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Dáil Éireann debate -
Wednesday, 17 Nov 2010

Vol. 722 No. 2

Bank Guarantee Scheme: Motion (Resumed)

The following motion was moved by the Minister of State at the Department of Finance, Deputy Martin Mansergh, on Wednesday, 17 November 2010:
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.

I am grateful for the opportunity to comment in regard to the extension of the eligible liabilities guarantee scheme. This debate comes at a fundamentally important time for our country, when we are about to embark on very important discussions with the European Commission, the ECB and the IMF in an effort to resolve the ongoing difficulties in the international money markets. In that regard, I wish the Minister, Deputy Brian Lenihan, his colleagues in Government and the officials who represent us every success in the discussions which commence tomorrow in Dublin.

We all accept that the over-riding objective is to wean the banks off the life support machine that is the State guarantee. Unfortunately, due to the ongoing pressures in the market, it is clear that we are not in a position to take them off life support at this stage. They are effectively unable to raise funds on the international money markets and, when they are able to, they do so at rates that are so exorbitant the impact would be that they would have to pass on very high interest rates to both personal and commercial customers in Ireland. Clearly, that is a point of major concern. When Bank of Ireland raised money on the international markets in recent weeks, the cost was approximately 5.5%, which is a very significant cost, and it must add its margin to that, resulting in high interest being charged to the end customer.

Before I deal with the extension of the ELG scheme, I want to go back to the original guarantee decision in September 2008. To pick up on some of the comments made at the outset of this debate in the House today, the impression was given by Fine Gael spokespeople, for example, that the Government knew there was a fundamental insolvency issue with Anglo Irish Bank. That is not the case, as the record shows. For example, there is the report which Merrill Lynch submitted to the Government on the eve of the Government guarantee, which was e-mailed at 6.43 p.m. on 29 September 2008 to the Secretary General of the Department of Finance, Mr. Kevin Cardiff. On the first page of that memo, Merrill Lynch stated:

The liquidity issues facing Irish banks are compounded by investor concerns with regard to the high concentration of commercial property risk in their respective asset portfolios . . . The three institutions where these liquidity issues have been most pronounced have been Irish Nationwide, Anglo Irish Bank and Irish Life & Permanent . . . It is important to stress that at present, liquidity concerns aside, all of the Irish banks are profitable and well capitalised. However, liquidity for some could run out in days rather than weeks.

This was the summary of Merrill Lynch, which had been commissioned by the Government and sent a summary of its work to the Government on the day before the guarantee. Those words could not be clearer — liquidity concerns aside, its view, based on the information it had been able to access, was that all of the banks were profitable and well capitalised. We know now that this was not the case, and Merrill Lynch was not able to get to the bottom of the issues in the banking system, in particular in regard to Anglo Irish Bank, in the time it had to do its work.

I make the point to highlight the fact it is simply incorrect to state that the advice available to the Government leading up to the guarantee at the end of September 2008 was that the Irish banks were insolvent. This was the professional consulting firm commissioned to advise the Government and to prepare a report, and that is essentially what it found on the eve of the guarantee. It is important we are at least honest and put forward the true position.

It has also been said by earlier speakers that the guarantee was in many respects a disaster for the country, and many politicians have put forward this point of view. It is important to reflect on what the Governor, Professor Honohan, said when he examined this issue as part of his preliminary banking report. He stated that it was hard to argue with the view that an extensive guarantee needed to be put in place since all participants correctly believed that we faced the likely collapse of the Irish banking system within days in the absence of decisive and immediate action. Given the hysterical state of global financial markets in those weeks, failure to avoid this outcome would have resulted in immediate and lasting damage to the economy and society. He went on to criticise the inclusion of subordinated debt, which accounted for in excess of 3% of the total liabilities guaranteed at the end of September 2008. That was a fair criticism which can be debated in a legitimate manner. However, the substance of the guarantee was strongly supported by the Governor in the report he brought forward upon request by resolution of this House.

The important objective which we are trying to achieve is to move eventually from a situation where the banks are completely reliant on the State guarantee and on the European Central Bank for ongoing funding requirements to a position where they can access funding on the international money markets at reasonable rates and which will not effectively cripple their ability to serve the needs of the economy here, including personal customers seeking mortgages, personal loans, the crucial small and medium-sized enterprise, SME, sector and the corporate sector generally.

Some of the comments and concerns expressed in recent days regarding the security of people's deposits in Irish institutions are most unhelpful. We must be crystal clear on this point. The money people have in Irish institutions is safe at several levels through the deposit guarantee scheme, which covers up to €100,000 per person in each institution. As the Leas-Cheann Comhairle is aware, this is underpinned by the European directive. The eligible liabilities guarantee, ELG, scheme is also in place, which we propose to extend until the end of next year. If seeds of doubt are sown in people's minds about the security of their money in the Irish banks, they will simply move their money and the problems of the banks in terms of their funding and capital bases will be significantly worsened, an outcome no one wishes to see unfold. We must reassure people that their money is safe and the passage of the motion today will help to copper-fasten this position.

I welcome the Minister's confirmation earlier today of the amount of money which has been collected on foot of the parent guarantee and the eligible liabilities guarantee amounting to €1.3 billion at the end of October. The average fee charged under the ELG scheme is approximately ten times more then the fee charged under the original guarantee from September 2008, which is important.

Important discussions will begin here tomorrow between the Government, the European Central Bank, ECB, the European Commission and the International Monetary Fund, IMF, on issues fundamental to the country's future. If the outcome of those discussions is that funding is needed for the Irish banks, then the taxpayers and citizens of the State should not be asked to take on the bill. We have already committed up to €50 billion to rescue the Irish banks and the burden of any further funding which may be extended to the Irish banks should not be put on the shoulders of this generation or any future generations of the people. This point should be emphasised and it should form the cornerstone of the Government's handling of the discussions that will take place in the coming days.

I welcome the statement last night from the eurogroup, which gave its full support to the efforts the Government has taken and continues to take to face up to the fiscal challenges in the country. The group gave its full support to the achievement of a 3% deficit target by 2014, the four-year plan and the €6 billion front-loading in the forthcoming budget on 7 December. Everyone in the House agrees that we must have as much support as possible in the weeks and months ahead to resolve the outstanding issues such that we can secure proper recovery and growth in the economy.

This debate on the extension of the eligible liabilities guarantee scheme should not be taking place today. We should have a debate but the Minister for Finance should be here. We must establish exactly the position regarding the IMF, the European Commission and the ECB. I am unsure whether the men from Washington, Frankfurt and Brussels are coming here out of the goodness of their health or for a social call. Deputy Michael McGrath referred to "discussions" but the correct term is "negotiations". The people are looking on at the moment and are very worried. They must be given confidence regarding the security of their deposits. The schemes are in place but the position must be explained to them in black and white to the effect that their money is secure in Irish banks. This is a significant concern for ordinary people.

This morning, the Taoiseach treated the people with contempt. I do not say as much lightly nor do I indulge in attacking people on a personal basis. The Taoiseach must have been living in Alice in Wonderland when he referred to there being no negotiations. My understanding is that officials from the IMF, the EU and the ECB are already in Ireland. Will the Minister of State confirm this? Are they here on an unofficial basis at the moment? They will be here tomorrow on official basis. I note that this afternoon following the ECOFIN meeting, the Commissioner, Olli Rehn, stated that their focus would be on two main areas: the fiscal situation, including the four-year budgetary plan, and the banking sector. Clearly, this is a negotiating position. We are in a very difficult situation. The Taoiseach must state emphatically and exactly what is taking place. We must know who exactly is coming tomorrow although we are aware of the organisations involved. What are their terms of reference? What instructions have they been given? What position will the Government take up?

My concern is that we are in negotiations but the outcomes of negotiations are only as good for a participant as his or her negotiators. The Government has neither the financial nor the moral capacity to negotiate what is best for the people. The institutions, including the IMF, the European Commission and the European Union do not believe the figures provided by the Government or the stated losses within the Irish banking system. Deputy Michael McGrath made an interesting observation. I am unsure whether it is Government policy but he stated that the taxpayer should not have to take any further burden in respect of the banking sector. My understanding of the rules of the European bailout fund is that any funds provided are provided in the first instance to the Government, which then passes them on to the banks. Effectively, it is a case of sovereign debt taking on board bank debt.

Let us reflect back on the time of the bank guarantee. The Government spent much time justifying the grounds for the guarantee. At the time, Professor Honohan did not agree with a blanket guarantee. The Government side continually refers to the fact that 3% of the liabilities are made up of subordinated debt. How much of this figure relates to the losses of the banks? It is already the case that we are sharing the pain with Anglo Irish Bank. The Government side is great at rounding up figures but they must be put in context. The Government side referred to the question of liquidity versus solvency. These were the two principal issues at the time of the guarantee. In the previous two years, the former chief executive of the National Treasury Management Agency, Mr. Michael Somers, stated he held concerns about placing deposits in Anglo Irish Bank. Why? It was because the bank was overexposed in the property market.

If he was concerned about the NTMA's deposits with Anglo Irish Bank, he clearly had concerns about its solvency. Furthermore, in documentation that was given to the Committee of Public Accounts on the lead-up to the establishment of the guarantee, the former Secretary General of the Department of Finance stated that further work should be done on the potential losses of the banks. Losses are related to solvency, not liquidity. It is clear that this issue existed in advance of the guarantee. The Government did not need to bring in such a wide-ranging blanket guarantee for a two-year period. It could have introduced a guarantee that excluded subordinated debt and, alongside that, a bank resolution scheme.

When the current Financial Regulator, Matthew Elderfield, recently came before the Joint Committee on Economic Regulatory Affairs, of which I am a member, I asked him whether he believed the Irish Government should have been considering a bank resolution scheme prior to the introduction of the guarantee, and he agreed that it should have. A resolution scheme would have allowed the Government to separate national debt from bank debt. Instead, the Government coupled these. They should have been separated, and the way to do that was through a bank resolution scheme, specifically in respect of Anglo Irish Bank.

To compound the issue, the Government came up with NAMA, and accepted the figures from the banks. No due diligence was carried out prior to the development of the business plan, so it was done on the basis of inaccurate information. NAMA was supposed to stabilise the market but, in fact, it destabilised it. It resulted in enormous holes in the banks. Anglo Irish Bank became a lightning rod for the bond markets, which caused them to consider the fiscal situation in Ireland in greater depth and conclude that the risks were too high. Now the three wise men — the European Commission, the ECB and the IMF — are coming to Ireland at the same time as the original three wise men made their journey, and effectively laying down the law because they do not feel the Government is sufficiently competent to deal with the situation itself. They are protecting their interest, which is the euro. When did the Government protect the interests of taxpayers? We still do not know about the decision making process that took place before the introduction of the bank guarantee. Professor Honohan's report stated that the records of what happened the night before were sketchy. The Irish people are entitled to know, but they still do not know.

Fine Gael will not support this motion for one simple reason. We feel the discussion should be deferred until we have a better idea of what is happening and until the Minister for Finance can be here for a proper debate. Then the Irish people will be able to look at us and say that this House is taking care of their interests. At the moment, they do not believe that. People are petrified about losing their deposits, which they need to realise are perfectly safe, and about their mortgages. The expert group on mortgage arrears and personal debt has issued its report today, which states that it expects further losses. There is €115 billion on the banks' mortgage books, and I have no doubt this is one of the first things the IMF will consider. We must decouple our banking debt from our sovereign debt. A bank resolution scheme should be on the floor of the House today so that we can show we are being proactive.

We have an incompetent Government, and I do not say that lightly. That is not a personal accusation but a conclusion based on its policies. The Government's banking policies have failed miserably. The bank guarantee scheme was too wide and effectively coupled sovereign debt with banking debt. The NAMA legislation was a theoretical exercise that has proven in its application to be a disaster. In that there was no proposal to introduce a bank resolution scheme, the Taoiseach was ignoring the issue, perhaps because he does not understand it. Such a scheme needs to be brought in with immediate effect. We need to show leadership to the Irish people. They deserve no less.

My final concern is that we are now in a negotiating process with the IMF, the ECB and the European Commission. We must get a result for the Irish taxpayer, but I do not think the Government is capable of doing that. It is part of the problem. The European Commission has spoken about the structural problems of the banking sector. There is a structural problem with the Government and it needs to acknowledge that fact. The Irish people deserve no less.

The main reason I want to speak on this is that I have had numerous telephone calls over the past week or so from individual depositors with different institutions. Because of the statements that have been made by members of certain political parties, they are afraid their deposits are not covered. I was glad to hear Deputy O'Donnell emphasise that deposits up to €100,000——

The Taoiseach needs to come out and say that. He has not done so.

It has been said numerous times by the Minister and the Taoiseach that deposits of up to €100,000 are covered under the deposit guarantee scheme and that amounts higher than this are covered under the eligible liabilities guarantee scheme. It is important to get that message out to individual depositors.

I have heard a number of Opposition spokespersons say that what the Government did in 2008 was totally wrong. It is easy to look back a couple of years and say that such and such should not have been done, but in the heat of the night the Government had to make a decision to ensure there would not be a massive run on the banking institutions, and advice was given by Merrill Lynch that there should be a guarantee scheme. That was supported subsequently by the Governor of the Central Bank, Professor Honohan, in his report to the Joint Committee on Finance and the Public Service, although he raised a question about the fact that the guarantee covered subordinated debt. Deputy Michael McGrath mentioned that subordinated debt accounted for more than 3% of the total liability guaranteed at the time, but I think there was about €5 billion or €6 billion in Anglo Irish Bank, of which Anglo Irish Bank bought some back at a profit. There is now about €3 billion, and I understand negotiations are going on in that regard. I am sure it will be bought back with a substantial haircut. If the guarantee had not been established at the time, we would now be worse off than we are today.

Members of the Labour Party have been saying we should have let Anglo Irish Bank go to the wall, but this would have cost an estimated €70 billion to €75 billion.

It is getting very close to that.

It is easy to come along afterwards and say we should not have done something. All we have to do is to listen to what the Opposition parties were saying for the five years prior to the last election. They said we were not spending enough on education——

Because the Government was telling us it was full of money.

——or on health, social welfare or local government.

It told us there was plenty of money.

Suddenly, they have switched around.

It told us the fundamentals were good.

Deputy Durkan was one of the leading advocates of more expenditure.

I will tell the Deputy in a minute.

Where would we be today if we had done that?

We must also remember that although the Government provided the guarantee to the banks, it was not free. As the Minister of State said, €1.3 million has been received from the banking institutions in this regard. It is important to get that message across.

In August and September of this year, €10 billion in deposits left Bank of Ireland, and I do not know how much left the other institutions. If there was no guarantee or if there was not likely to be one, I believe there would be a run on our banks, but this guarantee scheme will help to forestall that and maybe there will be no need for the guarantee in due course.

As Deputy O'Donnell said, I believe the ECB should act as a proper central bank and take full control of the Irish and other banking systems throughout Europe. We should take that step at this stage so that the ECB could operate in the same way as the Federal Reserve in the US and the Bank of England in the UK, and decouple our economy from the banking scene. Our economy, as is evident, is doing very well in this time of recession, with exports 10% to 12% ahead of the exports in the equivalent period last year and foreign direct investment holding very strong. So the fundamentals in this economy are very strong and I believe they should be decoupled from the banking system. I hope progress will be made in that regard.

I listened to the contribution of Deputy Brian Hayes earlier when he said that Anglo Irish Bank was the bank that built Fianna Fáil. I think the Deputy must be suffering from some form of amnesia.

We thought it only affected the other side of the House.

Fianna Fáil was founded in 1926 and we are still here. We have not gone away yet as some other parties have.

The Deputy is being observed.

One should never throw stones when in a glasshouse. Deputy Brian Hayes should not forget that some of the big hitters in AIB, Bank of Ireland and other institutions were not supporters or card-carrying members of my party; I will say no more. When negotiating it is important to keep one's cards close to one's chest. That applies whether trying to get rid of a leader or selling cattle at a fair.

Know when to hold them.

It is important that Members on the other side——

Know when to walk away.

——should understand that, as I am sure Deputy Durkan does.

The young Members of Fine Gael have a lot to learn about negotiating if they believe what they were saying.

I welcome the Government's decision to renew the guarantee scheme for a further period. It is important that it be done to ensure there will not be outflows from the banks over the next period until we settle down. I commend the motion to the House.

I am so sad for the Government frontbenchers, backbenchers and Members in general because they seem to have been injected with some kind of delusionary serum that is causing them to ignore all the factors that stare them in the face. They seem to have failed for the past three years to take any action that other governments in other jurisdictions took and got information quickly.

We hear much at the moment about expert advice. The Taoiseach, the former Taoiseach and various Government backbenchers have quoted expert advice from various quarters. The job of Government is not to follow expert advice but to question the advice, determine the basis on which it was reached and thereafter come to a conclusion, otherwise known as a judgment call. Having listened to and seen the expert advice, Government is supposed to act having regard to it, but not necessarily following slavishly in the same direction.

It is obvious to all and sundry in this country and outside it now that information available to the Minister, the Taoiseach and the Government in general at the inception of the economic downturn should have been made available within 24 hours. In any other country in the world that could be done, but for some reason it was not available here. The information that should have been readily available from the lending institutions was not available. Why did the information on the full extent of indebtedness not emerge? As the information that was made available then was insufficient, inadequate or unsoundly based, no Opposition can now back the proposal because we do not know what the true information is. It has taken almost three years to get the information we have got, drip by drip, bit by bit. That is why the European institutions and our backers across Europe are concerned. They are worried because they know it took a long time to get the necessary information out of the institutions that are receiving protection.

The people will now need to carry the burden of responsibility for this lethargy that has affected Government and the financial institutions. There is no response coming back from the banking institutions despite all the guarantees and support. Those institutions are telling customers what they always told them, namely, that if they do not pay up the institutions will pursue them in the courts. I can state that with authority because I have been there in the past two years on numerous occasions and we are told the same thing all the time from the same financial institutions that have received these guarantees over the past two years. Those same financial institutions have formed an abyss into which the various supports are now being poured. It is no wonder our European backers are asking where that money is going and whether we have found the bottom of that pit yet. It would appear that we do not know. The European institutions are taking a wise decision now by asking questions.

I was looking at a list of questions that were disallowed in this House — for very good reasons I am sure, a Cheann Comhairle. However, the culture that has affected and afflicted this House in the past five or six years is now one of the causes of the serious problems we face. In other words nobody wants to answer a question directly or take responsibility. The same has applied to this crisis; nobody wishes to own up and take responsibility in respect of action other than the ever-unfortunate taxpayer. The innocent victims are the taxpayers, those who are born and those who are not yet born, those who have worked and have contributed to the economy over their working lives and are now being asked to pay once again. Nobody knows to what extent they will need to pay. So there are serious questions about the credibility of what we are running here.

Germany is often singled out as a country that seems to be dictating the pace. In 1991 the German people took on enormous extra responsibilities for which they had to pay a price as they knew and they made those sacrifices. While it is true that interest rates were low not just in Europe, but across the globe, the German people took full advantage of that situation to reunite their country and rebuild its economy, and they came out of it with flying colours. By the same token each other European country had the same opportunity and had the ability to avail of the same low interest rates, but they did not always put it to productive use. The criticism has been that because of the inability of each individual member state to dictate its own interest rates, it was impossible to control the situation, which is absolutely wrong. It was within the ambit of each member state to exercise that control by way of credit controls and restrictions — the same kinds of restrictions that apply today. There is no good in various commentators saying that if only we had been outside the eurozone we would have survived, which is absolute rubbish. It is about time we confronted ourselves and recognised that. We can count ourselves very lucky at present. If we were not within the eurozone, I wonder where we would be.

The critical issue now will be the terms of the next support package. Given what the European institutions have already indicated to those of us who went there over the past month or six weeks to get information and the comments of Commissioners who came here to seek information, the situation is quite clear. The issue facing the Government and people is how much any rescue plan will cost in interest. The interest rate to be applied is the critical issue.

Everybody knows there was a worldwide recession but we still have Ireland's recession, which was created by ourselves in pursuing recklessness and stupidity. We are told officials and technicians are conducting the negotiations, with Ministers conducting them from time to time. I honestly do not know who is conducting them but it is very important that recognition be given to a simple fact, namely, whenever a company, household, business or country is in financial difficulty, the rescue package that has a huge interest or penalty burden will not succeed. The danger is that there will be default. Should that occur, a worse situation will emerge.

Members of the House have often commented on the seriousness of the recession of the 1930s. Even the former US President Roosevelt, who was no slouch in this business, repeatedly spent time addressing the issue encouraging and cajoling people and sometimes threatening them, but at all times bringing the people with him. That is the next most important political issue. The serious issue affecting people in this country, and many people have been bashed, kicked about, scared and worried by the system, is the degree to which they can rely on authoritative support and leadership. Whether that emerges remains to be seen. I am not certain it will emerge from the Government side of the House. It is very important because otherwise the people are in danger of becoming totally depressed and worse things can happen in that type of situation.

I hope those involved in the negotiations know what they are doing. I hope they do not focus solely on one aspect of the situation or rely on spin. Spin has become the order of the day but substance and performance are what we seek now. The time for spin is gone; spin is for when one is losing and we have been losing for long enough. I hope the Government knows what it is doing now, although its performance to date has not shown that it does.

Under the terms of the banks bailout Act of 2008 the Minister is required to get the approval of the Dáil to amend the eligible liabilities guarantee. He is also required to get the approval of the European Commission, and he is required to do so every six months. This particular approval is to continue to guarantee an aggregate figure of €147 billion. It is not clear why the Minister seeks approval to the end of 2011 when he only has EU approval to the end of June 2011, unless it is to avoid coming back to the House before the summer recess.

We are in such chaos with the banks because the Minister's 2008 unimaginably costly bailout did not work. Now we are embarked on a further bailout. How many bailouts can there be? Is this the last? Whatever emerges from the discussions with the IMF, the talks had better ensure that this is the last bailout, unless the Government is going to permit the banks to cannibalise the State. The Government has one last shot at this and it had better get it right this time. Unfortunately and tragically for our citizens, the track record could scarcely be more dispiriting.

The Government has been found wanting at every stage. It failed to supervise the regulation of the banks, to intervene as the credit bubble inflated or to act when alerted by the failure of Northern Rock. It failed to use the period between the collapse of Northern Rock and 28 September of the following year and to enact a bank resolution Act. This leaves the State virtually helpless in the face of the ongoing malfunctioning of a reckless and dysfunctional banking system.

A great deal has been said in this debate that does not particularly relate to this statutory instrument. That is scarcely surprising in the climate in which we find ourselves this afternoon. The instrument is essentially about enabling the Commission to tighten up its supervision of the scheme, for example, the six month review now has the phrase "or shorter" in brackets after it. In other words, the Commission is moving to get the matter under control.

It is clear now that the State bit off more than it could chew with the blanket guarantee. I have heard the arguments from both sides of the House, and I have heard the misrepresentation of the Governor of the Central Bank, Professor Patrick Honohan. When in trouble, the Government side tends to quote the Governor as having given his blessing to a blanket guarantee. He did not do that at all. It is true that the Governor concluded, when talking about the night of 28 September 2008, that a guarantee was necessary, but he did not say it should be a guarantee such as the one drawn up by the Government. It appears that the Government took the view that the State was big enough to take on the markets in terms of a guarantee that, if invoked, would bankrupt the country. It now appears that the markets have been proven right. Unfortunately, we are not big enough to take on a guarantee of €440 billion and to suffer a dysfunctional banking system. As a result, we are where we are.

I must give credit to the Minister for Finance who, like King Canute, is somewhere on the mainland presenting this as Ireland coming to the rescue of Europe. One must hand it to the man; he is immensely skilled in that area. However, it is surreal to present our situation as Ireland somehow coming to the rescue of Europe. Of course, that is not what is happening. Consider the remarks of the Minister of State, Deputy Mansergh. He said: "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 have helped to support the Irish banking sector at a time of great dislocation". It really is a tribute to whoever writes these scripts. Here is Ireland with the heels of our partners in the European Union on its neck because of our reckless profligacy in the past, and the Minister comes into the House with a script saying that the euro group welcomed us and the measures we have taken. The euro group did not do anything of the kind. If the Minister of State is not happy with me saying that I will quote what Professor Honohan said, given that he is so fond of quoting him. He said:

No other country had introduced a blanket, system-wide, guarantee, though this had been a relatively frequent tool in previous systemic crises. As such, the Irish guarantee caused considerable waves, upped the ante for other governments struggling to maintain confidence in their own banking systems and placed some direct competitive funding pressure on banks in the UK where the liquidity position of some of the leading banks was much more critical than was known to the Irish authorities at the time.

Perhaps the Deputy could advise the House of the reference.

The reference is the Honohan report, paragraph 8.38, page 127-8.

The Minister of State told us today that the euro group is delighted with the moves we took. It was horrified at the time and the Minister of State and the Government ploughed ahead. It may have been the case that on that fateful night the Minister and Taoiseach did not have the expertise available to them. We have all learned a bit about banking since then. However, whereas some of us can be excused for our level of ignorance before 28 September one can scarcely excuse the people who were supposed to be available to advise the Minister. Some €7.2 million was paid to Merrill Lynch for advice immediately before 28 September. It got a number of things wrong, presumably because it was relying on what the regulator and other sages told it, but its advice on a blanket guarantee was not wrong.

It pointed out the grave implications it would have for the creditworthiness of this State and made that very plain. Paragraph 8.39 of the Governor's report states, "The scope of the Irish guarantee was exceptionally broad". A serving Governor of the Central Bank could scarcely be more blunt than that. It also states,

Not only did it cover all deposits including corporate and even interbank deposits, as well as certain asset-backed bonds and senior debt, it also included certain subordinated debt. The inclusion of existing long-term bonds and some subordinated debt was not necessary in order to protect the immediate liquidity position.

Could he have been any clearer than that?

I ask the Ceann Comhairle to permit me to draw attention to what I understand to be driving this, namely, the changes that the ECB has made in terms of its supervision. Under the heading "Risk Control Measures" on its website it states, "Such exclusion may also be applied to specific counterparties, in particular if the credit quality of the counterparties appears to exhibit a high correlation with the credit quality of the collateral submitted by the counterparty." What that means in English, as I understand it, is that the ECB was no longer satisfied with applications coming from the banks in this country if the collateral was not up to scratch.

It has said it is no longer prepared to accept collateral in the form of NAMA bonds and that they are effectively the Irish State, and therefore regards this as one whole. The bank debt is on top of the State debt. Therefore, the ECB called a halt and the Irish Central Bank had to come to the rescue, providing more than €20 billion in liquidity to the Irish banks and had to go to Merrion Street to underwrite that. The question is with what was Merrion Street underwriting it. That is why we are under pressure. The ECB has had enough of this and is telling us to clean up the mess but the Minister of State came into the House and presented it as some kind of pat on the back for us from Europe when the opposite is the case. It is an absolute tragedy that we have been plunged into this situation. Fianna Fáil, which is an honourable party in so many ways, has sold out our economic sovereignty by its reckless mismanagement of the economy.

One of the things which stuck in my mind about the period in late September 2008 was the Fianna Fáil Deputies and Ministers who asked others to look at what they had done and said they had saved the whole system and that other jurisdictions would copy structures it put in place. We have found out that was incorrect. To follow on from Deputy Rabbitte, in June 2007 when I was elected to the House, the national debt was €35 billion. At the end of this year, according to the NTMA review in July 2010, the expectation is that it will be €95 billion, made up primarily of the collapse in taxation and running a deficit of approximately €20 billion, which would lead the €35 billion to increase to €95 billion.

In that same period the State accepted the liability and converted what was a capitalist liability into national sovereign debt of another €50 billion. On top of that there will be a transfer of loans from Irish banks to NAMA and a significant haircut will be applied to the €81 billion worth of loans. The haircut has been greater than anticipated but it is somewhat relevant because while the amount of the haircut may be reduced the equivalent amount has to be increased capitalisation. That sets the scene. The rating agencies gave no valuation of the assets which is a little unfair. The total sum involved is in the region of €40 billion.

The Irish banks have no liquidity and we have no source of credit. That is the long and the short of it. Not alone have we no source of credit but the European Central Bank has said, "Stop" and wants its money back because it is terrified that 1% of the population which holds 25% of the European Central Bank's emergency liquidity is bordering on being reckless. They are not satisfied that this can be allowed to continue. I could not disagree with it. What do we do about it? There is only one option, namely, to call upon others to help us out in our time of need.

As a first time Deputy in this House, I find there is a most appalling lack of honesty with the people of this country who will end up picking up the tab. Where was the honesty on Sunday and Monday when Minister after Minister said no negotiations were taking place? We then got clarification to the effect that nothing was happening here regarding the national sovereign debt of €95 billion. However, negotiations were taking place on the underwriting of the Irish banks which are, as we know now, mostly owned by the State. We can try and fool the people or we can be honest. There is no honesty any more from the Government side of the House.

Some people may say that the Government did not know about the impending crisis, but it was told. Early in 2009, the economist Peter Bacon told the Government that the size of the banks' debt was approximately €150 billion. He also told the Government that there was no way out of it because that sum of money would be coming down the tracks at some future stage. The Minister for Finance told us that this would be the cheapest bank bailout in the world. Not alone has it not turned out to be cheap, but it has also brought this nation to the brink of bankruptcy. In addition, it has brought the euro currency to the brink, thus setting the scene for other countries to be attacked, in the way that George Soros attacked currencies in the early 1990s.

When Commissioner Rehn visited here last week he said the authorities here do not accept what is happening and that a reality check was needed. When he went back to Europe after saying all the right things that is required of a former finance Minister in a delicate position, he said that the lack of realisation of what is happening cannot be allowed to continue. It is now recognised that in the conditions required for the Irish banks there will be a default on the subordinated bondholders because Irish taxpayers are not capable of paying. How much more can we bleed the taxpayers of this country? Not very much.

The representatives of the European Stabilisation Fund and the IMF are coming here. We have had sacred cows for far too long in our society and in politics. In the 1920s, Ernest Blythe took a shilling off pensioners and Fianna Fáil spent the next 80 years telling everybody that Fine Gael had reduced the old age pension. The IMF and the ESF, however, will not be concerned about those sacred cows. They will slaughter them and will then move on to the next sacred cow. The State finds itself in that position because of what Fianna Fáil did for electoral gain. It sold out and gave money away. The Charlie McCreevy mentality was, "We'll spend it while we have it", but by God we do not have it anymore. Not alone did he spend the current generation's wealth, he also borrowed and mortgaged their children's future.

What do we do now? Are we to slaughter other sacred cows? Do we get rid of AIB and the Bank of Ireland? Will we give them away for nothing, together with their liabilities? For so long we heard about the country's pride in its powerful banks, but they were built on nothing. They were built on a falsity and were allowed to do whatever they wanted by the former Financial Regulator who was not in a position to do anything because he was only a puppet of the State. There was no separation of powers involved.

Last night, I watched the BBC world news reportage of the EcoFin meeting. It was not lost on me when the Dutch Finance Minister said there would be no grey areas in this respect. He said they would not be allowed to pretend that this is only a bank bailout. This is also a sovereign debt bailout. There will be one bailout and they will not be coming back here in two years' time. What will happen will be obligatory and the people in this House will have to get on with it and carry the can.

Fianna Fáil crashed the economy and abandoned our financial and fiscal independence for its own electoral gain. It is ironic, however, that the British Chancellor of the Exchequer says he will pony up funds to underwrite the Irish economy. I do not know if Fianna Fáil Deputies really accept what they have done to this country.

I thank Deputies for their contributions on this important motion. It is a Government motion, not a Fianna Fáil one. The Government comprises more than Fianna Fáil members. There will be many other opportunities in the near future to talk about wider issues concerning both the past and future. We are debating the extension of an existing scheme, not a new one.

More than ever before, this is a time for realism and an objective assessment of the situation. As stated by the Taoiseach earlier today on the Order of Business, the necessity for the bank guarantee arrangements was compelling. As the Minister for Finance stated at the time the scheme was extended at end-year on 29 September 2008, had that guarantee not been introduced we would scarcely have an economy today, never mind a banking system.

Some reference was made to the misgivings of the former head of the NTMA, Dr. Somers. As he has admitted himself, however, he did not pass that on, or certainly not at a political level. Some of the criticisms suggest that the Government should have taken in the whole situation and all the future consequences on or before the end of September 2008. The Government was not able to foresee all that has developed since, but at all times it has acted in good faith. The entire banking system faced collapse at that time and funding for our banking system has all but dried up. In other words, there was a liquidity issue at least in the short term and the banks faced closure within days. This is starkly illustrated in the report by the Governor of the Central Bank, Professor Honohan. In the first chapter of the report, referring to the discussions that took place on the night of 29 September 2008 — he was not Governor of the Central Bank at that time — Professor Honohan stated:

It is hard to argue with the view that an extensive guarantee needed to be put in place since all participants rightly felt that they faced the likely collapse of the Irish banking system within days in the absence of decisive, immediate action. Given the hysterical state of global financial markets in those weeks, failure to avoid this outcome would have resulted in immediate and lasting damage to the economy and society and there would have been additional lost income and employment surely amounting, if it could be quantified, to tens of billions of euros.

Unfortunately, some commentators have chosen to ignore Professor Honohan's conclusion entirely. They have obscured and confused it in the public's mind by relying on criticisms the Governor made to the scope of the guarantee — for example, the inclusion of dated subordinated debt. The Minister for Finance has responded to and addressed these points on many occasions. Even in today's conditions, we see the treatment of subordinated bondholders is still capable of causing some turbulence, as I think one speaker accepted by implication.

There have been blanket guarantees in the past, notably in Sweden, which is often regarded as a template for dealing with a banking crisis. That country provided a blanket guarantee in the 1990s. It could be argued that we were exceptionally vulnerable in the situation that had developed. A comprehensive guarantee of bank liabilities was an established part of the standard tool-kit for responding to systemic banking crises internationally, and it continues to be so today. As I have said, other countries such as Sweden in the 1990s and Denmark in the current crisis, have introduced extensive guarantees of bank liabilities. The UK authorities provided a broad guarantee to existing senior bondholders in Northern Rock. Guarantees are a facet of the response of EU member states to the ongoing financial crisis. Ireland has not been alone in providing a guarantee to underpin the funding position of its banking system. We were the first to introduce a guarantee but we were quickly followed by other EU member states. Recent figures from the European Commission suggest that since the onset of the crisis in 2008, under state aid rules the Commission authorised some €3.6 trillion in guarantees. In total, some 21 guarantee schemes were approved by the Commission and 12 of them remain in force today. The latest figures indicating some €147 billion of liabilities are guaranteed under the eligible liabilities guarantee scheme, which equates to 4% of the amount authorised by the Commission. Member states implementing guarantee schemes include Austria, Germany, Netherlands, Portugal and Poland. Commissioner Almunia, the Vice-President of the European Commission who is responsible for competition policy, indicated in a speech earlier this month that his current idea is to extend the European Union's financial crisis regime, which will include national guarantee arrangements, until the end of 2011.

We must understand the distinction between what was necessary to stabilise the situation and what is sufficient. The steps taken from September 2008 were certainly necessary. To date, that has not been sufficient to provide normalisation of the banking system, far from it. However, it does not follow that because of the lack of sufficiency, all or many of the earlier measures were not necessary.

Along with the eurozone as a whole, Ireland remains in stormy financial waters. The prolongation of the eligible liabilities guarantee scheme is a key element of the Government's response to the broader systemic challenges facing the banking system. I reiterate the State's commitment to safeguard the interests of depositors in Irish banks. The objective is shared by the eurogroup and supported by the European Commission, the ECB and all authorities with an interest in continuing to maintain the stability of the Irish banking system. In that regard the European Central Bank continues to meet the liquidity requirements of the banking system. This scheme guarantees the security of all deposits in the participating institutions, along with that of other bank liabilities guaranteed under it. The scheme complements the protection afforded to all deposits up to €100,000 under the permanent deposit guarantee scheme, which has no expiry date. As the Taoiseach stated yesterday, the protection of depositors remains one of the overarching priorities of the Government in responding to the difficulties in the Irish banking system.

In response to Deputy Brian Hayes, the urgency of approving the eligible liabilities guarantee scheme and providing certainty about its extension should be evident to all. Failure by the House to approve the scheme would exacerbate uncertainty regarding the future funding of Ireland's banking system. At this time of market turbulence, a decision now on the extension of the eligible liabilities guarantee scheme is not only necessary, but also a responsible action for the State to take to underpin the funding position of the institutions. Delay would only fuel uncertainty and weaken the banking system. In addition to the eurogroup statement, I draw attention to the European Commission state aid approval and endorsement of the guarantee by the ECB on financial stability grounds.

Deputy Brian Hayes, Deputy Burton and possibly others raised the question of a bank resolution regime. The Minister for Finance recently indicated in the House that he was examining options for the introduction of a legislative regime to deal in a systematic way with distressed financial institutions to ensure the State has a range of tools to address problem institutions effectively in the interests of maintaining financial stability, minimising reliance on public money and ensuring continuity of key banking activities. In view of the central role performed by central banks in resolution frameworks for financial institutions, the Department is consulting with the Central Bank to develop the necessary legislative proposals. The Minister expects this process will lead to the introduction of an appropriate legislative framework for bank restructuring in line with what the House wishes to see.

Several Deputies raised the involvement of outside parties. The Irish Government has expressed its determination to work with its EU colleagues and specifically to work with the ECB, the Commission and the IMF to address these market turbulences, to see where there are credit risks to Ireland in the market and how they can be addressed. Talks will begin at official level in Dublin this week, with a delegation from the IMF, the European Commission and the European Central Bank on the possible use of EU and IMF funding to deal with the banking crisis. I welcome the statement by the British Chancellor of the Exchequer. In 90 years of independence I do not believe there has been such a statement made of the degree to which the British economy depends on the Irish market.

The Minister of State is making a silk purse out of a sow's ear.

The Government has not committed to enter a facility but there are serious market disturbances that jeopardise not just Ireland but threaten the eurozone. It is essential we address these structural problems and deal with them. Those with funds on deposit in Irish banks can be assured we have the stability and support of the ECB. It is important that structural problems identified in the market reactions are addressed in a systematic manner. That is what this intensification of engagement is about.

Regarding Deputy Burton's request for more up-to-date figures, it takes some time for end of month figures to be finalised. That work is ongoing by the banks and the Central Bank. The preliminary indications are that the figure for October will not be larger than the figure for the end of September. Those figures will be available at the end of the month.

I take this opportunity to wish Deputy Morgan well. He has made lively contributions to the House. He accused me of understatement.

I do not think it was an accusation, it was an observation.

I take his point that it was an observation, not an accusation.

It was an outrageous observation.

There was no evidence for it.

Any statement that might have an effect on markets must be framed in cautious, if not moderate, terms.

The markets do not bear that out.

Time is rapidly running out.

It ran out two and a half years ago.

An artificial distinction was made by one or two Members, to the effect that civil servants only engage in discussion on technical issues and policy issues are reserved to elected politicians. I am surprised that this comes from anyone who has experience of Government. That is highly schematic. Final decisions on policy issues should be made by the Government or Ministers but it is manifestly absurd to suggest civil servants do not get involved in policy issues.

Deputy Morgan raised an image of the IMF as it operated perhaps in the 1970s and 1980s in South American countries.

Latvia is not in South America. The IMF was there a couple of years ago.

The current head of the IMF is Dominique Strauss-Kahn who is reputed to be a potential Socialist candidate for the French Presidency.

Florence Nightingale in disguise.

He is a distant relation of Genghis Khan.

I did not think the Minister of State had such respect for socialism.

My final point relates to the question of confidence that has been raised in many if not all Opposition contributions.

Is the Minister of State surprised?

That should not surprise the Minister of State.

On that front, notwithstanding my profound respect for various Opposition spokespersons, there is much evidence that public confidence in the Minister for Finance is greater than that in any of the likely alternatives.

When did the Minister of State last go canvassing?

Especially in Donegal.

Question put.
The Dáil divided: Tá, 74; Níl, 60.

  • Ahern, Bertie.
  • Ahern, Michael.
  • Ahern, Noel.
  • Andrews, Chris.
  • Ardagh, Seán.
  • Aylward, Bobby.
  • Behan, Joe.
  • Blaney, Niall.
  • Brady, Áine.
  • Brady, Cyprian.
  • Brady, Johnny.
  • Browne, John.
  • Carey, Pat.
  • Collins, Niall.
  • Conlon, Margaret.
  • Connick, Seán.
  • Coughlan, Mary.
  • Cregan, John.
  • Cuffe, Ciarán.
  • Curran, John.
  • Dempsey, Noel.
  • Devins, Jimmy.
  • Dooley, Timmy.
  • Fahey, Frank.
  • Finneran, Michael.
  • Fitzpatrick, Michael.
  • Fleming, Seán.
  • Flynn, Beverley.
  • Gogarty, Paul.
  • Gormley, John.
  • Grealish, Noel.
  • Hanafin, Mary.
  • Harney, Mary.
  • Haughey, Seán.
  • Healy-Rae, Jackie.
  • Hoctor, Máire.
  • Kelleher, Billy.
  • Kelly, Peter.
  • Kenneally, Brendan.
  • Kennedy, Michael.
  • Killeen, Tony.
  • Kitt, Michael P.
  • Kitt, Tom.
  • Lenihan, Conor.
  • McEllistrim, Thomas.
  • McGrath, Michael.
  • McGuinness, John.
  • Mansergh, Martin.
  • Martin, Micheál.
  • Moloney, John.
  • Moynihan, Michael.
  • Mulcahy, Michael.
  • Nolan, M.J.
  • Ó Cuív, Éamon.
  • Ó Fearghaíl, Seán.
  • O’Brien, Darragh.
  • O’Connor, Charlie.
  • O’Dea, Willie.
  • O’Donoghue, John.
  • O’Flynn, Noel.
  • O’Hanlon, Rory.
  • O’Keeffe, Edward.
  • O’Rourke, Mary.
  • O’Sullivan, Christy.
  • Power, Seán.
  • Roche, Dick.
  • Ryan, Eamon.
  • Sargent, Trevor.
  • Scanlon, Eamon.
  • Smith, Brendan.
  • Treacy, Noel.
  • Wallace, Mary.
  • White, Mary Alexandra.
  • Woods, Michael.

Níl

  • Breen, Pat.
  • Broughan, Thomas P.
  • Burke, Ulick.
  • Burton, Joan.
  • Byrne, Catherine.
  • Carey, Joe.
  • Clune, Deirdre.
  • Connaughton, Paul.
  • Coonan, Noel J.
  • Costello, Joe.
  • Coveney, Simon.
  • Crawford, Seymour.
  • Creed, Michael.
  • D’Arcy, Michael.
  • Deasy, John.
  • Doyle, Andrew.
  • Durkan, Bernard J.
  • Enright, Olwyn.
  • Ferris, Martin.
  • Flanagan, Charles.
  • Flanagan, Terence.
  • Gilmore, Eamon.
  • Hayes, Brian.
  • Higgins, Michael D.
  • Hogan, Phil.
  • Howlin, Brendan.
  • Kenny, Enda.
  • Lynch, Ciarán.
  • McCormack, Pádraic.
  • McEntee, Shane.
  • McGrath, Finian.
  • McHugh, Joe.
  • McManus, Liz.
  • Mitchell, Olivia.
  • Morgan, Arthur.
  • Neville, Dan.
  • Noonan, Michael.
  • Ó Caoláin, Caoimhghín.
  • Ó Snodaigh, Aengus.
  • O’Donnell, Kieran.
  • O’Dowd, Fergus.
  • O’Keeffe, Jim.
  • O’Mahony, John.
  • O’Sullivan, Jan.
  • Penrose, Willie.
  • Quinn, Ruairí.
  • Rabbitte, Pat.
  • Reilly, James.
  • Ring, Michael.
  • Shatter, Alan.
  • Sheahan, Tom.
  • Sheehan, P.J.
  • Sherlock, Seán.
  • Shortall, Róisín.
  • Stagg, Emmet.
  • Stanton, David.
  • Timmins, Billy.
  • Tuffy, Joanna.
  • Upton, Mary.
  • Wall, Jack.
Tellers: Tá, Deputies John Cregan and John Curran; Níl, Deputies Emmet Stagg and Joe Carey.
Question declared carried.
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