an extraordinary figure. The promissory note is going into Anglo Irish Bank but the actual turn into cash happens over a number of years. From the EUROSTAT point of view, is the whole promissory note taken into account in 2010? More importantly, will that follow into the accounts of 2011?

Will it follow in the calendar year 2011 or is it after 12 months? It is not even the 2010 accounts yet, as far as I know. If it goes into the 2010 accounts is it only to the end of the year and will we be able to say in January 2011, to give confidence to the market, that the fiscal deficit is now down by 20%?

Provided there are no more injections in the meantime.

Provided there are no more injections.

I understand the Minister is treating the money going into Irish Nationwide in the same way. What way is the Minister treating the money going into AIB, for accountancy purposes? It seems it is an investment in a going concern.

That is a direct investment under the pension fund.

It is an investment in a going concern?

So it would not be treated as national debt.

No, it is a capital investment.

It would add to the total debt, would it not?

No, because there is no borrowing. It is accumulated reserves.

The Minister is using the pension fund.

We are using existing accumulated reserves. The EBS is on a promissory note structure as well, or will be in the absence of a successful bid.

The Minister might go through that again in his reply.

The capital assessment of Anglo Irish Bank is a moving target and it has moved a lot since the day the Minister told us, when we nationalised it, that the outside hit would be €4.5 billion. I thought the Minister would have more certainty on the figure. There is considerable discretion in the range €29 to €34 billion. Why can the Minister not be more precise at this stage?

Deputy Noonan will have to ask the Regulator about that. It is his practice.

He briefs the Minister. The Minister has the information. The Regulator does not brief me. I am asking the Minister to explain why there is such discretion there. It will give continuing uncertainty in the market.

I can arrange a briefing if the Deputy wishes me to do that.

The Government is adopting another piece of Fine Gael policy. Does the Minister remember the number of times we asked when he would replace the directors of AIB? Does he remember our arguing that he should not have sanctioned an internal appointment to the role of chief executive but should have insisted on an outside person? I am glad he has moved to that position. However, when I last looked, 60% of the directors who were in AIB when the bad decisions were made were still in place. There was something similar in Bank of Ireland. They should be all cleared out. I am not saying they are culpable but it happened on their watch. When the Minister's friends sitting behind him face the electorate, although they are not personally culpable they are still going to get shot.

A lot of Deputy Noonan's friends appear to be about to be shot as well.

The same rules should apply to banks as apply in this House to Deputies who are earning far less and working much harder.

We should make them stand for election.

The next speaker on behalf of the Labour Party is Deputy Joan Burton. Deputy, you also have 20 minutes and I will, of course, be delighted to protect you as much as you need.

It is always delightful to be protected by Deputy O'Connor. Tallaght comes with extra protection, so thank you, Deputy O'Connor. That is very welcome.

That is a terrible thing to say about Tallaght.

It is a very positive thing. Tallaght is a lovely place. I cannot wax as eloquently as Deputy O'Connor about it but it is a lovely place.

This morning's announcement by the Minister of the complex set of arrangements he has made to further acknowledge the level of the crisis that has convulsed the Irish banking system has probably introduced levels of fear and trepidation among ordinary people. The blanket bailout of the banks two years ago, which the Government called "the cheapest bailout in the world", has turned into a disaster of historic proportions. The Minister, Deputy Brian Lenihan stands before us today, having brought us news of the largest bank bailout, proportionate to the nation's wealth, of any country in the world. One would probably have to go back to 19th century South America to find failures and commitments on such a spectacular scale.

Yesterday, there were tense exchanges between Opposition leaders and the Taoiseach as to why the extended liabilities guarantee was going through last night without the information being provided to the House as to what — and I put the question specifically when I spoke last night and others did as well — would be the further commitments to Anglo Irish and what would be the further commitments to Irish Nationwide and Allied Irish Bank. The response of the Taoiseach, who is the Prime Minister of our country, was that on the eve of today's momentous announcement he did not know. That seems an odd way to run a Government. One of the strange things about Ireland is that over the two years of this crisis the governance of Ireland, by this Government and the people who assist it, has failed the Irish people to a very significant extent.

Last night and this morning, however, the Financial Times devoted two pages to an interview, given in the daytime yesterday by the Minister for Finance, in which he set out all of the figures in quite considerable detail. What is the significance of this?

It is very simple.

Was it a case of going back to the 19th century? Did the Minister and his Government look to the foreign and English media to make an announcement that should have been conveyed first — to use the old colonial term, as the Minister yesterday was clearly in a colonial frame of mind — to the native Irish Parliament? The journalists involved interviewed me as well.

Did they not give the Deputy enough space? Is that what is bothering her?

I knew exactly when they were going over to meet with the Minister, having previously met with officials in various institutions. I met them. I am quite sure people from Fine Gael met them also. We were briefed that this was happening. This is putting us back into the 19th century.

This is what the Minister had to say in the Financial Times, which reports:

The failure of Anglo Irish Bank, the lender at the centre of the country's financial crisis would, "bring down Ireland" the country's finance minister said, as he vowed the country would stand behind the institution. Doing this will raise the cost of its taxpayer-funded banking bailout up to €35 billion.

That is the figure the Minister gave to the Financial Times yesterday.

I am sorry. The Deputy is quoting figures I did not give.

I did not interrupt the Minister. Is he saying the Financial Times is wrong? This is the interview he gave. He gave it yesterday while his Taoiseach, the leader of his Government, sat here and told Deputies Kenny and Gilmore he did not what the figures were. The Minister for Finance was going to foreign media and laying it on the line to them as to what the exact figure was.

I did not give those figures.

I am sorry. It is here. It was up on the website last night. It appeared on the Financial Times website sometime after 9 p.m. yesterday before the Dáil had concluded its business. The Minister can check that if he so desires.

The Minister should check if a photograph of him was included with the article.

People around the world were tweeting about the matter quite early last night.

The Minister stated in his interview with the Financial Times that “Any Anglo failure would bring down the sovereign”. Is he convinced at this stage that he has resolved matters as they relate to Anglo Irish Bank? Shortly after the extension of the guarantee to that institution — either in late 2008 or early 2009 — I put a proposal to the House to the effect that an inspector should be appointed to oversee its affairs. I did so because on St. Patrick’s Day 2009, in another interview which appeared in the international edition of the Financial Times, the Minister stated that the cause of the destruction of the Irish banking system was crony capitalism. I have the relevant pages from the newspaper if the Minister wants them.

As repeated in the Financial Times today, at the heart of the crony capitalism to which I refer was a boutique bank specialising in property development and land purchase. A second article in the newspaper states that Anglo Irish Bank’s top ten borrowers accounted for more than half its loans. The Financial Times is simply repeating for the world what most Irish people already know, namely, that the core group of customers of Anglo Irish Bank comprised ten major developers with loans ranging from €1 billion to €2 billion or €3 billion. However, the bank’s key portfolio of loans was made up of 100 big developers.

What is the Deputy's point?

My point is that it has taken two years' worth of wasted time and effort to deal with the top ten developers and the remaining 90. Anyone in business would know that if one is involved in a receivership or a liquidation, the notion that it would take more than two years to clarify the position in respect of 100 accounts is utterly——

It is not 100 accounts, it is a multiplicity of accounts.

Why does the Deputy not listen? He might learn something. The notion that it would take more than two years to resolve matters relating to a group of 100 customers is entirely extraordinary. This leads me to the view that the fundamental cause of what happened in Anglo Irish Bank was a failure of political governance as a result of the influence of the type of crony capitalism to which the Minister referred in his interview with the Financial Times on St. Patrick’s Day in 2009. The interview to which I refer appeared on the front page of that publication and continued on one of the inside pages. I am sure the Minister remembers the interview well because it was given significant coverage.

The Minister has made a disastrous series of connected blunders in respect of his handling of the Anglo Irish Bank crisis, which has brought the remaining elements of the banking system that were capable of being saved to the brink of destruction.

That is why the Minister has the respect of commentators across the globe.

Earlier, he outlined his plans in respect of AIB. Effectively, that institution will have become almost a nationalised entity by the time the process the Minister described concludes. Then there is Irish Nationwide, a tiny building society which has placed taxpayers — those who elect us to the Dáil — on the hook for over €5 billion. Can Members believe that?

Anglo Irish Bank and Irish Nationwide have always been at the rotten heart of Fianna Fáil strategy in respect of the bank guarantee. Fianna Fáil did not care that much about Bank of Ireland, AIB or the other institutions. All it cared about was its crony financial institutions, namely, Anglo Irish Bank and Irish Nationwide, and the developers to whom they had loaned money. The two Brians, the Taoiseach, Deputy Cowen, and the Minister for Finance, Deputy Lenihan, hoped against hope that somehow or other the country would turn a number of corners and that this would make matters less bad then they appeared.

Today, we have been given more bad news about the two institutions to which I refer. The Financial Times states that the cost in respect of Anglo Irish Bank will be €35 billion and €5 billion for the tiny building society that is known as Irish Nationwide. That is the pass to which the Minister and his leader, the Taoiseach, have brought this country. Today is “Black Thursday” and the Minister and his party, Fianna Fáil, will be remembered for visiting it upon this country.

The Minister stated that Commissioner Almunia welcomed what has happened. What has the Minister promised the Commissioner in return for saying that?

If he would say in——

What has he promised Commissioner Rehn? That is the one item that was missing from the Minister's contribution. The Minister made a statement earlier this morning and, true to form, the courtesy of a briefing in respect of this was not extended to Opposition Members. In governance terms, that was another bad misstep. In the statement to which I refer, the Minister said: "It is important that we have a credible path to show how we propose to meet this commitment. Accordingly, a four year budgetary plan, incorporating the annual measures will be published in early November". Has that been agreed with the European Commission?

I do not know what is the correct adjective for barrister.

Perhaps it is "barristerial". The Minister certainly made a very barristerial statement. Many barristers are world-class bluffers and spoofers. A barrister will often give one an opinion which states that black is white provided one is prepared to pay for it.

What is the Deputy's excuse?

Would it be possible for us to be shown the colour of the Minister's money and be given sight of the apparent advice from the Attorney General to the effect that, in the case of failed banking institutions, it is not possible to negotiate with bondholders? I strongly suggest that the Minister reconsider the phraseology he used earlier.

The Deputy misstates everything. I did not suggest that the Attorney General ruled out any negotiation.

The Minister has clarified the position. Who ruled out negotiation? The Minister gave the House a long, barrister-style lecture to the effect that negotiation was not possible.

I referred to the legislation governing this matter and the limits relating thereto.

The clouds lift.

I am glad they have lifted for the Deputy.

Now we are getting closer to the kernel of the matter. So it is not quite the position that the legal fatwa to which "Brian the Barrister" referred earlier actually prevents us from engaging in negotiation.

The Minister said it is grounded in legislation rather than opinion.

Unless the Deputy is a senior barrister, he should keep out of this.

Is Deputy Burton a barrister?

We are trying to encourage "Brian the Barrister" to provide some insights into his legal mind. Barristers can tell one anything; that is what they are paid to do. They are paid to argue.

I rely on the advice of the Attorney General in respect of this matter.

Fixing the banks is not about using clever, barrister-style arguments——

Deputy Brian Lenihan is the Minister for Finance.

——it involves financial engineering and doing the serious and hard work necessary to provide us with a banking system that will operate properly and provide credit. Unfortunately, that is not what the Government has provided during the past three years. I argued with the Taoiseach when he was Minister for Finance about contracts for difference. I told him it would turn the Irish Stock Exchange, consisting of a small number of shares concentrated in banks property and construction, into a casino, and I got the brush off. Month in and month out I told him that the property-based tax breaks were blowing up a financial bubble, but he would not believe it. I subsequently repeatedly told him that what was happening in the models for growth we were witnessing was unsustainable. The former Taoiseach told us that it constituted talking down the economy and people doing so should go off and commit suicide.

Today is a day of infamy in Ireland; it is Black Thursday. We have heard about €50 billion of costs and losses to be borne on the backs of the poor Irish people in this generation, the next generation and probably generations still to be born. This week the Germans finally finished paying off their war debt, not arising from the Second World War but from the First World War. This is the legacy Fianna Fáil is now proposing to place on us. It was announced not to our native Parliament of which, for all its faults, we are all so proud and for which our forefathers fought to get, but to the Financial Times of London, while the Taoiseach sat where the Minister is now sitting and told Deputies Kenny and Gilmore he knew nothing about it.

No figures in that report were attributed to me.

As a senior barrister, the Minister has suggested there is a serious legal view that a debt deal with the bondholders is impossible. He mentioned European Union and other rules, and he mentioned legislation.

I did not suggest that.

Can he cough up the details?

The Deputy will need to show some respect for truth in her utterances in this House.

Can the Minister give us the detail and tell us about his legal opinion? Can he write it down? Can he offer us a meeting with those who gave the legal opinion? Otherwise we are entitled to think this is barristers in Parliament chancing their arms.

It is the advice of the Attorney General.

In that case the Minister should publish it. The Attorney General is highly respected and his advice should be published. We will get our barristers to review it. Barristers are not the monopoly of the Fianna Fáil Party.

If the Deputy furnishes me with her legal advice I will have the Attorney General look at it.

Are we simply to have a four-year plan that is all about more pain for ordinary people? If the four-year plan is all about deflation we will have more people unemployed, more people leaving the country and more people whose mortgages are distressed. In today's announcement of the €50 billion, there is not a word about ordinary people in their 30s and 40s who bought at the height of the boom. Both parents might have been working, with perhaps one self-employed and one in the public service. Their mortgage repayments are often from €1,200 to €2,500 a month and they are now in serious negative equity.

In the 1930s there were films, including Frank Capra's "Mr. Deeds goes to Town", about bankers who stole little people's money and lives. In all of the Minister's announcement of the €50 billion for Anglo Irish Bank, the Irish Nationwide Building Society and others, there is not a word for those little people. He does not even talk about how he might approach his four-year plan and explain the kind of pain he has in mind which he will bequeath to the Opposition should the Government decide finally to go to the country and retire Fianna Fáil from government. It is long past its retirement time. What does the Minister have to say about the impact of this statement on ordinary people?

The Minister was wrong to put NAMA into the NTMA and to compromise the reputation of the one agency——

That is a terrible slur on the public service.

—— that reasonably effectively sold bonds successfully for Ireland. The Minister compromised the NTMA by placing NAMA in it. Even at this point the Minister could reverse that decision before Ireland re-opens the auctions to the bond markets. Why was NAMA not put into, for example, the Central Bank? The Minister decided to put it into the NTMA so that the principal people in the NTMA would not just have the responsibility for looking after selling Irish bonds but would also need to look after the mess that is NAMA. From a management point of view, it was a serious strategic error to mix up the two. In the time before we go back into bond auctions I advise the Minister to seriously reconsider what he did there.

The Minister is shocking.

It is a shocking slur on the public service.

The Government has destroyed the country with mistake after mistake. It made a hash of everything and the ordinary people have to pay the price for its incompetence.

Projecting the cost of the Anglo Irish Bank bailout as €29.3 billion is completely sly when admitting in the same breath that the final cost will most likely rise to €34.3 billion, in the event of further losses. We have been told that the €34.3 billion figure is a worst-case scenario, but we must remember that all aspects of the Government's banking strategy have been the worst case scenario up to now. When the Minister for Finance told us two years ago that the worst was over, the worst had not even begun. When, according to the Minister, the worst was over, the cost of the overall bank bailout of nearly €50 billion had not even surfaced. When the Minister first proposed nationalising Anglo Irish Bank in January 2009, he estimated that it would cost €4.5 billion. Government policy is like watching economics for slow learners. It takes it years to decide anything and when it does, it is the most costly and worst option.

Concerns about the Government's ability to pay for the banking bailouts have pushed Irish State borrowing costs to record levels. Because of the financial impact of the guarantee, the borrowing and the recapitalisation of the banks, Ireland's debt is now being serviced at a record Irish and EU high of 6.8%.

The prospect of the Government taking a majority shareholding and control of AIB is now inevitable and has been since the outset of this crisis. AIB should have been nationalised two years ago, as advocated by Sinn Féin. Such swift and decisive action two years ago would have dealt with credit streams to SMEs and households, and it would have stabilised the banking sector.

The impact this bailout will have on the Irish deficit is enormous. The Government's goal to come back within the terms of the Stability and Growth Pact by 2014 has been blown out of the water. Today's estimates will mean the Government has less money to spend and will have to introduce an even tougher budget in December. Almost every cut that is being made is to fund the Government's failed banking policy. Where will the growth come from to bridge the chasm between what the Government is spending on the banks and what it is taking in? The bill for this bailout will bankrupt the State. The reality is that Ireland is bust and faces a potential Greek-style crisis.

Bondholders lent private money to private banks, not to the State. They did not lend the money for infrastructural investment or to create jobs; they lent their money for a high return. The Government warns that cutting Anglo Irish Bank's bondholders would kill demand for Irish sovereign debt. The opposite is true as record-high sovereign spreads show. The open-ended exposure to private liabilities across the banking system drives up sovereign yields. While the State continues to promise it will fund Anglo Irish Bank's bondholders, the prognosis for financial institutions and the State's own sovereign debt remains uncertain.

Why should we socialise the losses of the financial sector? Why should we inflict pain on our people for the failings of capitalism, liberal markets and unbelievably greedy bankers and speculators? It is demanded of us that the economy be hamstrung by pay cuts, job losses and privatisation while servicing an increased level of debt. Reducing incomes while increasing sovereign debt only raises the risk of default, hence yields will continue to rise. A crucial, yet widely ignored point from Standard & Poor's when downgrading Irish debt is that the austerity measures have depressed activity and tax revenues. This slash-and-burn approach does not work and only increases the budget deficits and the interest rates on Government debt.

No matter what language the Government tries to hide behind, the taxpayer still has to pay for the Anglo Irish Bank debacle. Public funds are being pumped into these banks while public services and welfare are ruthlessly cut to try to bridge the gap in the public finances. Our Government's banking policy makes the mistakes in Iceland look tame.

Feeding the opportunistic bank bondholders is killing economies in trouble. If an economy does not grow but tries to pay back huge debts, it will turn into a debt-servicing agency which hollows out the productive marrow of society. The Government has placed international bondholders above every man, woman and child in this State, on this, the worst day for our economy in history. Black Thursday is as good a name as any to attribute to it.

The Government's credibility is contaminated by the banks. Our banking system is crippled and having a serious impact on our sovereign debt. The markets want growth; anything that strangles growth scares them. The State's sovereign debt has become tied to our banking institutions. The most recent increases in interest rates on State bonds were directly linked to the uncertainty surrounding Anglo Irish Bank and Ireland's ability to pay for the bank's debts.

Ireland will fill economics books of the future with tales of pathetic and, in many cases, corrupt economic management. Those who run our country recklessly fuelled the boom with disastrous consequences. Now, in the bust, they are making things considerably worse. The problem for us is that the very people who did not see the bust coming and cheer-led the country over a cliff are still in power.

In advance of the 2007 general election, Fianna Fáil told the electorate the economy was fine and built on solid foundations when clearly it was not. Today Fianna Fáil, and especially the Taoiseach, Deputy Brian Cowen, lies to the public when it claims nobody warned of the pending economic crisis. This is to hide its culpability in the financial and banking crisis faced by the State.

The bill for the bank bailouts has escalated to €50 billion. The Government has done more to ruin this State's future in one day than any other single body, institution or group ever did. We are being deliberately sabotaged by a Government that also has the neck to defend arrogantly what it has brought down upon the people of this State for generations. This was a home-grown crisis, fuelled by the culture of greed and corruption of successive Fianna Fáil Governments. It was the dismantling of regulation by the Government, coupled with its pro real estate policies, that brought this financial and banking crisis to fruition.

Today, Sinn Féin tabled a motion of no confidence in the Minister for Finance, the very Minister entrusted with the financial security of the State, who has led Ireland on a trajectory of perpetual debt for generations to come and who will savage public services for the people of the State in next December's budget.

The motion reads:

That Dáil Éireann, expressing its serious concerns about revelations in RTE "Freefall" documentary on Monday, 6 September 2010 that Bank of Ireland chairman, Richard Burrows, and chief executive, Brian Goggin, were informed by Anglo Irish Bank chairman, Seán FitzPatrick, and chief executive, David Drumm, that Anglo Irish Bank was insolvent and requested a takeover of the bank;

noting that immediately following this meeting Bank of Ireland management then contacted AIB and both banks immediately sought a meeting with the Minster for Finance, Deputy Brian Lenihan;

further noting that following these meetings the Minister introduced the Credit Institutions (Financial Support) Bill 2008, the bank guarantee on 30 September 2008 claiming in the Dáil that the purpose of the guarantee was to deal with liquidity or cash flow issues within the Irish banking system;

deplores the fact that the reality of the situation in Anglo Irish Bank was not revealed to the Dáil by the Minister before the passing of the guarantee;

noting that due to the financial impact of the guarantee and the subsequent borrowing and the recapitalization of the banks that the State's debt is now being serviced at a record Irish and EU high of 6.8%;

noting that the estimated cost of the Government's banking policy has continued to spiral out of control;

noting that new estimates for the capital and recapitalisation costs of Anglo Irish Bank will reach €34.3 billion and that the total cost of the bank bailout will reach €49.3 billion

has no confidence in the Minister for Finance, Deputy Brian Lenihan.

I note Deputy Noonan's similar sentiments earlier. I invite the Deputy and the Fine Gael Party to consider giving some of their parliamentary time to allow this motion of no confidence to be tabled so we can expose the gross mismanagement of the State's finances.

Is Deputy Morgan cosying up to Fine Gael?

We need an immediate exit strategy. This can be achieved through the creation of a State bank by nationalising the positive assets, including the deposits and performing loans of AIB and Bank of Ireland, and transferring them into such a new bank. It can also be achieved by allowing the bank guarantee to lapse, for the remaining assets of AIB, Bank of Ireland and Irish Nationwide to be divided up between the bondholders of those institutions, and securing all deposits in the State bank, given that all its activities would be under sovereign guarantee.

It is becoming increasingly clear the Government will bankrupt the State if we continue to repay the bondholders. The bondholders must be cut loose and the guarantee allowed to lapse. The taxpayer has no obligation to repay both senior and subordinated bondholders at Anglo Irish Bank on the grounds that the terms of these securities allow for the possibility of them not being paid back if the bank is insolvent. This is why banks get to count these securities as part of their regulatory capital. Furthermore, none of this debt matures until 2014 at the earliest and these bonds will no longer be covered by a State guarantee.

All the banks are to varying degrees zombified, being unable or unwilling to provide credit to the economy. We must, therefore, transfer the deposits into a new, single, State bank which would be safe and thus re-open credit streams.

Through public ownership, the State will be in a position to directly control finance and ensure credit is injected into the real economy. Scarce public funds should not be used to continue to bail out bondholders from their own reckless behaviour. It is time the Government accepted that the current strategy to restore our banking system has failed.

Ireland and Europe operate under a financial system called capitalism. That system prescribes that if a business venture fails, then the loss arising falls on the shoulders of the investors. These bondholders were private investors investing in private enterprises. Why is the Government changing the rules in this case? Is it so it benefits its cronies?

On "Morning Ireland", the Minister for Finance used an analogy about the consequences of a sovereign debt default. He compared it to telling one's bank manager that one will not repay one's existing loans but is looking for a new loan anyway which would, naturally, lead to a refusal. That is, however, grossly misleading. Why would the State not receive a loan from the bond markets? It has always honoured its sovereign debt commitments. In the case of Anglo Irish Bank, it is a case of private bondholders funding private banks, so this analogy is not true. Unfortunately, the Government seems to have been getting away with this argument so far. An exit strategy from the current debt crisis is imperative and a new system of public banking must be established.

An economic policy that is reduced to focusing solely on saving banks and reducing a deficit, without any attention to the growth side, is doomed to failure. The Government has committed to put in whatever capital is necessary for splitting Anglo Irish Bank in two and its subsequent recapitalisation, with today's figures peaking at a whopping €34.3 billion, but the economy outside the banks is being grossly neglected.

The Government claims that the overriding priority is to reduce the public sector deficit to the Maastricht treaty limit to 3% of GDP by 2013/14, and that massive cuts to spending will achieve that. Sinn Féin disagrees on all counts. Our overwhelming priority is the economy, restoring growth, reversing the tide of business bankruptcies, getting people back into work and restoring funding to our schools, hospitals and investment in our infrastructure. These are the policies that will actually secure deficit reduction, as tax revenues rise and welfare outlays lower as people are brought back into employment.

The deficit is a symptom of the crisis, not its cause. The deficit appeared precisely at the time of the recession; before then the Exchequer annual returns were in modest surpluses. Government policy has exacerbated that deficit, producing the highest in the euro area at 14.3% of GDP. The underlying deficit, excluding the extra money that can always seem to be found for bank recapitalisations, is still an enormous 11.6% of GDP.

Government policy is a complete failure, even on its own terms. No reputable international or domestic agency, IMF, OECD, EU or the ESRI believes the 2013/14 target will be met and most forecast the deficit will rise further in the short term. All these agencies concede that the prospects for reducing the deficit are dependent on the levels of growth achieved over the medium term. This is the real determinant of the deficit. The bitter experience of the last two years is that cutting spending has weakened growth and therefore led to a wider deficit. A pro-growth strategy is required to revive economic activity and narrow the deficit over the medium term. This would include investment in growth-enhancing education, research and development, infrastructure, health and child care.

It is claimed that further cuts of at least €3 billion will be required as the domestic crisis deepens. This is the madness of repeating a policy which has already failed. The cuts have failed in their stated objective; the opposite course is actually required. Just as lower Government spending sharpens the downturn, lowers tax revenues and increases welfare outlays, so increased Government spending can do the opposite. That is the way to close the deficit through Government investment.

The continuing problems of the economy here are entirely homegrown. The Government provides money to financial institutions in previously unimaginable quantities but there is no control over the use of money, no safeguarding of the essential economic functions and no accountability for the damage that has been done. The decision of this Government today is frightening. I do not believe the Government has a mandate to exercise such a decision. If the Government refuses an election to allow the people to decide on the enormity of what is happening, the least it should do is to allow people to share their opinions through a referendum. Future generations will remember this as a black day.

I have only been here for 16 months and I sometimes wonder about the relationship between the world in here and the world outside these doors, there does not seem to be too much of a connection. I do not have an economic background so I do not approach this from that angle but from the point of view of the ordinary person, who is appalled and disgusted by what they see happening here. It appears there is a bottomless pit of money and guarantees when it comes to banks but when it comes to the needs and lives of Irish people, they are told they must accept the cuts and make the sacrifices, that it is acceptable to lose their homes and jobs, that it is acceptable to lose special needs assistants, and that communities must accept that they will lose those supports that have made such a difference.

On Monday, the Minister for Community, Equality and Gaeltacht Affairs attended an exhibition in Liberty Hall that was organised by the north inner city drugs task force, featuring a number of projects from groups in the north inner city that work with marginalised and vulnerable people, those in addiction, people from minority groups and those working with those at risk of suicide and other high risk cases. He saw the tremendous work being done by those projects on shoestring budgets. They have been cut already and must now accept further cuts.

This morning at the meeting of the Oireachtas Joint Committee on Foreign Affairs we were reminded of the increases in the numbers of people living in hunger and poverty. A fraction of what is going to the banks would make a huge difference in the areas I have mentioned.

There is a sense that if the banks fail it will be the end of the world but banks have failed in other countries and those countries have survived and improved economically. There must be a limit, a bottom line, because the pit is not bottomless. Reckless financial and fiscal management are at the core of what is happening in this country. When will those exorbitant salaries, bonuses and expenses enjoyed by executives in State and semi-State bodies and in the higher echelons of the universities and the Civil Service be tackled and ended? At the other extreme, there are people talking about the effect missing out on the Christmas bonus last year has had on their lives.

The Minister is convinced this is the way forward but the facts say otherwise. What do we get for this money being diverted to banks? It will not create jobs or pay for our children's education, it will not provide health or social services. The way we treat the vulnerable and marginalised is a mark of a civilised society but I do not see too many marks of civilisation in this country. It is unbelievable that we must accept pure financial fiction and economic treason.

I thank the Taoiseach, the party leaders and the Ceann Comhairle for giving us this rare opportunity to address the Chamber on an issue of such importance.

When this crisis originally broke on 30 September 2008, I was a member of Fianna Fáil. I was under the party whip and supported the measures passed in law in that week. I opposed the decision to nationalise Anglo Irish Bank because I was not convinced of the arguments made by the Government at the time. The Government succeeded on that occasion, however, and the country now owning Anglo Irish Bank means that we must make our decisions based on the situation as it stands, and we must cope with the consequences of past decisions. On that basis I have supported further elements of the Government's response to the banking crisis, including the decision made here last night. I will continue to evaluate the proposals made by the Government on that basis, the basis of where we are and the best for the country.

I have often tried to put myself in the position the Minister for Finance and the Taoiseach were in on the night the guarantee was decided to see if I would have acted differently. Not having the information available to them, it is difficult to do that but if they were faced with the collapse of the entire banking system in the following days, it is difficult to blame them for making the decisions they made, decisions that were made in good conscience and for the right reasons. I do not condemn them for their efforts to avert that crisis and to manage the situation from there on.

I have not been impressed with any of the proposals made by any of the Opposition parties with regard to their response to the banking crisis either. Each of them has lacked credibility and it is very difficult to believe that they would have made very different decisions had they been in government on that occasion two years ago.

We do not know that.

It is my belief, for what it is worth.

One thing which is now becoming very clear, apart from the clarity around how much money this will cost the State, which will possibly be up to €50 billion that we may or may not get back, from listening to the Governor of the Central Bank on the news today is that the representatives of the Government, the Central Bank and others were misled by the banking institutions of this country. It is clear that the mess we are in now is partly because the full facts were not given to the Government at the earliest stages by the banks. That is a very serious matter because the people are Ireland are going to pay for it, if it was deception.

I know the Minister will answer questions at the end of this debate. I would like the Minister to answer a number of questions. Was he misled at any stage in this process over the past two years by senior management or bank directors of the main banking institutions in this country? If he was misled, in what way was he misled? I would also like him to identify those people who misled him, if they did so. Has he or does he intend to call in any of the law enforcement agencies to investigate the manner in which he may have been misled? We are all entitled to that information.

It has also been indicated by the Minister for Finance today that the Government will shortly prepare a four year strategic plan to help us out of the great hole we are in. I want to put my position on the record on this. I will scrutinise that plan whenever it is brought before the Dáil with great care and attention but I could not, at this point in time, pledge my support for a plan which is not founded on basic principles of social justice. I hope that when decisions are made which will bring us along the next step of this path that the cares and concerns of the most marginalised people in the country are foremost in the minds of the members of the Cabinet.

I thank the Ceann Comhairle for the opportunity of speaking to this important and urgent debate on the announcement by the Minister for Finance on banking. Before I go into the details of the debate it is important to state that some senior bankers misled and lied to politicians in this House. As a result of their actions, they contributed towards making the situation worse. That is my position. This was crime against our people and the taxpayers and an insult to all elected members of this House. It is important that this is said today in this debate. It it is important that it is said on behalf of the 455,000 unemployed people in the country.

We can talk about banking and the huge greed and mistakes which were made all day, but the results of the banks' actions have to be dealt with first. Since the summer the numbers out of work have soared to 455,000, the highest since the live register began in 1967. At the same time the Government has already committed to spending €25 billion on the banking black hole. The Government's plan is not working and that is the reality. We have already seen three deflationary budgets and a fourth is looming. Taking another €3 billion out of the economy will lead to further job losses. Pay and welfare cuts were imposed in last year's budget and the numbers out of work have climbed steadily since. This is the reality for most people on the ground but the Government still needs to wake up to this reality.

We need a plan for jobs and growth. No strategy currently exists to get people back to work or to keep them working and this is a major concern for me. Almost every other EU state has a job protection scheme in place and in some countries, such as Germany, unemployment has already started to fall. The final bill for the bank bailout will rise. The bill for Anglo Irish Bank alone could rise to €35 billion or more. Even conservative voices such as the Financial Times and Barclays bank say our banking plan is lunacy because it places the entire burden on the taxpayer. This is the key issue in this debate today. I am putting forward constructive proposals to try to solve the problem.

We need to prioritise jobs and growth. We cannot cut our way out of this crisis. It is not working and the past two years have proved this. We also need to end the uncertainty which currently exists in this country. I have proposed the idea of a job strategy to assist the unemployed. For example, in my constituency of Dublin North-Central I proposed a plan that every person spend an extra €20 per week. I have targeted this campaign at people over 50 years of age who have a few bob in savings — I understand there is in the region of €75 billion in savings in the country. If such people spent €20 per week extra in their own communities we could create an extra 20,000 jobs in the country. I refer to local businesses, stores, printing companies and things like that in every Deputy's constituency. It is a sensible and logical proposal.

When we are discussing turning the economy around we should listen to the calls from SIPTU, OPEN, the Irish National Organisation for the Unemployed and Mental Health Ireland when they refer to the 20,000 jobs in the community employment schemes which provide very valuable services, as Deputy O'Sullivan mentioned in her speech, in communities. I have seen these services on the ground, including educational services, after school projects and services for homeless people, and the projects and people who work in them will be cut in the budget. I ask the Minister to end the madness. We have 20,000 people making a contribution to their communities.

If the Government is serious about tackling the economy it also has to make job creation part of the solution. Job creation equals tax revenue and happy families and people. Think about it; that is the way out of this mess. It is important that we think outside the box, that is, that we consider sectors of Irish society which are already making massive contributions to this country. I refer to the arts sector which already has in the region of 95,649 jobs. I also welcome the fact that there are 5,500 full-time jobs in the audiovisual sector, with more than 560 small and medium sized enterprises operating in the sector. I welcome the contribution made by the arts. This is an angle for job creation in the areas of culture and tourism, and investment in the country is important.

I recently heard that the chief executive of Coca Cola said in the US that the brand Ireland was one of the most well-known names there. We should use that creatively to project the vision for this country and it has the potential for job creation. Earlier, I heard the Minister for Finance state the urgent need to reinforce international market confidence in the restoration of our banking system to health and our capacity to take the steps essential to achieving the enduring sustainability of our budgetary position. He also said in his speech that international financial markets have been clamouring for some time for greater certainty on the final cost of repairing the substantial damage wrought by irresponsible and reckless lending practices and systematic failures in corporate governance and risk management. That is the reality and most Deputies in this House would identity those issues.

The Minister also referred to the public anger. Not only is the public angry, it is furious. The people of Donnycarney, Marino, Edenmore, Clontarf, Beaumont, Artane and Drumcondra are furious about the way this situation has evolved and the perception and reality for many people is that the people responsible are getting away with this. We need to identify and deal with this issue in a just and fair way. I strongly believe that Ireland should be a just and equal society. At the moment, there does not seem to be any justice for regular and decent taxpayers and the unemployed people of this country. It is a disgrace and a scandal that people are literally getting away with murder. Equally, it is a disgrace that the Government is not prepared to listen to the sensible proposals of other political parties for dealing with this country's economic crisis.

I have heard excellent proposals on job creation and banking. As an Independent, I suggest that every Government, regardless of its party affiliation, should listen to the suggestions of Opposition parties and backbenchers on issues like economic development, banking and job creation if such proposals are sustainable. We should all cop on and support such ideas.

That is the reality of what many people were saying to me on the doorsteps and at my clinics over the summer period.

I wish to offer a few proposals to the Minister for Finance. I would love to see him reduce tax breaks for the wealthy to EU levels; to introduce a wealth tax for high earners with assets worth more than €1 million; to end tax exile loopholes by making citizenship the basis for taxation for high earners; and to apply PRSI and income levies to all income, regardless of source. I ask the Minister to consider such constructive ideas, even if they might not be trendy or popular. If we are to make our way out of this mess, we will have to face reality. Although recent opinion polls have suggested that many people want public expenditure to be cut, I strongly believe that part of the solution must involve an equitable and fair taxation system. I accept that may be a minority view.

We need to reflect on the reality that our low taxation regime is not working. There is a deeply ingrained belief in Ireland that a low taxation regime is needed to encourage entrepreneurship, investment, employment and wealth creation. However, countries with higher taxation regimes outperform Ireland on economic competitiveness, quality of public services and enterprise supports, and also have lower levels of poverty and inequality. I ask the Government to study the economies of such countries. Another common myth is that high earners pay disproportionately high levels of tax. I hear this in the media every second night of the week. In fact, high income earners pay less in tax than is popularly believed, largely as a result of generous tax breaks to reduce their tax bills. Ireland spends over three times the EU norm on various tax expenditures, including tax breaks and reliefs. In 2009, the State lost €7.4 billion on tax expenditures. The Commission on Taxation has identified over 100 tax expenditures, which cost the State over €8 billion.

I would like to make a sensible proposal on that basis. If we want the quality of our public services and economic investment to be at European levels, we need to move to European levels of taxation over the medium term. I accept this might not be trendy or popular. If we are serious about tackling inequality and this country's major economic crisis, we need to take tough decisions. I suggest we should make such decisions on behalf of the 450,000 unemployed people in this country. Those who are lucky enough to be working have a responsibility to look after the 14% of people who are unemployed. We should not back down from tough decisions of this kind. I will conclude by asking the Government to listen to sensible proposals for dealing with this economic crisis because we need to work together to get out of this mess.

The Minister for Finance is quoted in this morning's Financial Times as saying the failure of Anglo Irish Bank would “bring down” this country. I wish to make it clear that the failure of the Minister’s banking policy and his catastrophic misjudgment throughout the banking crisis have put Ireland’s economic future at risk. For the first time in its history, this country is unable to access the markets. If this happened in any other situation of government, there would be mass resignations. The figures unveiled by the Minister this morning are absolutely horrendous and appalling. It is beyond the scope of most ordinary people to comprehend them. It appears that up to €34 billion of State money will be put into Anglo Irish Bank and almost €5.5 billion will be put into Irish Nationwide. We are aware that €6.5 billion has been put into AIB and €3.5 billion has been put into Bank of Ireland so far. These are astronomical figures. The total losses will come to at least €40 billion. That figure does not include the potential losses associated with NAMA. The Minister is well aware that many external commentators with a strong record in predicting banking losses have suggested that NAMA might lose up to €15 billion.

While those figures are shocking, some other figures are even more shocking. There are 450,000 people on the live register. Some 200,000 jobs have been lost since the introduction of the bank guarantee. By April of next year, 100,000 people will have emigrated. Some 2,500 people have their electricity supplies cut off each month. Approximately 200,000 mortgages are in negative equity. Does the Government not understand the emotional and economic pressures being faced by families throughout the country? The problems of the Ireland of 2010 have been caused by the political failure to see what was happening and to drive the country as we would want, with growth and with prudence. It is catastrophic that the Government has allowed a relatively small number of people to drive this country to the edge of an economic abyss. Nobody has paid the penalty under the law of the land. As I said this morning, a man who was unable to pay a fine of €250 was sentenced to 14 days of imprisonment in Mountjoy Prison and will have a criminal record for the rest of his life.

Many words, including "failed", "incompetent", "arrogant" and "wrong", could be used to describe the approach of the Minister for Finance to the banking crisis. Just one word — "unfair" — really captures the essence of what the Minister and his Government colleagues have done, however. Over the last two years, they had a clear choice between protecting the people of the country and bailing out reckless investors and even more reckless bankers. On every occasion, they chose to put the bankers before the people. Fine Gael would have handled things very differently if it had been in government during that time. Our policy has been very clear from the beginning of this crisis. We argued that Anglo Irish Bank could not survive as a commercial entity and needed to be wound down. After more than a year of denying reality, the Minister, Deputy Brian Lenihan, has finally acknowledged the inevitable by starting to wind the bank down. It is too late, as usual. It was suggested in this House that such a decision could not be taken under any circumstances because it would be catastrophic. Fine Gael's analysis of what should be done to deal with the Anglo Irish Bank crisis has been proven right.

Fine Gael also argued that even if NAMA were established, the Irish banks would not lend and would not be in a position to lend. We proposed the creation of a national recovery bank to make sure small and medium sized enterprises get the credit they desperately need. This was rubbished by the Minister for Finance and his Government colleagues. The Minister told the people of Ireland that the establishment of NAMA would unleash a wave of credit — it was described as a "wall of cash". Where is that wall of cash? Where is the wave of credit? We all know the answer — it never happened. Under the Government's failed banking strategy, it can never happen. What would the Minister say to the businessman who told me the other day that although his business has a turnover of over €1 million, the bank offered him an overdraft of €5,000? One cannot run a sweetshop in that situation.

Above all, Fine Gael argues that it was completely unfair for the Irish people to have to shoulder all of the losses of the banking catastrophe . It was only fair that the people who had lent recklessly to the banks should also share in the pain. What we were arguing for is nothing very revolutionary, it is a basic rule of capitalism; if one lends recklessly to failed institutions one must take the consequences.

However, the Minister for Finance and the Government decided instead that they were going to nationalise the losses of the banking system and make the people of the country pay the price for the mistakes of others. That is what they have done and that is what has crushed the spirit of thousands of our people, caused them uncertainty, disillusionment, anxiety and fear, and left a generation of young people considering their futures, many of whom have now left for the United States, Australia and other foreign climes. This is the sad consequence of a failed banking strategy by a Government that was unable to see the way ahead and find appropriate solutions.

The Government and the Minister of the Finance trotted out the big lie that there was no alternative. They and the bankers told the people that if they applied these simple rules of capitalism the international markets would desert us; that the only way to keep open these markets was for the Irish people to pump billions of their money into a failed banking system. Even on his own terms the Minister for Finance has completely failed in this regard. The markets he wanted to keep open are now closed to Ireland and the bondholders he tried so hard to please have turned their backs on Ireland. That is why, as Deputy Noonan pointed out, the country's bond auctions have been cancelled. The Government knows full well that if they were held the sovereign would either fail to raise the money or the interest rates we would have to pay would be extortionate. That is the consequence of poor political judgment in dealing with the options that were presented. It is the Minister for Finance and his policies that have closed the markets to Ireland; our policies — the Fine Gael policy — would have kept them open.

The very least the Irish people deserve from the Government, and from the Taoiseach and the Minister for Finance in particular, is that they should apologise for their actions, for their incompetence and unfairness and for their complete lack of understanding about how financial markets actually work. Instead they are still trying to run for cover. I heard the radio interview with the Minister for Finance this morning. He got annoyed when the interviewer reminded the listeners of his statement that the bank guarantee was the cheapest bailout in the world. He told her that was not accurate and that what he had actually said was that it was the cheapest bailout in the world so far. A fine lawyer's distinction.

What the Minister said almost two years ago was that the bailout of Anglo Irish Bank would cost €1.5 billion; he did not then add the words "so far". What he said subsequently was that the bailout would cost €2.5 billion, then €8 billion, then €16 billion, €24 billion and now €34 billion. Did he add the words "so far"? He did not. I also heard him claim today that the cost of the bailout to Ireland is only the extra interest that we now have to pay on the banking debt. That is nonsense.

Let me spell out the full cost of the banking bailout. It will be more than €2 billion every year in direct interest costs; sovereign interest rates at a record high and the financial markets now closed to Ireland; a banking system that is still in crisis and cannot access international funds, as a result of which small and medium businesses will remain starved of credit because banks are unable to fund themselves and therefore unable to lend; and a budget that will inflict massive pain on the Irish people as the Government again tries desperately to regain the confidence of the markets.

Let us be very clear about this. Every penny of spending cut by the Government, every penny of taxes raised above €3 billion in the next budget will be the direct result of a failed banking strategy. The markets have lost confidence in the banking strategy of the Minister for Finance, but they have also lost confidence in his economic strategy. Any small credibility he might have had left with the markets was destroyed last week when the Government produced its so-called "jobs strategy". It says a lot about this Government and how out of touch with reality it is that it thinks getting a series of State agencies to issue jobs targets amounts to a jobs strategy. They actually believe that 300,000 jobs can be created without any change in policy or without any additional money. What nonsense.

Fine Gael has produced a real jobs strategy called "New ERA"; 100,000 jobs can be created through an investment by the profitable semi-State companies and the sale of non-strategic State assets. That is a real jobs strategy, identified by the Minister for Finance as being a discussion document of real worth and identified by a Minister of State at the Department of Finance as being a worthwhile document. However, it will not be accepted by the Government because its tribal tendencies do not allow it to accept any quality proposal from anybody outside its own ranks.

The Government's "write whatever cheques" policy for banks has destroyed confidence in our public finances. That is why the Government has been forced out of the sovereign debt markets. That is why the Minister for Finance now says that we may need even greater spending cuts than previously thought. When one considers how €40 billion borrowed over the next five to ten years could have been invested to boost confidence in Ireland's long-term prospects, pouring it down the drain of two dead banks is, quite simply, an outrage on the Irish people by bad Government. Our banking and economic crisis is one whose origin lies in catastrophic policy mistakes. It is the legacy of the "when we have it we spend it" approach to managing the economy of the Taoiseach, Deputy Brian Cowen, when he was Minister for Finance and of his policy of blank cheques for zombie banks over the past two years.

The Fine Gael view is very simple; we can only beat this crisis and emerge from it if we have the courage to create a new future by changing our public services, restoring competitiveness and investing ambitiously in the arteries of the economy that drive recovery. Instead, the Government is pursuing a strategy which will leave Irish society, and the people who comprise it, deeply scarred by this recession. No matter how often the Taoiseach repeats it, writing whatever cheques are necessary to bail out delinquent banks and finding the softest targets to cut the budget deficit is not a formula for economic recovery. It is a strategy trapped in a cramped and out of touch view of the world. Many of its so-called "cures" are actually killing the patient. It is not doing anything to alter our course, change the underlying dynamic or redesign the dysfunctional system that is grinding down even the best of our people. Go into anyone's premises and talk to people in their offices and they will tell one how the State is crushing their initiative and enterprise. Some people continue to work hard and do reasonably well despite the pressure and intervention of the State and despite the fact that they operate against a background of catastrophic economic and political Government that has been there too long.

The Government strategy will not work because at its core it is about battening down the hatches and pulling up the ladder behind those who are already on the inside. It locks out those who have yet to get a foothold on the economic ladder and there is no help or encouragement to tap in to the motivation of so many people who want to help this country and who have a part to play, who want to take on new workers, who want to increase their business and who want to get back into exports. It is all waffle and loose talk. There is no concentration or real focus on making a real impact in that area.

It is the new generation which is being abandoned by Government, when it nurses along crippled loans from a reckless past instead of providing credit to the people who can build a successful future and when it is slashing investment at a time when the arteries for our economic success are choked for the want of improvements. It is about Government banning new recruits from joining our public service, but doing nothing to reform the bloated structure of politics and of government, identified even in this Chamber on a constant basis. It is about Government cutting the pay of low-paid public servants, but finding a way to exempt the 655 top earners in what was a most unfair decision. It is about Government cutting social welfare payments, but doing nothing to reform the features of our welfare system that trap people in poverty. What does it do for young talent who cannot get credit, who cannot get jobs, whose potential is wasted and whose spirit is crushed, their disillusionment exacerbated? It offers them a series of closed doors and bleak prospects — a passport to another country. That is the catastrophic misjudgment of what is necessary for economic recovery in our country. That is what the Government does to people. That is where the Government is wrong. That is where the people will reward it when they get the chance, by throwing it out.

In November, the Government plans to unveil a multi-year fiscal strategy in an effort to convince the markets that it really has a plan for this country that will work. These multi-plans are in the area of banking, of fiscal policy and of growth policy. The problem for the Taoiseach and his Government now is this. How, in heaven's name, could the markets have any confidence in a multi-year strategy from a Government that will not survive beyond a few more months? Is not the truth very simple here? Neither the markets nor the people of the country, whose trust the Government has used and abused, can have any confidence in a Government that has run out of energy, ideas and credibility. What this country needs is a clear agenda, a clear pathway to the future. It needs a strong Government with a clear mandate from the people of Ireland. In that context, what this country needs is a general election.

I look forward to this opportunity to speak on the statement issued by the Minister for Finance today on the banking crisis. No doubt it is a real crisis. As the Minister for Finance stated this morning, the figures that have been revealed are horrific and numbing in the sense of their scale and their implications for every person in this country. There is deep regret, and rightly, deep anger, at that level of legacy from a property bubble and banking failure in this country that has cost us dear. We must work out now how we get out of that, how we recover as a country, how we manage it and where we go on from here to get our economy working again and get people working again.

It was both a liquidity crisis and a solvency crisis. Sometimes people argue that it was one versus the other; it was both, in real depth. The liquidity position of our banks fed into the solvency crisis. It was that ease of access to money, coming in many instances from international banks in the European Union, pension funds and local authorities and other sources, in such large volumes into the Irish economy which created a liquidity pattern of excess access to short-term resources that ended up in helping create our solvency problem in the misguided banking model which built on that, taking those short-term liabilities and matching them with long-term assets that did not have the real value that people thought they had at the time. This has been both a liquidity and a solvency crisis and in a sense, I would argue, it was the nature of the liquidity system we set up, the huge reliance on short-term cash deposits in our banks, that was one of the fundamental causes of the problems.

In looking at the various options to solving that problem, in looking at what could have been done, I want to reflect on some of the other options that may have been available and that were correctly and honestly presented, and maybe give some reasoning that I would have as to why they were not taken, and, indeed, I believe, would not have been the right options.

First, when the immediate liquidity and solvency crisis became apparent — in fairness, there were some people who saw it coming in advance and called it for what it was — to everyone in September 2008 and the unsustainability of the model became exposed, I suppose there was the "let them go" option, which was to let the whole thing crash. However, we must take cognisance of the fact——

Is the Minister to issue a script to us on this?

Unfortunately, I do not have a script. I am speaking extempore.

On the argument that we should just let our whole banking system go, we must have regard to a number of points. First, much of our expert advice, for example, from the likes of Professor Patrick Honohan in his report into this banking crisis, stated such an approach would have led to catastrophic social consequences — massive unemployment and significant economic destruction. That is something one, when in Government, must take on board.

That is what is happening now.

I believe we can recover from our situation.

Do not be too sure about that.

I am confident we will as a people.

The other factor to take into account is that the European and other international institutions at the time had all set their direction against such a course — the experience, it would seem, from the 1930s, having scarred into people's minds in the European Central Bank and elsewhere that such an approach of letting things go merely leads to much wider social trouble, not just for the individual country but capable of spreading like a contagion.

Even in the instance of Lehman Brothers, which people might cite as an example of where a bank was let go, the reality was that institution only accounted for approximately 4% of US GDP in scale, whereas some of our institutions in immediate crisis accounted for over half of our GDP in scale, according to the size of their balance sheet. When one reads what happened in the US, rather than merely having a "let it go" policy, there were frantic efforts right up to the day before Lehman Brothers went into difficulty to try to avoid such a scenario using the approach that they had available to them in the US of merely merging banks to try to cover the difficulty. We did not have that option available to us, unfortunately, because of the crazy liquidity situation that had developed in Irish banks. The collective madness that had developed around property lending meant that we did not have a sufficient banking sector to pick up the pieces from any one other institution.

Letting them go or letting them merge and letting the banking system manage us through this crisis was not an easy option. It would have gone contrary to everything the European Central Bank and the European Union, and the US Federal Reserve and the Bank of England, and all of the other authorities that were advising us here at home, were saying we needed to do in the circumstances.

A second approach that was considered in some real detail was following something similar to what the UK Government had introduced, an insurance premium scheme covering future losses in the banks coming from these assets and loans that were impaired or, in our case, effectively, eviscerated. That would not have been the right approach. There was argument at the time that it would not have worked here as it had in the UK because the UK had different circumstances. The UK had a property development construction industry that had access to capital resources that would be able to recover and develop under such an insurance premium scheme, and we did not have that. People were operating here from their back pocket and the money the bank gave them was put into that back pocket.

Even beyond that, such an insurance approach, given the scale and damage that was done in Irish banks, would have left ongoing uncertainty that would have seen continuing contraction and retrenchment in the Irish banking system for however many years such an insurance scheme was in place. The doubt over the scale of the losses would have been well founded and would have placed a question mark on the entire funding and financial situation in this State. Again, while looking back after almost one and a half years, I do not believe that such an insurance model would have worked.

Likewise, some argued for nationalisation. When I got a sense of the scale of the problem we faced in late 2008, my first reaction was to nationalise all the banks because then we could at least manage the situation. I remember bringing such a suggestion to the Minister for Finance at that time. He did not rule it out and he considered all the options as we went through that incredibly difficult period. Ultimately however, he counselled against it and one and a half years later one can at least see that such an approach or solution would not have been effective. Again, there would be no certainty as to the scale of the losses or as to what was the real truth in respect of the banks. Thankfully, banks such as Bank of Ireland, which got into the same mistaken and mad lending, albeit not to the same extent as others, now can act as a fully functioning bank.

It is not lending.

Crucially, such an approach would not have provided what following a NAMA approach has resulted in, namely, a clear, independent, thorough, rigorous and in many ways ruthless assessment of the extent of the problem and the scale of the losses. That will be important when emerging from this situation, because as horrible and difficult as these losses are, I prefer to know what they are rather than not knowing or having them hidden within a nationalised institution or under an insurance premium taken out by the Government that would have gone on forever and a day. It is better to have a sense of the scale of the problem, horrific as it is, than otherwise.

As for the approach taken, some of the international literature on what happens in such banking crises — this is a common phenomenon — shows the capitalist system does not work well in asset markets. Almost invariably, there is a sense that markets in goods and services are quite stable but markets in assets appear to be fundamentally unstable. They are subject to human failings in respect of overvaluing, hyping up and then getting caught in a bubble.

Nothing like Ireland.

No, we are one of the worst examples but there are many examples.

We are the worst example.

Indeed. It was driven here by a property bubble.

And bad government.

There was a property bubble at the heart of our problem and everyone must learn some lessons from that regarding our obsession in the latter part of this decade——

Deputy Durkan should refrain from interrupting the Minister.

Fine Gael pointed this out at the time——

I guarantee Deputy Durkan——

——but no one listened. The Minister is well aware of this, as he then was on the Opposition benches saying the same thing.

I was indeed and I remember——

The Minister is aware that he was here and part of that. This is hypocrisy.

Deputy Durkan should allow the Minister to continue.

I remember listening to voices sitting in front of me in the Chamber, at that time who were calling for the scrapping of stamp duty to keep the property prices up.

They came from the Government side of the House.

They also came from the Opposition side of the House.

They did not come from this side of the House.

Deputy Durkan——

I have a clear recollection that they did.

Anyone who knew anything about the property sector knew——

Deputy Durkan, please.

I do not wish to set off one side of the House against the other but seek recognition that if we are to learn the lessons from this crisis, we must acknowledge that it was this obsession with property and that frantic attempt to try to continue building 80,000 to 100,000 units per year that caused our problem.

And the lack of proper regulation.

Moreover, I must inform Deputy Durkan that behind that lay a planning approach on councils nationwide in which all parties were engaged——

The Minister knows that is rubbish.

—— that further hyped up the froth.

No, it is not.

Deputy Durkan, please.

The Minister should take responsibility.

The Deputy should stop interrupting the Minister.

This simply is to state some of the facts that lay behind the fundamental problem we faced, which was this obsession with property and the inflation of land values. This did emerge from our planning system, as well as from our banking system, and one should be honest about that.

And lack of proper regulation.

It is all due to a lack of planning.

Deputies should desist from interrupting the Minister, whose time is limited.

Yes, our example is the very worst and, yes, it hurts terribly. Moreover, because it is our own, it hurts even more. Whatever about international comparisons, this is the worst experience we have ever faced and I intend to do everything I can to ensure we never have it again. However, the solution being pursued is common to many similar bank crises in the past. It comprises an introduction of a guarantee, followed by the management of the assets that are in difficulty——

Not a blanket guarantee.

—— and then one capitalises the banks.

A guarantee that Fine Gael supported.

One allows the property bubble to boil over and then one pays for it.

The latest book to go through the American example is Too Big to Fail by Andrew Sorkin. It cites that model as the standard operating procedure and response one makes and that is what the Government has done.

I acknowledge it has taken time. It took time from the consideration of such an option to getting it through this House. It took the Government a long time but it was right to legislate and to debate for that. That is one reason for the delay that has taken place and which has caused uncertainty and recent difficulties in the markets' understanding of the extent of our problem and our ability to get out of it. However, that was the legislative process we needed to go through. Moreover, this was complex legislation on which people worked long and hard. I believe it was the right type of legislation and that it will stand up to scrutiny in the courts and elsewhere.

It also has taken time for the officials in NAMA to carry out their fundamental first task, which was to ascertain the scale of the losses. Real lessons were learned that banks do not necessarily present information in the timely and honest fashion that was need and that it was right for the Government to take the firm action of sending in independent analysts rather than trusting the banks. If it took a long time to get that work done, that partly was because the banks were not quick or straight enough in the presentation of information. However, from my distant review of their work, I believe the people involved from the State side in NAMA have done their work diligently, honestly and correctly. Nevertheless, it has taken time and that has been one of the difficulties.

However, one of the benefits arising from what has gone through today, as difficult a day as this is, is that we are coming to the end of this process. We have put a timeline on it and have created some certainty in respect of figures.

That is the problem. We do not have such certainty.

At present, we are moving to the conclusion of the crucial third element of the entire process, that is, the capitalisation of the banks. This is an important part of this process to enable them to begin lending in order that the economy can start to recover.

In respect of Anglo Irish Bank and INBS, the banking model employed was completely and, to my mind fraudulently, wrong in the sense that one could not consider such a model rationally and think how any one could perceive it to be viable, sustainable or proper. It is a legacy that will be scarred into our country and which has had huge consequences and effects. As for the company law aspects, as well as considering the nature of the management systems and other actions that took place, it is up to our judicial system to investigate them. It is frustrating for the political system to witness how long that is taking. While I dearly wish that the judicial system could complete its work faster, the Government cannot interfere and must be removed from it. One of the strengths of our democratic system is the independence of our legal system and this must be maintained, even in situations such as this.

Will Minister give way for a question?

Does the Minister perceive any responsibility on the part of those Ministers who were in office at the time and who allowed the bubble to grow?

Yes, I believe we all bear responsibility, obviously including in particular the Ministers who were in power at the time, as well as the regulators and board members of those banks. I note that it was very much the great and the good, that is, the well-regarded in our society, who were in such regulatory systems, on such boards and in the political systems. Yes, there was widespread failure to recognise the scale and damage that the bubble was going to cause.

As for Anglo Irish Bank and INBS, I am glad we brought some clarity to the effect that the good bank approach was not the right one to take. I believe it would have distracted from the more important task of getting as much value back for the Irish public from the remaining loans, as they are wound down and sold on, to minimise the damage and loss that will accrue to the Irish taxpayer. This is the task on which the management there now must concentrate and I believe this should be done as quickly as possible with the least cost and least use of resources and the maximum possible return from the assets.

In respect of AIB, which obviously was one of the main subjects of the Minister's announcement today, from the outset of this process, it always has been certain that the Government would seek to socialise the profits in any recovery from our banking system, as well at the losses. It always was certain that the Government would try to redress the balance sheet somewhat in the public interest by taking a stake in our banks with the prospect and intention of selling such a stake into an open market as soon as is possible to be able to realise some of those profits. This always has been the policy and there never has been an instinct within the Government to look away from that possibility, to rule it out or not to expect it as a possible or likely outcome. The Government now must do this and must ensure that it manages an institution such as AIB with a majority stake in public ownership in a manner that allows the bank to regrow and to recover a profit for the Irish taxpayer.

I said to Deputy Dempsey yesterday that the Labour Party had been postulating that we need to take money from a pension reserve fund and put it into a new bank to help recovery. I argue that, in a sense, that is what we are doing today with AIB. We are taking money from our pension reserve fund and putting it into the bank as capital with a view to having it lent to the Irish market. That may be a more effective method of getting a bank lending than trying to reintroduce a new branch and lending structure across the country, which would take time and could be more costly. I would be interested in hearing the Labour Party's response to this. The concept we have is correct, namely, using the reserves we have to capitalise the bank and to ensure the existence of a new banking culture so we will profit from the money invested.

Critically, we need a change in banking culture. It is right that the culture is changing from the top down and that we have new boards and management. The public lack of trust in Irish banks is serious. Banking requires trust. I have said for some time that we need new boards and management and that it will take time to achieve this. We need them to restore trust in Irish banking.

There are good people in Irish banking. I do not contend the 80,000 people working in our clearing banks should not be able to advance their careers and set out on a new banking course. I refer to those who have an eye to cash flow lending rather than property lending, with which our banks became obsessed, and to those who want to understand that banking is about personal relationships and the assessment of personal risk. If I were a lender, it would be a case of my determining whether a person such as Deputy Noonan has the capability to turn something around and make a go of it, and has the strength of character to pay me back if he runs into difficulty. This is the kind of banking skill people need.

We need a new culture, particularly in AIB because it is one of our largest banks. We need to get it working.

The Minister has one minute remaining.

I would like to have time to speak on our budget and on the European Union response to this because that is a significant issue. I may have to speak about it on another occasion.

People have rightly asked whether we should not have taken on the senior bondholders. My instinct is absolutely similar to that of others in the House in that I ask why the taxpayer should have to take all the hit. If one goes to experts and officials and asks whether the bondholders should share some of the hit with the taxpayer, the point made in return is that the legal circumstances in which we must operate prevent this and we must do things by the book and according to the law. Our legal structure is one of the strengths of our system. It attracts foreign direct investment and keeps investment here.

The Minister is a law-maker. Why not change the law?

As I understand it — I will be happy to hear Deputy Noonan argue another view — contracts were entered into giving the depositors the exact same rights as the bondholders. Those rights cannot be taken away retrospectively. A court challenge from a bondholder would contend the deposit holder has the exact same rights as a bondholder and that one could not just attack a bondholder without attacking the deposit holder. In Anglo Irish Bank, the main deposit holder is the European Central Bank. That is one of the realities we face. The advice one receives pertains to the consequences of taking on the European Central Bank, which is acting as a central bank of last resort, and correctly recognises that the European banking system let us down also by allowing bad lending to the Irish market and that it also should have been on guard against and preventing this.

One should recognise that if others try to target the bondholders — perhaps the Deputies opposite will have the potential to do so at some stage — they will, I am certain, receive the same advice that we have had, namely that the risk attached to such an approach, which approach would affect our ability to hold emergency and other deposits in the banking system that are needed to surmount this difficulty, would result in a higher cost for the Irish taxpayer. Even a small increase accruing from the taking of such an action continually would lead to an interest charge for the Irish people that would be greater than the savings made.

It must be recognised that the Anglo Irish Bank model, having been so fundamentally unsound and dependent on short-term deposits, was such that, of the approximately €70 billion liability on the balance sheet, only approximately €4 billion pertained to senior bonds, as opposed to the vast sums in short-term cash deposits which are now in short-term emergency cash deposits. This is hard to explain to the Irish people and hard to talk about in public. Over the past year or two, because there were market sensitivities, one could not talk about AIB. It is very difficult to talk about bondholders within the guarantee period but that was the reality we were faced with. Those were some of the options we were faced with. Any party in government will face them.

When the banking system changes — I believe it will need to change — perhaps we will see that easy options, which may give real encouragement to the public, should carry a health warning because, unfortunately, there is no easy way out of the problem. We will make our way out of it. We are a capable, skilled trading country. Having a balance-of-payment surplus again will help us out of our difficulties. I regret deeply the banking legacy we have had to manage but our broad approach was the correct one. The alternatives would have been more expensive and less effective.

I want to address a number of points made by the Minister. His speech was basically about policy and mine will be in the same vein. One must look at this matter in a number of ways. The property bubble was clearly caused by reckless lending from the banks but it was also associated with a lack of proper regulation of the banks. If regulation is not applied consistently, certain people in business will abuse the system.

With regard to the guarantee put in place, Professor Honohan stated it was too wide. There is no other compatible guarantee worldwide with such a level of spread. Anglo Irish Bank was clearly insolvent at the time of the guarantee. When the guarantee was being advocated, the Taoiseach, Deputy Brian Cowen, stated it was for €440 billion. He stated the assets in the banks were worth more than the liabilities and that we would not have to enforce the guarantee. We find today that between €48 billion and €52.8 billion will be going into the banks. This is an incredible figure. It is up to 32% of national wealth. This is the equivalent of our current expenditure on an annual basis. In respect of Anglo Irish Bank alone, €30 billion will be required. The Taoiseach said yesterday interest repayments would cost €1.5 billion per year at a rate of 5%. When put in context, this will result in the removal of home helps and special-needs staff and will have a considerable effect on education, which is important to the Green party and others. It has enormous implications for the ordinary person on the street.

The Government is trying to present today as a normal day. It is a momentous, black Thursday. It is a frightening day for the public, who see that AIB, the biggest bank in the State, is being nationalised. It is costing the taxpayer €10.4 billion.

When the guarantee was introduced, it was too wide. Professor Honohan has stated that. Once the guarantee was introduced, the Government had a two-year opportunity to sort out the banks.

That is what we have used.

The problem is that circumstances have become worse in those two years. Anglo Irish Bank requires up to €34 billion, certainly €30 billion. AIB now requires €10.4 billion. An extra €3 billion has been put into AIB today, which is the equivalent of the minimum amount of cuts to be made in the forthcoming budget. There is a disconnect between the Government and the public and this is having major implications. The Government procrastinated over Anglo Irish Bank, which was clearly insolvent. The Minister made reference to our proposal for a good bank-bad bank model. The greatest difference under our proposal is that toxic loans would not have been valued. NAMA, which we opposed at the outset, has had an impact in terms of the sentiment of international markets.