Dáil Éireann debate -
Wednesday, 17 Nov 2010

Vol. 722 No. 2

Bank Guarantee Scheme: Motion

Minister of State at the Department of Finance (Deputy Martin Mansergh)

I move:

That Dáil Éireann approves the terms of the draft scheme entitled Credit Institutions (Eligible Liabilities Guarantee) (Amendment) (No. 2) Scheme 2010, a copy of which draft scheme was laid before Dáil Éireann on 16 November 2010.

Yesterday's eurogroup statement on Ireland welcomed the measures taken to date by Ireland to deal with issues in its banking sector, including the bank guarantee, which the eurogroup affirms have helped to support the Irish banking sector at a time of great dislocation. However, market conditions have not normalised and pressures remain. These pressures have intensified in recent weeks as market sentiment toward Ireland has become more negative, reflecting concerns about possible implications for the private sector of the design of a permanent crisis resolution mechanism in the euro zone. While these concerns were addressed by the joint statement of the Finance Ministers of France, Germany, Italy, Spain and the UK on 12 November last, market sentiment towards Ireland and the eurozone remains negative.

The State guarantee for bank liabilities provided under the eligible liabilities guarantee, ELG, scheme, which the Government has put forward for approval by the Oireachtas today, continues to provide very significant support for the funding of the banking system. Were the scheme not extended to the end of 2011, make no mistake, we would be faced tomorrow with difficulties in funding that would jeopardise the financial stability of the State. We must extend the scheme and, in doing so, heed the advice of the Governor of the Central Bank, who strongly endorses the need to extend the scheme to safeguard the stability of the system and the overall economy — a position shared by the European Central Bank which has also endorsed the extension to the end of 2011 on financial stability grounds.

I refer to the motion to approve the draft statutory instrument entitled the Credit Institutions (Eligible Liabilities Guarantee) (Amendment) (No. 2) Scheme 2010. The draft statutory instrument amends the bank guarantee scheme known as the eligible liabilities guarantee, ELG, scheme, introduced in December 2009. Deputies will recall that the Minister of Finance was before the House in September with a similar statutory instrument that extended the ELG scheme from 29 September to 31 December 2010.

Market conditions have not normalised for credit institutions in Ireland. On the advice of the Governor of the Central Bank, the Government proposes to extend the issuance period under the ELG scheme beyond the current end date of 31 December 2010, and, on financial stability grounds, the statutory instrument before the House today would enable the issuance period to run to 31 December 2011. As the House may be aware, the European Commission has already announced the approval of the scheme under State aid rules for six months, the maximum approval period allowed under the Commission's State aid rules. The guarantee remains necessary because the Irish banking sector is facing ongoing funding challenges. Recent evidence of heightened fragility in international financial markets has also led to more challenging funding conditions for banks in Ireland.

The Governor recommended to the Minister that an extension of the guarantee for all liabilities is necessary in the context of ongoing investor caution, pending the normalisation of funding conditions for banks in Ireland and to allow for the transition to a more balanced funding profile as soon as market conditions permit. This is an important support to the Irish banking system and complements the broad Government strategy to restore fully the banking system and maximise its contribution to overall economic recovery. The Government is determined to rebuild consumer and investor confidence in our financial system, which has an important role to play in ensuring businesses, and notably small and medium-sized enterprises, SMEs, can invest for growth and our citizens can plan with confidence for the future. As Deputies will be aware, the ELG scheme since December 2009 is a more focused scheme and no longer covers dated subordinated debt. Since 30 September, the scheme also imposes significantly higher fees on participating institutions for the benefit of a State guarantee of their shorter-term liabilities, which I will outline later.

The draft statutory instrument before the House proposes to amend the ELG scheme 2009. Under section 6 of the Credit Institutions (Financial Support) Act 2008, the approval of both Houses is required for such an amendment. The ELG scheme allows the credit institutions that join the scheme to accept all deposits and issue short-term and long-term debt on either a guaranteed or unguaranteed basis. Eligible liabilities under the scheme are as follows: deposits, senior unsecured certificates of deposits, senior unsecured commercial paper, other senior unsecured bonds and notes and other forms of senior unsecured debt specified by the Minister and approved by the EU Commission. The institutions that joined the scheme and are thus "participating institutions" under the ELG scheme are: Allied Irish Banks, AIB; Anglo Irish Bank; Bank of Ireland; the EBS; Irish Life & Permanent plc; and Irish Nationwide Building Society. Their relevant subsidiaries also joined and are listed fully on the Department of Finance's website. Institutions may issue debt and take deposits guaranteed under the ELG scheme with a maturity of up to five years. According to the latest data available to my Department, at the end of September 2010 bank liabilities covered under the ELG scheme stood in aggregate at €147 billion. ELG liabilities must be incurred within a limited issuance period that currently runs to 31 December 2010. The main amendment made by the statutory instrument proposes to extend the ELG scheme such that it will now run to 31 December 2011, subject to continuing state aid approval from the European Commission. This was similar to the mechanism used in the original ELG scheme, when it was introduced in December 2009. Other consequential changes are made to the scheme by the statutory instrument.

EU state aid approval was granted on 10 November 2010 for the extension of the issuance period to 30 June 2011 for all liabilities, including debt and deposits, and both short and long-term liabilities under the ELG scheme. The EU Commission approval follows from the recent legal opinion from the European Central Bank, dated 2 November 2010, which endorsed the extension in national law to 31 December 2011 on financial stability grounds. The extension is subject to continuing Commission approval and has been granted to 30 June 2011, the maximum period allowed at a time under EU state aid rules. Further state aid approval would be required to extend the issuance period end date for another six months from 30 June to 31 December 2011 and the draft scheme would facilitate that further extension as well.

Participating institutions must pay a significant fee to the Exchequer for the benefit of the guarantee. The fee is in line with and in certain circumstances for shorter-term bank liabilities exceeds the fees applicable generally for guarantee schemes approved by the European Commission. The original fees for the ELG scheme guarantee, when it was introduced in December 2009, were based on the pricing recommendations published by the European Central Bank in respect of guarantees of this nature and were consistent with the fees applicable for similar guarantees provided by other EU States in respect of their credit institutions. However, from 1 July 2010 the fees that institutions are required to pay under the ELG scheme increased for guaranteed liabilities incurred from that date, in line with the pricing structure outlined in the European Commission's staff working document dealing with the application of State aid rules on Government guarantee schemes covering bank debt.

The additional pricing in line with the Commission guidelines ranges between 20 and 40 basis points depending on the rating of the institution concerned. The pricing is set out in the rules to the scheme at annex 7. From 1 December 2010, an additional 70 basis points will apply to the guarantee under the scheme of short-term liabilities of less than three months, in addition to the 50 basis points that applied from the start of the scheme, and a further 20 to 40 basis points applies depending on the rating of the institution. This brings the total payable for short-term liabilities to between 140 and 160 basis points. The real effect of the changes to the pricing regime is that the average fee now paid by institutions under the ELG scheme is approximately ten times higher than the average fee paid by institutions under the original bank guarantee scheme when it was introduced in September 2008. As at the end of October 2010, a total of €1.3 billion, comprising €760 million in respect of the CIFS scheme and €573 million in respect of the ELG scheme, was collected from the institutions. The fees collected surpassed the original minimum €1 billion target for guarantee fees, when the CIFS guarantee scheme was introduced in September 2008.

The draft statutory instrument gives legal effect to the time extension to the scheme. I will provide some further detail on the terms of the amending draft statutory instrument. The ELG scheme guarantees specific issuances of debt or deposits of up to five years in duration incurred during the period set out in the scheme. Item 1 includes a definition of "financial support period order", an order made under section 6(3B) of the Credit Institutions (Financial Support) Act 2008. The order which the Minister for Finance will make in conjunction with this scheme sets out the issuance period. This is the period within which guaranteed liabilities can be incurred and guaranteed under the ELG scheme. As Commission approval was granted for the period 1 January 2011 to 30 June 2011, this will be the issuance period for the next phase of the ELG scheme.

Item 2 amends paragraph 3.1 of the Schedule to the scheme, which sets out the period within which institutions may join the scheme. The amendment seeks to update the application period by substituting 31 December 2011 for 31 December 2010 to reflect the time extension to the scheme. Items 3 and 4 amend paragraph 5 of the Schedule to the scheme. Paragraph 5 provides that the Minister shall review the scheme and the rules at six-monthly intervals. This amendment proposes that the Minister may review the scheme at shorter intervals than six months if so required by the European Commission in accordance with its state aid policies. This would allow for a future exit strategy on a gradual basis for certain liabilities in line with prevailing market conditions, based on the advice of the Governor of the Central Bank of Ireland.

No. 5 proposes to substitute a new paragraph 11.1(c) in the Schedule to the scheme. The new paragraph would replace the current scheme end date of 31 December 2010 with an extended scheme end date in national law up to 31 December 2011, subject to continuing EU state aid approval. Such approval was obtained on 10 November last for the continuation of the issuance period up to 30 June 2011. Any future extensions of the issuance period beyond 30 June 2011 will require EU state aid approval. No. 6 amends paragraph 18 of the Schedule to the scheme, which sets out the maximum period the Minister will stand as guarantor of liabilities guaranteed under the scheme. This amendment proposes to substitute a period of five years after the end of the period specified in the most recent financial support period order as the end date of the scheme instead of the current date of 31 December 2015.

With regard to deposits in particular, all on-demand deposits over €100,000 are guaranteed under the proposed amendments to the ELG scheme to 30 June 2011 in line with the approval of the Commission. Furthermore, term deposits of over €100,000 can be guaranteed for a fixed term of up to five years as long as the deposit is made before the 30 June 2011 and the institution is, or was, a participating institution under the scheme on the date of the deposit. The ELG scheme provides that if a deposit of up to €100,000 is covered under the European Communities deposit guarantee scheme, it is not also covered under the ELG scheme. The ELG scheme covers the excess over €100,000 or any deposit that does not qualify for protection under the 1995 deposit guarantee scheme.

In summary, the extension of the ELG scheme to 31 December 2011, subject to EU state aid approval, will continue to support participating institutions in accessing funding in the short term and the longer term, and will provide security for depositors. The scheme as extended complements the broad Government strategy to restore fully the banking system and maximise its contribution to overall economic recovery. Market conditions remain turbulent at present. The relevant State authorities will continue to monitor the funding situation of Irish banks and the requirement for the guarantee in the future to ensure the continued stability of the Irish banking system.

The EU state aid rules provide that the guarantee can be extended for a maximum of six months on each occasion. The authorities will therefore review the requirement for the continuation of the ELG scheme before 30 June 2011, in consultation with the European Commission and the ECB, and assess the requirement for an extension on the basis of the then prevailing market conditions and having full regard to financial stability matters generally. This scheme will allow a further extension to 31 December 2011, and this mechanism is being adopted to provide maximum certainty for the markets in the future.

I commend the scheme and the motion to the House.

Deputy Brian Hayes

I move amendment No. 1 in my name and those of my colleagues. The amendment states——

Acting Chairman (Deputy Darragh O’Brien)

I am sorry, Deputy, but the Ceann Comhairle has ruled the amendment out of order. The Deputy cannot move it.

Deputy Brian Hayes

I have not had sight of any communication from the Ceann Comhairle explaining the rationale for its being ruled out of order. The amendment was circulated by me earlier today and I have received no communication from the Ceann Comhairle.

Acting Chairman (Deputy Darragh O’Brien)

The Deputy may take up that with the Ceann Comhairle. The amendment has been ruled out of order because it is a direct negative. That is the ruling.

Deputy Brian Hayes

I do not want to debate this with you; I appreciate the situation in which you find yourself. My understanding is that this is a statutory instrument, but the motion in the name of the Minister is to give effect to that statutory instrument. It is a motion in the Government's name, and the amendment in my name and that of my colleagues is simply an amendment to the motion, not to the statutory instrument itself.

Acting Chairman (Deputy Darragh O’Brien)

For the purpose of clarity, I will state that there is no provision for any form of constructive motion or amendment and it is only within the competence of the Dáil to approve or reject the motion as proposed by the Government within the terms of the relevant Act.

Deputy Brian Hayes

Our view is that the motion in the name of the Government to give effect to the statutory instrument is a motion on the Order Paper, and the amendment proposed by my colleagues and me is an amendment to that motion. I disagree with the Acting Chairman's interpretation of that, but for the purposes of the——

Acting Chairman (Deputy Darragh O’Brien)

To be helpful to the Deputy, I will say that he may address the main points of the amendment but he may not move it.

Deputy Brian Hayes

Yes. I will put on the record the amendment that has been circulated; whether we will have a chance to vote on it is a matter for the House.

Acting Chairman (Deputy Darragh O’Brien)

To be clear, the Deputy may certainly discuss the amendment and its main points, but he may not move it as it has been ruled out of order.

Deputy Brian Hayes

I will put the amendment on the record of the House. The amendment proposed to delete all words after "Dáil Éireann" and substitute, "defers consideration of the draft scheme entitled the Credit Institutions (Eligible Liabilities Guarantee) (Amendment) (No. 2) Scheme 2010 until full information about the true state of the Irish economy is made available to Dáil Éireann." I will speak on the substance of that amendment, if I may.

Acting Chairman (Deputy Darragh O’Brien)

As long as we understand it is not moved.

Deputy Brian Hayes

I understand.

Acting Chairman (Deputy Darragh O’Brien)

Thank you, Deputy.

Deputy Brian Hayes

It is quite extraordinary, on the day and week that is in it, that the Government is introducing this statutory instrument for the approval of the House. The Irish people — and, I believe, a significant number of Deputies in the House — do not believe what the Government is telling us. This statutory instrument, to which the Government hopes the House will give effect, brings the guarantee forward a whole year, from 1 January until 31 December 2011. The idea that this must come before the House for approval now, in the middle of November, when we have another full month before the House rises, is absurd, particularly in view of the current economic and financial uncertainty and the uncertainty about the Government's position and about what is coming down the tracks in view of the information we received last night. There is fundamentally an issue of political credibility. The markets do not believe the Government, nor do the Irish people. This House does not believe it. Yet, absurdly, the Minister of State is suggesting that this statutory instrument should be given a free pass in the House today while this uncertainty exists. I suggest this is ridiculous.

I regret that the Minister for Finance could not be here. I understand where he is today and we all know the scale of the challenge he faced yesterday and today, but why could this not have waited another week or two weeks before the deadline of 31 December? This is the wrong thing to do.

The Minister of State, in his opening remarks to the House this afternoon, stated, "Yesterday's euro group statement on Ireland welcomed the measures taken to date by Ireland to deal with issues in its banking sector, including the bank guarantee, which the euro group affirms has helped to support the Irish banking sector at a time of great dislocation." What else could it have said, given the extraordinary crisis the country now faces? The suggestion that the European institutions and governments have supported the position of the Irish Government from the start of the crisis until now is fundamentally untrue. I do not have to remind the Minister of the firm commitments that were given in this House when the guarantee was first proposed. In answer to questions posed from this side of the House it was stated clearly that it was not an issue of solvency, that the banks were fundamentally sound, and that all that had to be accepted was the necessity to guarantee their position so that liquidity would return to the market and the position of the banks could be upheld. In the course of that debate in 2008 the Minister, Deputy Brian Lenihan, said in reply to Deputy Noonan:

Several Deputies raised the question of solvency. I have made it clear throughout discussions on this subject that the central issue confronting the Government last Monday evening was the liquidity of the Irish banks, not the question of solvency.

However, we know that to be wholly untrue. The House was misled by the Government from start to finish and it has no credibility in suggesting that this measure should now be passed by this House at this stage because the people have no faith in the position. We know now that effectively the banks were broken and the suggestion that the Government did not know at the time is wholly inaccurate and untrue. The stem of this problem, as accurately summed up in the past 48 hours, is that the debts and liabilities of the banks are effectively the State's debts and liabilities. We are now joined at the hip, as it were, because of the fundamental guarantee the Government introduced in 2008. We were told that once we got through the initial crisis, the alleged wall of cash would be provided to businesses and things would get back on track. However, instead we have had inertia in the past two years and three months throughout the crisis. As other countries have got on with the task of rebuilding their economies, we have been stagnant because of the poor decisions taken by the Government in that rushed period at the end of September 2008.

It is now fundamentally a question of political and economic credibility. Who is to be believed? The credibility of the Government has been shot through. At the time of the debate, the House was informed that the loss in Anglo Irish Bank would be a maximum of €4.5 billion, but look at the price now. Effectively one bank brought down our economy — the Fianna Fáil bank, the bank that built Fianna Fáil and the bank that was bankrolled by Fianna Fáil. Let us consider the exposure we now face through Anglo Irish Bank when were told at the time that it would be €4.5 billion. At the time the Minister, Deputy Brian Lenihan, told us that this would be the cheapest bank rescue anywhere in the world. We accept there is always a necessity for a guarantee, but the blanket guarantee proposed was utterly inappropriate in the circumstances. When we proposed at the time that the exposure of the guarantee should be up to a maximum of €10 billion the Minister, Deputy Brian Lenihan, stated that he would be utterly surprised if the amount was as high as that.

The Government has now come to the House to ask permission to continue with the scheme in place based on its record which is there for all to see. What is frightening about this crisis is the way in which the people have been betrayed by the Government time and time again. It is one thing to say that a Government is unpopular, has taken the wrong policy option or has been too long in office. However, to deliberately mislead the public is an entirely separate argument. Over the course of the weekend when the BBC, Reuters and others were telling us that discussions had started between officials of our Government, the ECB, the Commission and the IMF, a series of Ministers and Ministers of State told us that was a fantasy and a fiction, and did not happen. There is a fundamental issue of belief and a sense of complete lack of credibility in the position because the Government has misled the House and the people as late as last weekend as to what needs to happen.

This morning I heard the Minister speak about the four-year plan. We were told initially that the plan would be available in the middle of November. It is quite clear that the plan will not be produced next week despite what the Taoiseach said last week because the IMF now needs to see that plan and see the colour of the money within it. Where is the bank resolution scheme? One of the Government's debating points in the past year was that it would introduce a bank resolution scheme, as other countries have done, setting out exactly the terms upon which the Central Bank and regulator could get effectively into the banking system yet we have not even seen a proposal from Government to date. Taking its own arguments, how are we to accept that when such a scheme has not been put in place?

When other countries have dealt with this difficulty and have moved on, why are we still in the mire two years and three months later? People want the answer to that fundamental question. It is evidently the case that it is down to a series of mistaken decisions on Anglo Irish Bank, recapitalisation and other matters that the Government has taken in the past two years or so.

The people want to write a new chapter and to move on from this. They want to get to the bottom of the matter and want some hope that we can rebuild the economy from the ruins left by Fianna Fáil. The idea at this stage that we would give a blanket guarantee by way of resolution in this House would not be fitting to our parliamentary responsibilities and that is why we will not support it at this time.

Acting Chairman (Deputy Darragh O’Brien)

For the sake of clarity, the amendment that the Deputy wanted to move earlier on was in the name of Deputy Noonan and a disallowance letter was sent to Deputy Noonan in the Chamber this morning.

Deputy Brian Hayes

I have not seen it yet.

Acting Chairman (Deputy Darragh O’Brien)

That is just for the sake of——

Deputy Brian Hayes

On a point of order, he is on his way back from Brussels and so he is not here.

Acting Chairman (Deputy Darragh O’Brien)

That is the information I was given.

Deputy Joan Burton

The purpose of the Government's motion before the House is in effect to extend the original bank guarantee scheme in a modified way until the end of December 2011. That bank guarantee applied to six banking institutions, two of which, Anglo Irish Bank and Irish Nationwide Building Society, were beyond help.

Two very big banks, Bank of Ireland and AIB, are important to the functioning of economic life in this country, particularly for small and medium sized businesses accessing credit. There were two building societies, including Permanent TSB which also has an insurance company attached to it. They all had a different set of difficulties.

Anglo Irish Bank and Irish Nationwide Building Society, INBS, were basically bust because their business model had come to an end. They were developer niche banks. INBS was a building society but the people who ran that institution developed it into a developer bank within a building society. I do not understand how they could do that under the regulations. I also do not understand how they could lend mainly to people in the London area of the United Kingdom and abroad. However, Mr. Fingleton was close to the powers-that-be in Fianna Fáil. He even succeeded in having a special Act passed in the Dáil relating to his building society. That is the context.

As people are doing their jobs, putting money in the bank and taking it out again they feel incredible pain, worry and uncertainty about their businesses, employment, mortgage and their children's mortgages. Fianna Fáil is telling us today that we are extending the bank guarantee in five year periods for at least another year and a quarter to the end of December 2011. The European Union has agreed to that up to the end of June 2011, as it can only do so in six month tranches. What is the amount guaranteed? It is a staggering figure. It was €147 billion at the end of September. The Minister did not enlighten us as to whether that amount has increased since then. Judging by the very worrying news we have been hearing from different elements of the six institutions under the guarantee I would not be surprised if it had already increased significantly. The Minister should tell the House at what amount the extended guarantee stood at the middle of November. What is his expectation for the amounts under the guarantee to the end of December?

This is important. Many people talk about burning bondholders, talk with which I have never agreed, and defaulting. However, the Government created a mechanism from the start of the guarantee and with the extended guarantee whereby, in effect, that became almost impossible. The Government made the decision on the night of the guarantee to give a blanket guarantee, not the extensive guarantee Professor Honohan writes about in his report. The blanket guarantee covered everything, regardless of whether it merited guarantee. Every Member of the House agreed that ordinary depositors merited a guarantee. I wrote to the Minister two or three weeks before the guarantee was put in place — the Minister has the letter — suggesting that the Government had to introduce a guarantee system for ordinary depositors. At the time the guarantee for depositors only stood at €25,000. The Minister told me to take a hike, as was the Fianna Fáil style. The Government did nothing. On 29 September there was total panic in the ranks. The Government did not introduce a graduated and thought-out guarantee for different classes of assets, particularly ordinary depositors who should be protected, but a blanket guarantee. That is the reason Mr. Regling, Mr. Watson and Professor Honohan in their reports have described Ireland's appalling situation with the guaranteed institutions as a home-made catastrophe.

It is also the reason so many people in Europe are angry and less than impressed with Ireland. Ireland bounced the other European countries into this form of guarantee by being the first mover. I was at Kilkenomics last week in Kilkenny and one of the comedians there said we have two Brians and no brains running the country. It was an interesting take. The strategy has been a disaster and today we simply confirm that the Government is passing further guarantees for more than five years from the end of next year with regard to at least €147 billion.

It is important to get some of these institutions back to health. However, if there was a proper bank resolution scheme, some of them would have been wound up. I raised this with the Minister on numerous occasions both in the Joint Committee on Finance and the Public Service and in the House. Initially, he did not even know what a bank resolution scheme was, then he decided to think about it and then did nothing. Such a scheme allows one to wind up banks that are in default in an orderly and structured way.

People in Europe talk about Ireland being a source of contagion for Portugal and, worst of all, for Greece. The Taoiseach said this morning that this is now a eurozone problem, not an exclusively Irish one. What is the contagion? The contagion goes back to Anglo Irish Bank and Irish Nationwide Building Society because they set up this Ponzi pyramid scheme of banking in this country for developers. The other banks got greedy. It is famously said that somebody in AIB complained: "Those guys in Anglo are eating our lunch, and that has to stop". That has been AIB's downfall. Bank of Ireland appears to have been more staid in going after that type of business.

The fundamental question is how to unravel this. We can only do so through serious reform of the banking system. We must wind down institutions that are utterly defunct and destroyed. We might have to seek people from abroad to take over some of the other institutions and lick them into some type of shape. There must be fundamental bank reform but we cannot do that without a bank resolution mechanism. That is not before us today. What is before us today is a cheque for an initial figure of €147 billion, which Fianna Fáil is asking us to sign.

The ECB became alarmed at the end of last week about the Central Bank. Was it because some of the six institutions no longer have collateral to offer to the ECB? The Central Bank, therefore, was committing itself under its powers to write cheques to some of those institutions. Can the Minister confirm that? I understand the amounts of those commitments by the Central Bank to be between €20 billion and €30 billion. If the purpose of the discussions with the IMF, ECB and the European Commission is to sort that out, does that mean the claim and memorandum of understanding will initially be about that €20 billion to €30 billion? That is now dead money because it has already gone into banks that had no collateral to offer the ECB. It is no wonder that the ECB is extremely worried and concerned. It must be, as all of us would be worried and concerned, because the integrity of the euro currency has been endangered to some extent by what is happening. Worst still, the House is not being told exactly what is happening so Members can make an orderly judgment.

Two weeks ago the Minister for Finance had the Opposition spokespersons trooping in and out of the front door of the Department of Finance, with the assembled media waiting outside to see how shocked one could look when one came out of the Department into the freezing cold and wind.

Commissioner Rehn came to Dublin last week and introduced me to a tall Hungarian man with glasses, who was no Victor Laszlo. He seemed to be a very dedicated type of Government senior civil servant accounting or finance type. Since then I have not heard a word from the Department of Finance or the Minister of Finance about opening any more books.

The team, many parts of which have been in Dublin before, will come here tomorrow. I have seen IMF people in the country looking at our State and institutional assets, such as hospitals, and counting them. That is what IMF teams do when they come into a country. They draw up a balance sheet of assets and liabilities in a country. When they come here, under what structure of the European Union and the IMF will they be operating? There are agreements on the European stabilisation fund, and the European financial stabilisation mechanism, EFSM, comprises €60 billion. Mr. Regling, who did a report here, is the boss of the European financial stability facility. The €60 billion was originally intended for non-euro countries such as Latvia, Hungary and Romania but it is going into the Regling fund or will be used alongside it. The IMF will also act as a partner.

The IMF has been in countries for a very long time. The leader of the Labour Party asked the Taoiseach today what the negotiating position was. The IMF will have teams, each of which will have a team leader. There will be somebody from the ECB, the IMF and the European Commission. Perhaps there will also be somebody on behalf of Mr. Regling, although he may enter the field later. A memorandum of understanding will be drawn up. I want to know what its headings will be. Will Fianna Fáil include all State assets in it, down to schools and hospitals? In other countries the IMF decided there were too many schools or hospitals and it would cut the numbers by X%. This is serious stuff for the ordinary Irish person on the street because it will affect their children. The debt will affect not just them and their children but their grandchildren.

What amounts will be targeted in the memorandum of understanding? Is it to enhance all of the facilities of the banks? What was included in it? The information is in the answers which were provided. One can use it partially for financial support for banks in accordance with an agreed country programme. That is what the memorandum of understanding is about. I want to know if the Government has decided strategically that the memorandum of understanding is simply about a further bailouts of the banks or if it also involves commitments to Ireland in terms of budgetary support.

I have no problem with the Minister of State, Deputy Mansergh, as an individual but it is wrong that no senior Minister is here for this very important debate and that the debate was not deferred, as I requested yesterday, until the Minister of Finance became available.

Deputy Arthur Morgan

I should make a confession to the House, I find the Minister of State, Deputy Mansergh, an interesting person. Perhaps one of the reasons why I find him interesting is because of his capacity for understatement. He told us in his contribution on this motion that the Irish banking system is facing ongoing funding challenges. That is news. There are a couple other gems from the same interesting Minister of State, such as "Market conditions have not normalised for credit institutions in Ireland". Who would have guessed? Other gems include, "Market conditions remain turbulent at present" and "The Government is determined to rebuild consumer and investor confidence in our financial system". How and when will that happen?

There is no consumer confidence at the current time and there is no thrust in the way the Government is handling the crisis, in terms of the economy and banking. The entire focus of Government policy in the past two years has been exclusively on the banking sector. Where are we now? We are in a deep black hole. The Taoiseach is also given to understatement. He told us today at Leaders' Questions, when he was quizzed about the IMF and the EU officials coming in, that the Government will sit down with officials and colleagues to examine the issues that arise. Perhaps afterwards they will retire to Temple Bar for some refreshments.

He told us, in regard to Europe and the past few weeks, discussions took place in recent days regarding some of the technical issues. They were not talking about a bailout. There was no negotiation with the banking sector. We are getting some information from this Government. There were no negotiations on a bailout, rather, there was a discussion about technical issues. The game is up for this Government because as we speak the hotel rooms and aircraft seats are booked for the IMF officials to parachute into this State and see exactly what is going on. They are fed up listening to this Government and cannot believe a word that comes from it.

I do not think the EU is asking the Government what is going on, rather, it is acting. That is why we had the announcement last night that the officials are coming in to slide aside what is left of the corrupt bankers, examine the real situation and put its auditors and examiners into the Department of Finance to see exactly what is going on. Of course there will be some platitudes. We heard the Taoiseach read out a statement today from EU officials which commended the Government and so on, which kept everybody happy and tries to keep the market steady because we do not want to stir the troops too much or have Ireland become Greece and have hundreds of thousands of people on the street rioting. The officials have thrown a few fancy platitudes at the Government to make it look like we are all buddies.

Meanwhile the officials were told to get on the aeroplane, get into Dublin and sort out what is going on. That is exactly what is now happening. The financial needs of the banks far exceed the fiscal capacity of this State which is a serious problem that has not been sorted out. What is going on? The Minister for Finance is running around Europe trying to concoct a yarn and project the nonsense that somehow it is the banks that need to be bailed out and Ireland is sound. It seems to be the case that if he can concoct a story that it is not a bailout for the State and it is just the banks that need a few bob, then the bluff can continue.

Any support of the banks, because of the guarantee scheme, makes it a sovereign issue. The EU is having none of this bluff from the Minister for Finance and the Government. It is now telling them that the officials are going in. Not only did Fianna Fáil ruin the economy of the State, which it did in style, but it also almost ruined the euro as a currency. If that happened, where would the very structure of the European Union be? It would have been threatened. That is some going for what, in relative EU terms, is a small political party, which almost wrecked the entire shop here. What are the means of the Irish banks? According to EU officials, they require a further €80 billion to €100 billion to be poured into this black hole, which is way beyond this State's fiscal capacity. Therefore, there is no option for the Government but to bring in assistance. This would not be necessary if the proper steps had been taken from day one in September 2008. I agree with Deputy Brian Hayes's earlier comments that we were completely and utterly misled. We were misled not just in this House, but also by Department of Finance briefings at the time to the effect that this was a liquidity issue, not a solvency one. We were told that they just wanted to bring the guarantee in for 12 months so that the liquidity would flow back into the system and we could all live happily ever after. Of course, we now know all about the merits and veracity of that comment.

It is amazing that even the Brits are looking in on the job now. George Osborne is running around, putting his hand into the British exchequer to throw us several billion euro because he thinks that the interest he will charge us for it is good value. This further diminishes our sovereignty, which was substantially diminished in any event by a whole series of EU referendums.

Anglo Irish Bank was the cornerstone of this collapse. We know the running around town that was going on with the bank's senior officials. We know about their relationship with supporters and members of the Government. It is incredible that the situation was allowed to prevail as long as it did. A State bank should have been established at that time, which would have brought some stability to the economy. It would have offered some integrity to savers, investors and borrowers. The Government would not consider that option, however, and had no intention of displaying that type of integrity. It had a different mission.

Let us look at the implications of the IMF coming in. I agree with what Deputy Burton said about the IMF's agenda, which would be to slash public services. She said the IMF would count hospitals and it will not take them long. The Government has already closed a substantial number of acute hospital beds and the IMF will help with that project because that is its agenda. It will ensure that public services are slashed and there will undoubtedly be huge tax hikes on low income families, while welfare will also be hit. Meanwhile, there will be no stimulus package to generate economic enterprise and get people back to work. There are almost half a million people still on the live register.

When the Minister of State, Deputy Mansergh, introduced the original ELG scheme in the House last December, he advised that these provisions enhance the banks' ability to discharge their central role in facilitating economic activity in this State. He advised that allowing institutions to issue unguaranteed debt was "key to restoring market confidence in the institutions". I do not think so, however. This market confidence today strongly resembles uncertainty and distrust. Just look at interest rates alone. Last week, the interest rate attached to ten-year bonds issued by the Irish Government rose to the once unimaginable level of 9.26%. It was 7.8% after the Government announced that it was front-loading €6 billion worth of adjustments. A week before, this rate stood at 6.8%, a month ago it was 6.5%, and a year ago it was close to 4.7%. We have, therefore, a clear trend of Government incompetence and its consequences on international markets.

What is now happening is that the dire state of the Irish banking system and its inability to recover is making an EU bailout a reality. The Government is providing money to banks in previously unimaginable quantities, but it has done nothing positive to get those banks functioning. In the first instance, it should have let Anglo go.

If the banking policy is working, and we are told that it is, and if deficit reduction through a policy of cuts is working, why is it becoming harder for this State to avail of international funding? That is something the Minister cannot answer, although I hope he will try to do so when replying to this debate.

To the international media, the Minister for Finance has made a distinction between the State, which was insolvent but liquid, and the banks, which were both broke and cashless. We are supposedly experiencing a banking crisis rather than a national one. However, having underwritten the banks two years ago with a deal that guaranteed virtually all the bondholders' risk, the Irish taxpayer has seen the cost of the bank bailout rise to between a quarter and a half of GDP.

The Government's open-ended commitment to cover bank losses plainly exceeds the fiscal capacity of the State. The losses of the banking sector have become those of the taxpayer. Bank debt has become sovereign debt and that is the problem because ordinary citizens are suffering for these failings.

An Irish bailout costing at least €100 billion has not been sufficient to save the banking sector and now the threat of an EU bailout looms. Barclays Capital said that any aid package intended to stabilise the situation in Ireland would require at least €85 billion. EU governments are only likely to grant emergency funds in exchange for conditions set and enforced by the European Commission and the IMF.

Such a bailout, as was seen in Greece, will force greater, harsher budgetary measures on Ireland and will diminish our economic sovereignty. Like the Greek bailout, this will come at a crippling cost not for bankers, developers or politicians, but for ordinary people struggling to survive. Even then, it is highly unlikely that it will benefit the economy. Just look at Greece now. On Monday, it said it would miss a target to reduce its government deficit to 8.1% of gross domestic product this year, which was set after Greece took a bailout from eurozone countries and the International Monetary Fund. Instead, Greece now says the deficit is likely to be 9.4% this year and that government debt will total 144% of GDP at the end of 2010.

The current situation concerning bond yields feels eerily similar to what happened months ago in Greece. In Ireland, however, banking troubles lie at the root of what many in Europe are now calling a solvency crisis, reflecting long-term concern over Ireland's ability to repay its debts, as opposed to the lack of short-term funds that forced the Greek rescue last spring.

Ireland is beyond fiscal plans as long as there remains a bottomless pit of losses in the banking sector. The credibility of the Government's banking strategy is shot. The lender of last resort is closing its doors to Irish banks and it is clear that the Government's failed banking strategy is leading Ireland down the path of EU/IMF intervention. They will arrive tomorrow.

As I said earlier, the dire state of the Irish banking system and its inability to recover is making an EU bailout a reality. We are being told that any bailout would be for the banks, but the State is tied to the banking sector. This bailout will be dressed up as a bank rescue and so the mess continues.

I appreciate that some of the contributions in this debate are designed around the general banking system, as opposed to the specifics of the guarantee scheme. I think that is inevitable, however, given the state we are in.

Debate adjourned.

Sitting suspended at 1.30 p.m. and resumed at 2.30 p.m.