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JOINT COMMITTEE ON FINANCE, PUBLIC EXPENDITURE AND REFORM debate -
Thursday, 1 Sep 2011

The Economy and the Banking Sector: Discussion

We will have a discussion on the major issues facing the economy, as we decided to do prior to the summer. The discussion will focus on the economy and the banking sector in the context of the memorandum of understanding with the European Union, the ECB and the IMF, bank recapitalisation and credit provision. I welcome the Minister for Finance, Deputy Michael Noonan. We will begin with a statement from him, to be followed by a question and answer session. When all members of the committee have had an opportunity to question the Minister, I will call on those attending but who are not members of the joint committee to put questions to him. Members are reminded of the long-standing ruling of the Chair to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official by name or in such a way as to make him or her identifiable.

I thank the Chairman for the invitation to speak to the joint committee. It is appropriate to begin the Dáil session with a discussion on the economy and I hope we can have a fruitful and frank discussion. As I said on the last occasion I appeared before the committee, it is my objective to provide the maximum information for committee members and colleagues in the Dáil and the Seanad. I hope members had a good holiday and are refreshed. It will be a long haul to Christmas Eve.

I will outline for the committee the latest economic and budgetary trends before turning to recent important policy developments. Turning to the economic position, the emerging data present a somewhat mixed picture. On the one hand, the exporting sectors are continuing to perform very well. Overall, exports increased by 7%, in annual terms, in the first quarter. Monthly data for the second quarter suggest a similar pattern. The recovery in exports is increasingly broad-based and I am particularly encouraged by the robust export performance of indigenous firms.

The substantial improvements in both price and cost competitiveness in recent years are now standing to us, as is evident from the balance of payments which moved into surplus last year for the first time since 1999. Furthermore, the IDA has confirmed that the pipeline for inward investment is good. It talked about it being a record year in terms of the number of projects attracted, even though the size of projects is tending towards the creation of a couple of hundred jobs rather than the big amounts witnessed in the 1970s. On the other hand, domestic economic activity - consumption and investment - remains weak. For instance, personal spending continues to decline as households maintain their savings at elevated levels. Unfortunately, the significant imbalances during the boom will take some time to correct and, as such, it is unlikely that domestic demand will drive economic growth in the short term. The growth we are beginning to see is export-driven. There are contrasting fortunes between the buoyant exporting sectors of the economy and the domestic sectors. However, the general expectation is that the economy will expand this year for the first time since 2007. I note that this morning the ESRI projected that GDP would increase by 1.8% this year. While the institute's forecast is much stronger than most other available forecasts, the broad picture of an externally-driven recovery is consistent with my own view.

There are risks. In this regard, the data-flow during the summer in many of our main export markets disappointed. As a result, short-term macro-economic projections for many regions are in the process of being revised downwards. The downgrading of the US sovereign debt rating has added to the uncertainty, while the intensification of the euro area debt crisis necessitated further ECB intervention in sovereign debt markets. There is much uncertainty, making economic forecasting more difficult in Ireland and elsewhere. What is abundantly clear, however, is that Ireland could not remain immune in the event that global recovery was to stall. My Department's forecast is for GDP to increase by 0.8%, driven by a strong contribution from the traded sector. A revised forecast will be published in the pre-budget outlook in October.

On the public finances, the most recently published figures provide further evidence of stabilisation. At the end of July total tax revenue was 1.4% above target, with three of the big four tax areas recording surpluses. Allowing for timing factors, tax revenue is essentially on target for the period to end-July. On the other side of the equation, net Voted expenditure is under control and being managed within the limits set. Our target for the general Government deficit this year - 10% of GDP - remains on track. The end-August Exchequer returns will be published tomorrow evening. While the figures are still being finalised, I understand they will show a broad continuation of the overall position at the end of July. For next year the agreed target is a deficit of 8.6% of GDP. The Government is committed to achieving the necessary level of consolidation to ensure that target is reached. The comprehensive review of expenditure will be finalised in the coming weeks and the results of this process will inform the future path and composition of public spending. The next major step is the publication by the Government of the pre-budget outlook which will set out a medium-term fiscal consolidation path for the period 2012-15. It is important that we provide for as much clarity as possible regarding future consolidation in order to generate certainty and thereby enable households and firms to plan their spending and investment decisions.

The previous committee published a report on the process of producing macroeconomic forecasts, models, fiscal oversight and the like. In the letter of invitation attention was drawn to some of the key recommendations made in this area. Much has happened since that report was published and since taking office the Government has taken a number of steps, including the establishment of an economic management council. Furthermore, on budgetary matters, an independent fiscal advisory council has been established as part of the process of reforming Ireland's budgetary architecture. The function of the council is to assess and comment on the Government's budgetary plans and projections. Among other things, this will help to ensure an appropriate fiscal policy is pursued during the economic cycle. No doubt these will be matters the committee will want to hear more about and I will be happy to discuss them further with members. For now I will just say progress has been made on a number of fronts.

In the banking sector clearly there has been significant progress in stabilising the banking system in the past five months or so, with some major milestones passed. I would like to give members a flavour of the key developments and would be happy to elaborate on issues in the question and answer session later.

In March, following completion of the prudential capital assessment review known as PCAR and the prudential liquidity assessment review known as PLAR by the Central Bank, I announced the Government's proposals to comprehensively restructure the banking sector. This involves the creation of two domestic universal pillar banks that will be smaller and more focused on the needs of the economy. The two pillar banks are AIB, which will be merged with the EBS, and Bank of Ireland. The legal merger of AIB and the EBS was completed on 1 July, as was the merger of Anglo Irish Bank and the INBS. Considerable progress has also been made on the renewal of the boards at the banks. Restructuring is also continuing at Irish Life & Permanent.

Banking recapitalisation was another key goal of the Government's programme. We wanted to ensure the banks were adequately capitalised to enable them to resume their core lending activities. The PCAR-PLAR processes identified a capital requirement of €24 billion, including a buffer of €5.3 billion. While the Government committed to ensuring the banks would be fully capitalised up to that level, direct contributions were sought from subordinated debt holders, from the sale of assets and, where possible, by seeking private sector investors.

At the end of July, €7.6 billion was recognised from burden sharing and asset disposal exercises - completed and anticipated - as well as privately sourced equity capital. The State provided €13.4 billion in capital, with a further €3 billion of contingent capital notes. The commitment from the Irish State is lower than initially expected as a result of LME exercises with subordinated bondholders conducted since 31 March 2011 and private sector investment in Bank of Ireland. In the interests of brevity, I do not propose to go into the details but have circulated full details to all members. They can look at the details but it would take up too much time if I was to read out all the figures. Members can study them and come back in the question and answer session.

Deleveraging is also very important in the banks. Plans had been agreed with all the banks providing for the deleveraging, through amortisation and sale, of approximately €70 billion of assets. Almost 80% of the assets to be sold are located outside Ireland. Each of the pillar banks has moved to establish core and non-core divisions and management teams for each business. Deleveraging committees with involvement of staff from the Department of Finance banking division have been set up in AIB-EBS, Bank of Ireland and IL&P to ensure delivery of the targets. This €70 billion is assets in the banking system which needs to be deleveraged and it is distinct from the assets which have been transferred to NAMA which, in value terms, amounts to approximately €75 billion or €76 billion on top of that. Members can see there is a lot of stuff to be deleveraged around within the banks and NAMA. However, progress has been made on the plans agreed with each bank and I have circulated some details of that also.

In terms of funding, the banks have been asked to focus on meeting specific loan to deposit ratios over the PLAR horizon out to the end of 2013. Retail deposit levels have been stabilising over the past months with the rate of outflow falling. The banks are organising intensive marketing campaigns and creating focused treasury teams to try to build up their deposit levels.

While there has been a continuing reliance on ECB funding, the committee should be aware of the positive developments that have been seen during a very turbulent period in the international capital markets. At the time of the PLAR, we had anticipated that the banks would not be able to access the wholesale funding markets until the second half of 2013. Three significant wholesale funding transactions have been completed by two banks and we are once again ahead of schedule. Bank of Ireland had very successful access to capital. It got it on a three month roll-over for approximately 4%. Looking at the Irish Life & Permanent annual accounts yesterday, it also got access to private funding in the markets on somewhat similar terms. It is very significant because we had several debates about when Ireland, as a sovereign, would get back into the markets. The Irish banks, which are substantially owned by the sovereign, are now back in the markets and accessing private sector funding. I do not want to make too much of it but it is significant and the amounts they have raised are significant.

On the issue of credit provision, the Government is acutely conscious of the effect of SME credit on the overall economy and recognises that SMEs will need credit if they are to be the basis of the recovery of the Irish economy. Several initiatives are in train to assist SMEs in obtaining the credit they will require to take active part in the economic recovery.

The restructuring of the domestic banking sector creates capacity for the pillar banks to lend in excess of €30 billion over the next three years in SME and other important sectors. This is in excess of Central Bank estimates of the likely demand for SME and mortgage credit over this period. Both pillar banks are concentrating on the Irish economy and need to issue credit to make profits and rebuild their balance sheets.

The Government has imposed lending targets on the two domestic universal pillar banks for the three calendar years, 2011 to 2013. Both banks will be required to sanction lending of at least €3 billion this year, €3.5 billion next year and €4 billion after that. The two banks are also obliged to submit revised lending plans to the Department of Finance for how they will meet new targets.

This is not just a promise. In effect, they signed a legal document in exchange for the capital moneys we put in. We give them the capital and they sign to provide the credit the Irish economy needs. That is the process. We have a fairly strong hand in insisting that they stick to these targets. If one talks to one's local bank manager, he or she will make the point, which is very valid, that there is as big a problem now, if not a bigger problem, with the lack of demand for credit as there is with the availability of credit. It is another feature of the flat economy. That must also be reversed.

The report of the Credit Review Office on the period to the end of March 2011 stated that the two banks had approved SME lending of €8 billion between them and that each had exceeded the target of €3 billion each in that year. It is fair to say that both banks will find it challenging to meet the €3 billion target for 2011. Both banks highlight the need for sufficient demand for credit from viable firms as an issue in their reaching the targets. My Department will commission an independent survey on demand for SME credit shortly and a meeting of the steering group to scope the exercise, consider the questions and initiate the survey was held last week. It is too crucial an issue to rely on anecdotal evidence. We must have some empirical way to measure the case being made that the lack of demand for credit is the explanation for the lack of credit flow. We need empirical evidence on that and we will seek it because it is crucial to the future of the domestic economy that we have credit lines flowing and that they are easily accessible to viable businesses, especially in the SME sector.

I stress that we need demand for credit from viable businesses to get the banks to hit their lending targets. We have no intention of forcing banks to lend to businesses that are not capable of repaying funds advanced. Such an approach will only create further difficulties for the economy. We want to ensure there are credit lines which are easily accessible to viable businesses with the potential to create goods and provide services and to employ people in creating and providing those goods and services.

There has been much debate on the issue of mortgage arrears in recent weeks and the committee will be fairly up to speed on the situation. Mortgage arrears have been the subject of considerable public debate and I am sure the committee is aware that the Government's economic management council has tasked an interdepartmental group to consider further necessary actions to alleviate the increasing problem of mortgage over-indebtedness and to report to it by the end of September.

The issue of mortgage indebtedness is complex and it is clear that there is no magic bullet or one size fits all solution. There have been many contributions to the debate, including suggestions for the granting of extensive debt forgiveness but this simply is not a realistic option. Solutions must be found on a case-by-case basis through open and meaningful engagement between the distressed borrower and the lender. The planned reform of the bankruptcy and debt settlement arrangements are also key elements in any consideration of potential policy options.

I stress that it is important that mortgage holders in difficulty, or who feel they may face difficulty in the foreseeable future, discuss their situation with their lender at the earliest possible opportunity. The domestic banks have been capitalised to an extensive degree arising from the Central Bank's PCAR exercise last March. Some of this capital is available to the banks to write off bad debts but the banks must be prudent in their actions and not fritter away their capital base through widespread unwarranted debt write-offs.

That said, the Government is acutely aware of the difficulties being faced by a growing number of mortgage holders. This awareness prompted the request by the Economic Management Council for further analysis of the recommendations of the Cooney group. It is important to note, however, that, as matters stand, several important measures are in place to support and protect mortgage holders in difficulty. These include the Central Bank's code of conduct on mortgage arrears, CCMA, which, among other things, provides for a moratorium on legal action against co-operating borrowers and also requires each mortgage lender to establish a mortgage arrears resolution process. It also obliges lenders to consider a range of forbearance options for mortgage holders in difficulty. This measure is being extensively utilised. Lenders representing approximately 70% of the market are implementing a deferred interest scheme recommended by the Cooney group. The mortgage interest supplement scheme currently supports around 18,500 households at a cost of some €77 million in 2011 in meeting their mortgage interest payments. The Money Advice and Budgeting Service, MABS, which operates from 65 locations around the country with the support of the Department of Social Protection, provides free and independent services for borrowers in difficulty. The Government will consider what necessary further action is warranted once the interdepartmental group has concluded its deliberations and reported to the Economic Management Council by the end of September, as I noted.

To address the issue of compliance with the EU-IMF programme, it is clear that we are on track, with the various programme milestones being met to date. The final steps towards conclusion of the third formal review are taking place, as the staff reports of the IMF and European Commission are being considered by the IMF executive board, euro group and ECOFIN tomorrow. This is a long process. The visit of the troika to Dublin and its meetings with various Ministers to decide whether Ireland is on target received considerable publicity. The process involves the troika reporting back, at which point a kind of legal process commences. We expect the process to be signed off on tomorrow because we have met all the targets. The next review mission will take place in October, with subsequent staff reports being considered at executive level in November-December. Our attention is focused on the forthcoming review rather than the current one. While we should meet the targets laid down, there is great conditionality attached to this quarter, some of which is related to the publication and processing of legislation. It is sometimes hard to meet deadlines on legislation. So far, however, we appear to be on course and are driving forward the agenda.

As members will recall, euro area Heads of State and Government agreed on 21 July that Ireland, Greece and Portugal would receive a reduction in the interest rate applying to their loans and that the maturity of these loans would be extended. The precise application of the changes to the interest rate and loans is being discussed. It is hoped to have an agreed draft of the revised European Financial Stability Facility fund soon to complete the process of seeking parliamentary approval by the end of September. Ireland and all other euro area states will be required to introduce legislation in this regard. The House will have a full debate on the negotiations which took place on 21 July at Heads of State level because the outcome of the meeting must be incorporated in an Act of Parliament to change the terms of the EFSF. There will be plenty of time to have a full debate on the issue.

Growth has returned to the economy and the public finances remain on track. In the banking sector key policy decisions have been made and implementation is well advanced. We are complying with the terms and conditions of our external assistance programme. At a European level, design flaws in the European Financial Stability Facility are being addressed with a lowering of interest rates and lengthening of maturities.

Ireland's standing in financial markets has improved, with sovereign debt yields indicating a clear decoupling from other programme countries in recent weeks. While still high, rates have fallen significantly from their peak and in recent days the yield on the benchmark ten year bond has fallen below 9% in the secondary market for the first time since February. Yesterday evening the ten year rate stood at 8.4% on one of the indices. When I checked two year money rates the day before yesterday, the yield stood at around 7.8%. While we are a long way from returning to the markets because current yields are too expensive, the trend is downward. Members will recall that the yield on ten year money stood at more than 1,400 basis points six or seven weeks ago. Reducing that figure to below 850 basis points is, therefore, significant, although these things can change.

August was an extraordinarily rocky month internationally and there is great volatility in the markets. From a practical point of view, the current rates are notional as far as Ireland is concerned because we are not in the market or borrowing at such rates. They are, however, indicative of the international view of the economy because they are the rates at which Irish paper is being exchanged on the secondary market. Therefore, they give an idea of the view of investors, both at home and abroad, of the current position of the economy. I do not want to make too much of this and I will not shout that we should turn our caps in the air because we have been very successful because the position is highly volatile and a return of volatility could result in our bond rates starting to increase again. Nevertheless, the trend is certainly in the right direction.

When we try to track who is buying Irish bonds, we find there is a lot of foreign real money buying Irish bonds in the secondary market. It is not ECB money or the pillar banks in Ireland, although the latter are buying some of the paper in the secondary market for good and sufficient reason. There is significant foreign money now in the secondary market and real investors are buying Irish bonds at current prices, which is forcing the price down. However, we cannot and will not be complacent. We must build on positive momentum and ensure we continue to get ourselves back on track. The deficit remains unsustainably high and economic recovery alone will not be sufficient to correct this. Expenditure reductions and revenue increases will also be required in the forthcoming and future budgets. Moreover, downside risks on the external front have increased in recent weeks and such uncertainties add to the complexity of policy formation in this regard. While considerable progress has been made, significant challenges remain. I look forward to engaging with members on these matters and providing them with as much information as possible.

Thank you, Minister.

I welcome the Minister and his officials. I hope he had a good break during the summer because we intend to keep him busy in the weeks and months prior to Christmas.

The Minister has made it clear that the data emerging for the economic picture are sending mixed signals. It is also clear that we have a two speed economy, with a strong export sector, albeit one which is being threatened by weak international economic data, and a domestic economy which continues to chug along. Significant further adjustments will be made in the next few budgets. Squaring the circle by stimulating growth in the domestic economy while bringing order to the public finances over time is the challenge facing the Government and the country.

On the outcome of the euro zone summit of 21 July, members had a good discussion of the issue at a special committee meeting held in the Dáil Chamber in the final week of July. Six weeks have elapsed since the summit. Are clear implementation plans in place at the Irish and European levels for the decisions made at the summit?

At the previous meeting of the committee the Minister indicated that the National Treasury Management Agency estimated that the reduction in the interest rate applicable to Ireland would secure savings of between €400 million and €500 million in 2012. Has the NTMA firmed up its analysis of the savings we will achieve? Does the Minister know when the interest rate reduction will take effect? Will it be in place by the end of 2011 or early next year? It is important to have clarification in this regard, particularly in framing the budget for 2012 and achieving the deficit target of 8.6%. Based on the data available to the Minister and taking into account the saving on the interest bill arising from the interest rate reduction, what adjustment does the Department currently estimate will be required in 2012 to achieve the deficit target?

The Minister mentioned that as part of the pre-budget outlook next month he intends to set out a medium-term fiscal consolidation path for the four-year period 2012 to 2015. What level of detail will be made available as part of that plan? Will it be an updated version of the national recovery plan which covered the four years up to 2014 or global figures? If a four year plan is being prepared as much detail as possible should be set out to give confidence as to how Ireland is going to achieve the required adjustment in the coming years. It is appropriate that the Minister is taking it to 2015 because that is the year by which Ireland has agreed to achieve the 3% deficit target and it is the end of that particular cycle.

The Minister will be aware of some comments made by his colleague, the Minister for Public Expenditure and Reform, Deputy Brendan Howlin, in recent weeks when he said some Departments are not measuring up in terms of the comprehensive spending review. I would be interested to hear the Minister's views on that issue. Clearly all Departments will have to make a contribution to the adjustment that is required. In addition the Minister said the growth projections for 2012 remain at 0.8%. In terms of the Department's figures, the ESRI had a more optimistic view today. Does the Minister expect his figures will be reviewed as part of next month's pre-budget outlook? In his statement he mentioned the importance of providing as much clarity as possible on future consolidations to generate certainty and enable households and firms to plan their spending and investment decisions. We would all agree with that.

One of the pillars on which the Government has based its budgetary approach has been that income tax is not going to be considered for any changes in budget 2012 but there appears to be some element of doubt about that and the Minister may wish to avail of the opportunity today to clear up the matter.

On the issue of mortgage arrears and personal debt, the figures published during the week were quite startling and indicated that one in eight mortgages is in significant difficulty. As the first priority, we need to ensure full implementation of the last expert group report given that there are still significant recommendations that have not yet been implemented, such as the reform of the personal insolvency legislation in Ireland, reform of the mortgage interest supplement scheme to make it accessible to many more thousands of families than currently avail of it, the deferred interest scheme which is only now being rolled out by the banks, nine or ten months on from the last report. That response is too slow. If any further recommendations are to come from the Keane group, then clearly implementation without delay will be key.

In regard to SME lending, the Credit Review Office report was published during the week, a matter to which the Minister referred in his introductory comments. Does the Minister agree with the CRO that the reason the banks did not achieve their lending target in 2011 was due to the lack of demand for credit by businesses or, as the small firms association and other industry groups point out, that the banks are not delivering on their commitments? Where does the balance of that argument lie? Is the Small Firms Association correct in saying that reasonable credit applications are still being refused by the banks or is the view of the Credit Review Office correct that appropriate lending applications are not being made in sufficient quantity?

I am sure the Minister will agree the live register figures published yesterday were disappointingWhen does he expect an uplift in employment figures and a reduction in the live register following the jobs initiative which came on stream in May? While I accept it is still early days, many of the businesses which benefited from the VAT reduction, in particular, in the catering and tourism sector would have had their busiest months in July and August and it would have been reasonable to expect some increase in employment levels in that sector. I would be interested to hear if there is any feedback coming in to the Department about an uplift in those sectors, arising from the jobs initiative?

In regard to the banks, I welcome the fact that the recapitalisation figure has been reduced significantly from €24 billion, which was the figure in the stress test in March, to €16.4 billion as the direct Exchequer contribution, which gives significant extra headroom to the Government.How does the Minister plan to use that additional headroom? Is it the case that €35 billion was originally allocated for potential bank recapitalisation of which only €16.4 billion is being used? Will that additional headroom be used to fund the Exchequer and is it anticipated that the level of resources available can take us through to the end of 2013?

What is the impact on the official deficit for 2011 of the bank recapitalisation of €16.4 billion? Last year a technical adjustment resulted in Ireland being officially recorded by the EU as having a deficit of more than 30%. All other things being considered the Minister said we are on target to reach a deficit of 10% but will that be officially recorded as a much higher deficit because of the one-off bank recapitalisation figures?

I thank Deputy Michael McGrath. As always his questions are succinct and right on the target. At the meeting of the Heads of State and Government on 21 July, it was asked if there was a clear implementation plan. There is, but each country has to go to its own parliament and put the programme through. That gives rise to significant difficulties in some countries. Countries such as Finland, for example, have coalition arrangements which it has just put together and has entered into deals on collateral - this was reflected in the newspapers during the month of August. An election is due in France in May of next year. The Spanish Government has brought forward the date of its election to November and an election may be due in other countries also. We stay far away from advising other parliaments on how to implement their programme. From our point of view, we will bring forward legislation in September to implement this plan.

In regard to the interest rate reduction, the final details are being worked out on what will go to all the parliaments in terms of a legal presentation. At the end of the day, what actually triggers it will be contractual arrangements between the funds that lend to us in Ireland. It comes down to that level of detail, it is like a lending contract; it is within that contract that the interest rate will be described. How much does it mean? The figure I gave here previously was a little bit short. Our recalculation of it is that it would fall between €500 billion and €600billionrather than between €400 billion and €500 billion which was the figure I gave to the committee as the first shot at it on the last occasion. That is the figure for 2012. Obviously the savings grow as more money is drawn down, therefore, the overall figure would be around €900 billion when we are fully drawn down. The programme is to run for another couple of years but the loans we are drawing down are, on average, around seven-and-a-half years duration so that when the programme is finished we will still be repaying the loans. The savings must be taken forward to the end period of seven-and-a-half year loans on average and will amount to €6 billion or €7 billion which is a lot of money off the debt. As I mentioned previously, there is another leg to it as well because we are getting money from the IMF. A Bill to amend the Bretton Woods Agreement will be introduced in the autumn. This was the core legislation for setting up the IMF. Without going into detail here, when two thirds of the IMF countries implement that at the IMF AGM in October 2012, it will trigger an interest rate reduction of 1% on our IMF money as well. When we take that into account, we are looking at €1 billion per year when there is full draw down. The reduction will apply to all moneys that have been drawn down before 21 July, and will apply from 21 July. They will pay a lower interest rate from 21 July, and that will also apply to all new moneys drawn down. The date is the date of the agreement on 21 July. However, we are not retrospectively going to get back interest rates that we have paid already on money drawn down. It is only going forward from 21 July.

The details have not been finalised yet. Some countries have particular difficulties. The Deputy will be aware of arguments between other countries and the bilateral arrangement made between Finland and Greece on collateral. I understand that is off the table and other arrangements are being made to compensate. This is one of the problems of decision making in Europe. There are 17 sovereign governments. Everything has to be unanimous. Everybody has their own difficulties. The wider group is composed of 27 sovereign governments, and these also have to agree with what the 17 are doing. That is the world in which we live and the arrangement we have. The negotiations are always intricate, but they are moving on.

The Deputy then asked where we stand on the 8.6% deficit. That is the agreement we have in the programme. The €3.6 billion adjustment is the way to arrive at the 8.6% target. The commitment in the conditions of the programme is a deficit of 8.6%. I am not quite sure what will be necessary to reach that. The IMF state that a €3.6 billion adjustment will lead to a deficit of 8.7%. The Commission state that it will be 8.8%. We think we will be shy of it as well, but there are several variables.

Does this include the interest rate reduction?

Yes. The interest rate reduction is a big plus. If I had been talking to the Deputy in the last week of July, I would have said we are doing great and that we have a big windfall from the interest rate reduction. However, it looks now as if we have to revise the projected growth figure for 2012. The figure quoted by the Deputy of 0.8%, which is what we are using, and the figure of 1.8% used by Joe Durkan this morning on the radio, are the projected growth figures for 2011. Our figure for 2012 was 2.5%, but with the international situation changing, we may have to mark that down. We are not sure yet because it seems as if there will be a further quantitative easing initiative in the US or other stimulatory policies in the next two weeks. We are watching it carefully, but it is too soon to call it.

Let us suppose that in a very bad situation, we had to mark projected growth rates down by 1%, even though we have built in 2.5% to the multi-annual budgets. If we marked down by 1%, that would reduce GDP by 0.5%, and that reduction in GDP would trigger a revenue loss of some €800 million. Not only would the interest rate windfall go, we would be looking for more money as well. I do not envisage a situation where we will mark down potential growth rates by 1%, but I am trying to illustrate how difficult it is at this point in the year to give any accurate projection. For the purposes of what we are doing, we are saying that we will reach 8.6% and make the necessary adjustment to get there. At the moment, we are aiming at 3.6%, but as I said in June, that may stretch a bit. The ESRI statement this morning referred to an adjustment of 4%.

Preliminary figures for revenue in July and August are coming out tomorrow, and they are on track again, so we could end the year slightly up, when we take expenditure and revenue together. It is like getting odds on a race. If we end slightly up, the end year deficit is down a bit. There is a lesser handicap in the race. It is too soon to be exact about these things.

Will next month's figures be in the pre-budget outlook-----

When we come to October, we will have to start confining our projections to give members a better idea as we come to forming the budget.

The Deputy asked me many questions, so I had better speed up. The fiscal consolidation plan is for 2012 to 2015. Part of the renegotiation we conducted after the formation of the Government was to extend the programme from 2014 to 2015. It is reasonable that we should now have a programme to take us to 2015 to get the deficit below 3%. I try to give as much detail as possible, and certainly as much as was in the plan to which the Deputy referred, but it will still fall short of the specifics he will get on budget day. It will be along the lines of what was there previously, and possibly a bit further. In the interests of getting certainty into the economy and a bit of confidence into the domestic side, we will err on the side of giving as much information as we can, rather than being too cautious. However, I do not want to announce the budget in October, when budget day is in early December. We are not bringing forward the budget, because we will not have enough information at that early stage to deliver a budget that can meet what we need to do. We do not want to depress the economy by taking premature action and by reducing demand in the economy beyond what we think would be prudent and necessary.

The comment by the Minister, Deputy Howlin, that some Departments are not measuring up is the just the prudent action of a Minister who is doing his job. I think they call it a shot across the bow.

I take it he was not talking about the Department of Finance.

Across whose bow?

I referred to the growth projections already. The Deputy inadvertently said that the 0.8% figure was for 2012, but it is for 2011. The figure for 2012 is currently 2.5%. The ESRI's figure for 2011 was 2%, but it pulled that back to 1.8% on the basis of what happened during August. Its figure for next year is down to 2.3%, but it was at 2.8% or 2.9%, so that has been pulled back as well. That still represents very strong growth rates.

The income tax position is as stated by the Taoiseach. There was never any contradiction between my position and the Taoiseach's announcement. That was just the usual kind of speculation we get around here. I gave the standard finance Minister answer. Going back to 1922, when anybody asked the Minister for Finance what he was going to do on budget day, he said he could not say and that he must keep all options option. That is all I was doing. The Taoiseach thought it was worthwhile to confirm the position that there would be no increase in income tax. We do not want to increase taxes that would cause further employment problems. Of course we will have to increase taxes. This is not a commitment not to increase taxes, but a commitment not to increase income tax. I do not know why people are shaking their heads. Anybody who thinks we can bring in a budget in December without some extra tax take would want to go back to their books on the first day at school.

I take the point about the full implementation of the Cooney report. I thought Hugh Cooney's report was reasonably good at the time as an answer to the difficulties that mortgage holders were facing at the time. However, it is time to revisit that now. The report will be in at the end of September and we will take it from there. There is no point in me making announcements today to the committee when a cross-party group is looking at it. Obviously, the housing section of the Department of the Environment, Community and Local Government is represented along with the Department of Social Protection. There is a representative from the Central Bank and people from the industry, so there is a full input on policy. It is better to describe it as an interdepartmental group rather than an expert group. The kind of people who are there are those who advise their Ministers on policy matters in these areas. It is bringing together those people to get a collective view of the policies that should be pursued on this serious issue.

With regard to SMEs, is there a supply problem or a demand problem? There is probably a bit of both. I said in my speech that we were putting together a group to examine the situation based on empirical, objective evidence so that we are not simply relying on anecdotes from either the interest groups or the banks. The only empirical evidence around is from the Credit Review Office, which has an appeal mechanism for small businesses that have failed to obtain working capital. The level of appeals is low enough; it has not yet reached 100 cases. There have been around 98. That is despite the fact that, as members will recall, I raised the limit for eligibility of loan requests that could be appealed from €250,000 to €500,000. About 30% of appeals are proving successful, so the reluctance to use the facility is not because it is not a successful mechanism. It seems the position may be exaggerated and that there is a case to be made that it is demand for credit, rather than supply, that is the big issue. However, we will try to obtain independent data on that. It has been put to me that people do not like to go over the heads of their bank managers and appeal to an outside agency as it might upset the subsequent relationship, but I do not know whether that is true. One hears many things in clinics, as members will appreciate, and one must judge them as best one can.

There is an issue with the supply of credit, but there is also another issue, which the Minister for Jobs, Enterprise and Innovation, Deputy Bruton, is considering. There are businesses that were involved in various areas of the economy. They were not in the property business, but when things were going well they decided to make a play on property, using their profits or the collateral of a traditional business to support it. Then the property play went wrong, and the resulting impairment is dragging down some small SMEs. Members may have come across this in their own constituencies; I certainly have. I do not know what can be done, although the Minister is considering it. The contagion of the property collapse actually spread beyond the property and construction industries and into small, decent family businesses that thought the smart thing to do with profit was to invest in property. We are talking about a typical small business with a turnover of €2 million or €3 million, which is going well and making a profit, deciding to buy four apartments and a house in Dublin for rental purposes to support the business. This is what is now dragging down many small businesses. I am sure members are well aware of this because they hear about it in their constituencies. It certainly informs the debate.

The live register figures were mentioned. The ESRI said this morning that an additional 12,000 jobs would be created next year and that it would be the first year of additional job creation. That was good news, but with the way the labour market is expanding, it will still not be sufficient. There is a difficulty on the employment side, but the level of unemployment is around 14.3%, while Spain's is about 22% at the moment. If one looks at comparable figures one can see we are not alone in this crisis. That does not diminish the figures but it does give them a context. We must do everything we possibly can. The recent live register figures also show that immigration seems to be continuing; there still seems to be a net inflow. A significant proportion of people on the live register have come in from outside. I am not making any point about that; I am just saying this is what can be seen when one looks at the composition of the figures.

I also asked some of my advisers to investigate the method of seasonal adjustment of the live register. I am sure Senator Barrett will have an interest in this. If we consider what happens in schools, for example, we can see that as soon as June comes all temporary teachers are let go - and sometimes the secretary and caretakers also - and they all sign on immediately. That has gone across to the voluntary sector. As the cutbacks have had an impact on some organisations in the voluntary sector, they are no longer capable of giving people paid holidays during the summer months or making other arrangements for them, and they are going straight on to the live register. As these people return to work in September, we will notice a haul-back in the numbers over the coming months. I do not question the validity of the figures, but I wonder if the seasonal adjustment mechanism which provides the underlying figures is still being applied in accordance with practice or if something is being missed. It is a major problem and more needs to be done.

The Deputy asked what had been achieved from the jobs initiative. From anecdotal evidence one will hear there was a significant impact, particularly in the hospitality industry. Members who visited their local hotels or went to places providing food will have seen that there was a significant upswing during the summer. There is much anecdotal evidence that there was a strong tourism season, and we hope to build on that. Tourism is a great industry. It is really an export industry; it is just that instead of our sending goods and services out, people come and buy them here. We should build and market the tourism industry more next year. I do not know the figures for the tourism industry.

The bank recapitalisation worked out well in terms of burden-sharing with the subordinate bondholders. The big break was getting Canadian and US investors to buy a lot of shares in Bank of Ireland. Between one thing and another, what started at €24 billion will come in at a bit below €17 billion when everything is sorted out. Of the €17 billion, €3 billion is going in for contingency purposes, because there was an argument about whether we needed all this recapitalisation money. The compromise in the end was to put €3 billion in on a contingency basis. That €3 billion has gone in based on a five-year agreement, and if the banks have sufficient capital by year 5, it will come back to the Exchequer. In the meantime, they are paying a 10% coupon back to the State. It is not all bad news.

The Deputy asked what I would do with the savings. When his Government negotiated the €85 billion programme, some of that money was coming from the Irish pension fund. However, there was no legal break between sovereign debt and banking debt. That was purely for the purposes of implementation. There is not a legal division of €35 billion for the banks and €50 billion for the sovereign. It is not like that. It is a pool of €85 billion to be used as necessary. Now that we are using €17 billion rather than €35 billion for recapitalisation, the remaining €18 billion is available for use on the sovereign side, which means, as the Deputy rightly interpreted, that we have sufficient funds to carry us through to the back end of 2013. We do not have a funding crisis. Things going well, we will be putting our toe in the water of the market far ahead of that, because, as I pointed out, the banks are already back in the market and with bond prices coming down it will be possible to return to the market.

The arithmetic has also changed with regard to the decision to return to the market. We were thinking of going back to the markets if ten-year bond yields dropped below 6%, but now that we have renegotiated, what is the point in going back if we can get money from the fund at a tad less than 4%? What we will probably do when the opportunity arises is to run a parallel stream. The NTMA will examine whether we can get money on the market.

There is one big jump of which I am very conscious. A big amount of money has to be repaid in January 2014 and it looks as if we can fund it. We have the money, we have access to money and we will be able to cover everything but there is a big jump and we are still running a significant deficit when the repayment is added on to the deficit of 2014. However, given the new powers now for the European Financial Stability Facility, EFSF, fund to lend longer I believe we will be able to talk to them about it. We may be able to do exchanges and spread it out further. Our position now is entirely sustainable but there is this big jump obstacle at the start of 2014 and if we could spread it we would be in very good order and we could work on getting our domestic economy back and getting people back to work again. That is the overview in the long term.

Deputy McGrath asked a question about the impact on the deficit. I will read out a note which I had to get as I did not have the information. This year's banking recapitalisation payments are considered financial transactions. Therefore, these amounts are not shown as impacting on the general Government measure of the deficit. They impact the debt ratio on this treatment - the internationally recognised treatment - and, as is the norm, discussions take place with the CSO and EUROSTAT on such matters. In the coming weeks further details will be provided as will the end of September Maastricht statistical returns to EUROSTAT. Following the return to EUROSTAT there will be ongoing technical work and discussions with EUROSTAT which will decide on the matter following the details supplied in September. However, the indications so far are that it will not impact but it must be signed off finally with EUROSTAT.

Go raibh maith agat. Cuirim fáilte roimh an Aire agus an foireann. During his presentation the Minister talked about the difficulties in projecting growth rates. One of the concerns my party and I had with regard to the programme-----

In case Members were not here at the beginning, I repeat my appeal to people to turn off mobile phones and not to leave them on silent mode or on in any other fashion because they interfere with the sound production here.

I think that was me.

I did not want to accuse you in that direct way.

I always own up when I am guilty.

We talked about the difficulty in projecting growth rates. One of the problems my party had with the programme of austerity the previous Government signed up to and which this Government is implementing is our belief that it was not possible to achieve the growth rates predicted at the time given the amount of austerity that was to be heaped on the people. The fact was that the Government was giving up on the domestic economy and putting all its eggs into the export economy, a risky strategy. Since then we have seen this Government already downgrade the growth rates for this year and today the Minister tells us the country is unlikely to reach the growth rates for next year. I will predict what will happen about this time next year. The Minister will also downgrade the growth rates for the year after. This has been the pattern since the consensus of cuts last year was entered into. We throw out figures just like Government election promises and then when it comes closer to the time we start to downgrade and down-play them.

We have also heard today that the €3.6 billion figure will probably be required to be increased given what the EU Commission and the IMF suggest. We can talk about instilling confidence and I understand the difficulty with projecting and projections. We need only consider the ESRI prediction today of a 1.8% increase in GDP, completely at odds with most other projected growth figures from those involved in projections. However, it is disingenuous of the Government. There was always an understanding that the Government would put predictions on paper and when it came closer to the time it would not really matter if they had to be extended out a little as long as it achieved some of the targets.

One thing we know is growing is the live register, which has grown by 1,600 on last month. When we talk about whether the jobs initiative is working the best way is to look at the live register figures and whether the live register figures are going down or up. Unfortunately, they are increasing. We also know the growth in mortgage arrears is increasing at a rapid pace and we know there is a huge growth in distress among ordinary families as a result of the austerity measures. That distress does not seem to be going away any time soon given the trajectory of this Government's budgetary proposals over the coming years.

The Minister said the bank recapitalisation went fairly well. I completely disagree. The day €16.4 billion of our money went in to cover gamblers' losses in banks was a bad day for this State. There was nothing good about it. On the day of the stress tests I said that we can fix the banks. If one throws money at any company that is losing money and which has major debts and which still has a product that is viable, of course one will fix it and people will invest in it. That is what we did; we wrote off their losses and it should not have happened because there are plenty of people who gambled and who should have taken the losses instead of the taxpayer. Specifically on the matter of the bank recapitalisation, where did the €16.4 billion come from? The note the Minister has given us is vague. It states the €16.4 billion total of capital invested by the State came via the National Pensions Reserve Fund, NPRF. The NPRF does not have nor never had €16.4 billion. I understand €14.7 billion was available. Will the Minister confirm that the projected figure to go from the National Pensions Reserve Fund, which was €10 billion, was the figure injected and the rest came from the resources borrowed by the State from the EU, the IMF and on the international markets prior to the bailout? This is important information because it is important that there is money left in the National Pensions Reserve Fund so that other options are available to future Governments to ensure a stimulus package to try to get people back to work.

Several Ministers have stated that the Government must take distressed mortgages more seriously. I am pleased those in Government are beginning to talk among themselves and to take this more seriously. I have no wish to go into the detail because what must happen or what should happen has been thrashed out well in the media. I have my own views which I have mentioned in the Dáil in terms of the principles which should be applied here and there must be a variety of options because this is not a blanket solution. My concern is that at present we have an expert or interdepartmental group that will come back with recommendations but we have had these recommendations before. Will the Minister give the people, including the 90,000 plus people with distressed mortgages, a timeline for when legislation will be introduced on foot of those recommendations so that the banks will have the legal parameters to starts availing of some of these schemes, whatever schemes there may be in the end? Will the Minister give a deadline for when this will be in place? Will it be before December, will it be next year or will it be the end of next year? People need to know because they are at their wits' end. People cannot sleep at night because of the debt and the Minister knows as much from the clinics. We all know this and it must be dealt with. The Government has not taken this seriously enough until now.

The Minister referred to Deputy McGrath's questions about the budget and the tax bands and the fact that the programme for Government states that there will be no increase in the tax bands although there will be many other taxes in his budget proposals. Will the Minister give the same commitment to the commitment in the programme for Government that social welfare rates will be maintained? Is the Government still prepared to stand over that commitment as the Minister stood over the commitment on income tax some minutes ago?

The Minister has given some information on the reduction in the EU loan and on securing a reduction in the interest rates. He has done so inasmuch as he can because none of us have the information yet as to what exactly that will mean. The estimates are to be welcomed. However, when one projects forward 7.5 years it is somewhat disingenuous to suggest that there will be between €6 billion and €7 billion of a saving given that the maturity of these loans will be extended and therefore the total amount of money, if we are to play the game the Minister is playing, will be more than what was originally in the 7.5 year maturities. That said I welcome the reduction in the interest rates and the longer term because in reality we would have had to roll them over anyway. It is important that we put out accurate information.

We are aware of what has been happening it the EFSF. What is happening with regard to the other loans in terms of having all members not only the euro members, but the 27 members to discuss the other portions of the loan? When can we expect decisions to be taken on that matter and all the bilateral loans?

The Anglo Irish Bank promissory note is one of the areas of banking that is causing a major problem for us because it impacts on our budgetary situation and deficit reduction. Has there been any discussion at European level, particularly with the ESFS which now has an expanded role, on examining the ELA to Anglo Irish Bank and restructuring it? The promissory notes could be dragged out over a longer period instead of the ten year period we have. The promissory notes are in place to pay back the Irish Central Bank and the European Central Bank. Is there a way to use the expanded role of the ESFS to deal with that issue and extend the maturity date? The knock-on effect would be that instead of giving Anglo Irish Bank €3.1 billion every year over the next ten years, the timeframe would be extended which would reduce the immediate impact on us and our budgetary situation because the money comes directly from borrowings.

What is the current situation regarding people being brought before the courts and charged with crimes that have taken place as a result of things that happened in the banks? The public is waking this morning to discover that one of the most expensive arms of the State, Anglo Irish Bank, has made major accusations against David Drumm in the courts in America that he was involved in fraud. When will the Garda charge such people, appeal for their extradition, meet them at the airport, put them in handcuffs and bring them before the courts? If such claims are being made by Anglo Irish Bank we have a duty to follow them up.

The public is fed up with the length of time it is taking to bring charges and prosecutions forward. We are limited in what we can say but something needs to be done about this. It is unbelievable that such a length of time has elapsed without the appropriate charges being levied.

On the lending of the pillar banks, the Minister referred to the €3 billion that each of them has to lend to the SME sector during 2011, a figure which will increase over the next two years. He said it is unlikely or challenging that the figure will be met this year. He mentioned that it is a legal agreement. Mark Fielding of ISME said what the banks are saying is arrant nonsense, in reference to their comments that there are credible requirements for credit from SMEs. I acknowledge that the information we have heard is second-hand but people are not even getting to the application process because bank managers are telling them not to bother.

This issue has been discussed on radio channels and in television studios for many months and the Minister is going to commission a report. When will he enforce the legal agreement to lend to these companies the State has with the banks as a result of our capital injection? What power does he have to make sure that the legal agreement is upheld, if all of the evidence that has been mentioned from the SME sector is true and it is not an issue of demand but rather that the banks will not supply credit to it?

Has the Government factored in the effects ending upward-only rent reviews would have on the banking system and NAMA? Has any work being done on this in the Department? A number of reports show that huge losses would be crystallised in the banks if that were to happen.

On burden sharing with senior bondholders, something the Minister knows I have argued long and hard should happen not just in Anglo Irish Bank but in the other banks, the Minister has nailed his colours firmly to the mast. He wants to see burden sharing with senior bondholders in Anglo Irish Bank. He said the issue would be raised with the ECB in the autumn. We are now in the middle month of autumn. When does he intend to raise the issue? How does he feel his European partners will look at this issue, given the fact that they have explicitly ruled out any private sector involvement as a result of the deal that was struck in June which this State agreed to? Does he intend to pursue this issue as vigorously as he stated he would in the United States in March of this year?

That brings my points to a conclusion. There has been a lot of discussion on what is happening in Europe. Some things are starting to work out and others are still up in the air. When we are talking about a partnership of equals and all the countries in the eurozone - this country needs external assistance - it is not good enough for France and Germany to come together, hold meetings, tell us that we have to enshrine deficit levels constitutionally and recommend the people who will sit on the new councils that will oversee economic activity in Europe.

It is important that we establish the principle that, regardless of whether Greece, France, Germany or Ireland is in trouble, we are all equals. We should all be around the table, discussing this issue collectively, and not allowing France and Germany to dictate what is happening in this country and across Europe because they are the larger economies. We should not allow a type of two-speed Europe to develop. The Minister should raise the issue with his counterparts across Europe at the next opportunity.

I thank the Chairman and Deputy Doherty. I am glad the Deputy acknowledged the difficulty of estimating growth rates. There are a number of agencies. He accused the Government of being disingenuous by producing growth rates, promising growth and then abandoning the figures. He said this was the pattern over the years.

It is not the pattern. There has been no growth in this economy for three years; it has all been downhill. There was no growth until the start of 2011. The economy is now growing again but it did not grow in the previous three years. If one adds the figures together, one will find there has been a very significant decline in growth. This has been measured by all the agencies. Nobody predicted that there would have been significant or any growth over the past three years.

The outgoing Government projected some growth through 2010 but did not achieve it.

2011 has been written down as well.

It ended up as -1%. In terms of the truth of the argument, nought is where one starts. A minus refers to a decrease and a plus to an increase. This economy is growing again. There is an argument about how much it is growing by, but the Department of Finance, the ESRI, the Central Bank, the IMF and the European Commission all say that the Irish economy is growing in 2011 and will continue to grow more strongly in 2012, 2013 and 2014. That is the trajectory.

Everybody is aware of what has happened in the United States, Japan and Europe, and because we are a small open economy relying principally on export-led growth it is reasonable to look at the figures. If the economies that take our goods and services have to mark down their growth rates it would be imprudent of us to run with growth estimates that are not valid. Nobody is being disingenuous. It would be disingenuous to stick with unsustainable growth projections when circumstances have changed in our customer countries. That would be disingenuous and we are not doing that.

The Department of Finance growth rate figure for 2011 is 0.8%, a rate which is very much clustered in the middle of a bunch with the IMF and the European Commission. People will project a lower or higher rate. The ESRI has been quite optimistic in recent years about growth rates, as it was in the past, and has proved to be right. It is not an exact science.

If the Deputy's suggestion is that the Department of Finance makes up the figures at the request of the Minister and Government, it is not true and he should not say or suggest it because the civil servants are honourable people and make the best estimates that they can in line with the techniques of forecasting. Their forecasting has been on the middle to lower side of the collective rather than the higher side.

The Deputy can look at the different growth figures. Obviously, if we have more growth it will help us and if we have less it will make the budget harder, as I said in reply to Deputy McGrath. My business this morning is not to be disingenuous but to lay out as much information as I can for members. When I do not have information in a precise manner, because of the variables that exist, I will say to members that the issue is subject to variation on the basis of external circumstances. I can do no more.

The Deputy does not agree with the bank recapitalisation and has a different view on the matter. That is fair enough. A secure banking system is absolutely crucial to our economy. We have decided to pull the banking system back to comprise two pillar banks. We hope there will be a third banking force in future, but we have no plans as yet to put it in place. We welcome the activity of foreign banks in the State; we hope they will continue to participate in the economy, because we need a competitive banking system. As a more remote policy, we would like to rebuild competition in the banking sector, because there are dangers in relying on two pillar banks. However, our job is to ensure that we have two banks involved in the Irish economy, supporting the economy with credit lines and deleveraging their outside activities as quickly as possible. We do not want them to be involved in fire sales but to deleverage activity which is of no use to the Irish economy. We all remember a time when an Irish bank was as liable to be funding the construction of apartments on the Black Sea as to be involved in domestic activity. One would go for a haircut and meet four people who had bought an apartment off the plans in some town on the Black Sea for €10,000. That type of activity did nothing for the Irish economy but was engaged in on a widespread basis by Irish banks. They will no longer be involved in that.

In terms of banking policy, in the case of commercial banking decisions, we would like to let the bank boards and staff make those decisions. That will be the Department's policy under my Ministry. On the deleveraging side, the Department's policy is that we will go hands on to ensure banks deleverage in accordance with the plans we have set out. We do not want them going wild on that.

The Deputy asked where the recapitalisation money came from. I have a note setting out the details. Some €5 billion went from the National Pensions Reserve Fund to Allied Irish Banks and the State now owns 99.8% of that bank. Some €260 million from the fund went into Bank of Ireland and we now own 15.1% of that institution following the taking up of equity by outside investors. Some €3 billion of contingent capital has been put in across the banks from the Exchequer, which, as I indicated, is on a five-year basis and with a 10% coupon. Approximately €2.4 billion has gone into Irish Life & Permanent and the State owns some 99% of that institution. A capital contribution of €6 billion has gone from the Exchequer into Allied Irish Banks. That adds up to slightly more than €16.4 billion. There were fees to the State, off-sets and so on, but that is the ballpark figure. The National Pensions Reserve Fund will pay the difference between the direct investment into the banks and the €10 billion to the Exchequer which was provided for previously. We will expand on the note and circulate it to all members, if that is amenable to the Chairman.

It may be forwarded to the clerk and we will make arrangements to circulate it to members.

On mortgages, a debate is ongoing but the Deputy is misrepresenting what people are saying. I know of no Minister who said we should take the issue more seriously - we have been taking it seriously and the previous Government, in fairness to it, took it seriously as well. The Cooney report brought forward good recommendations which were a reasonable measure of the level of the crisis at the time. Anybody familiar with the debate knows that as one goes along, the impairment of mortgages gets worse. When people are at work and have good savings, they can afford to meet their mortgage repayments. We knew at the time of the stress testing in March that there was a projection that the mortgage problem would get worse.

An issue which was well debated at the time was why so much capital was required. One of the reasons was that as well as stress testing the commercial loan books of the banks, the examination of mortgage books carried the stress testing right out to the lifetime of the mortgage, to year 16, year 17, year 18 and beyond. If there was a possibility of impairment, that was picked up in the stress test, with the result that an additional amount of capital had to be put in. This is the point I made earlier in the week - the banks have been capitalised to cover bad debts arising from impaired mortgages. That is not to say they have a pool of money they can throw around in an ad hoc manner; there must be a measured approach.

Our principles in approaching this - and the group examining it is aware of them - is that we would like to keep people in their own family homes. That has been policy here for a long time. Looking past all the talk, all the hoo-ha and all the phone-ins, the latest set of figures shows that only 58 homes have been repossessed through the courts. In the context of the number of impaired mortgages, that is small. I do not know the circumstances of individual cases, but that is where we are at. The other point, one we all acknowledge, is that we must distinguish between people who will not pay and people who cannot pay. If there is some type of free-for-all debt forgiveness, many people will be in the queue. As practising and practical politicians, we are aware of the clientele in our constituencies. If there is any announcement of universal write-offs, there will be queues of people in clinics on Monday morning looking for write-offs. It is not possible to take that approach. However, there are people in dreadful difficulty and they are the ones who must be assisted. We must distinguish between "cannot pay" and "will not pay".

Beyond that, I cannot pre-empt the findings of those who will produce a report in three weeks time by saying this morning what should or should not be done. However, I have no problem with members expressing their views and I will send them on to the people examining the issue. Members can submit proposals in writing but should do so without delay because the group will meet its deadline of reporting by the end of September. If members have strong views on this and believe there are policy instruments that should be put in place to assist people in difficulty meeting their mortgage repayments, they should write to me in the next ten days and I will pass their views to the committee.

Can the Minister give any comfort to people who listened to the speculation on RTE last night about what might be in the report?

Does the Deputy have a specific question?

Yes, it is a specific question.

We do not want argumentation; the Deputy should put a specific question.

I will not argue because I agree with much of what the Minister said in terms of the need for this issue to be dealt with in a case-specific manner. Can the Minister give comfort in regard to when the Government will take action on any proposals, whether its own or those of the expert group? We all agree that something must be done. Will the Minister indicate whether it will happen before Christmas or before next Easter, for example?

The Deputy is seeking a time line.

The comfort is that the people who are drawing up the report have told me they will report on time, which means we will have their recommendations by the end of September. I will bring that report to the economic management council and thereafter to Government, after which policy decisions will be made. A view is being put about that no action will be taken until the budget - that is not correct. As soon as the Government has got its head around the report, policy decisions will be made without delay. We recognise the urgency of the situation. However, nobody should be under the impression that we will have some large pool of money that will be handed out in a type of lottery. Our objective is to address people's needs and we acknowledge there are real needs and that the numbers in real need are increasing. That is the position. I cannot go beyond that in fairness to the people who are putting the report together. There is no delay or anything like that.

The Deputy asked about commitments on social welfare payments. I do not want to drift into other Ministers' areas of responsibility. The Dáil will resume shortly and the Deputy should put down a question to the Minister for Social Protection. I am sure she will confirm the position and I do not expect that position will have changed when she answers the question.

On the reduction in interest rates, the reduction from the EFSF will be implemented following national ratification by all eurozone members. It requires the agreement of all 27 members, but this can be achieved via ECOFIN. It does not have to go back to the Heads of State but can instead be managed at Finance Minister level. I just missed the point for a moment. The EFSF is 17 and they are processing the legal requirements of that. Informally we have been told that there is no problem with EFSF "M" money either but that is a decision for the 27 member states. The ten countries that are not in the eurozone have acknowledged that the reduction will apply there as well. It will kick across there.

On the bilaterals, we have a commitment from the Chancellor in the UK that reductions will apply there as well. There is just over €1 billion divided between Denmark and Sweden. I do not think it is exactly half but it is about €500 million or €600 million. I have not had direct engagement with them yet because we did not intend drawing the money down until next year anyway. We will discuss that. It would be nice to get the reduction but the amount of money is very small so it will not vary the overall picture. I mistook the point the Deputy was making.

The promissory note on Anglo Irish Bank is an issue that arises from time to time. It is a pretty big imposition that one must pay €3 billion a year. I share the Deputy's views. It would be helpful if we could reschedule the promissory note. I have not raised the issue in specific terms with any of the authorities yet but I have raised it in general terms with the troika - pointing out the difficulty of meeting the €3 billion payment every year and what it does to the fiscal figures.

When one looks at the structure of the promissory note, one of the difficulties is that it was drawn up when interest rates were lower and we were either still in the markets or just coming out of them so one is factoring in an interest rate of slightly below 6%. If one were to redesign it now over a 25 year or 30 year period, taking recent bond yields, one would have to factor in an interest rate of approximately 9%. As soon as one starts doing that, one changes the arithmetic to the point that one could have a capital hole emerging in Anglo Irish Bank which would have to be back-filled again. The difficulty in redesigning the promissory note in terms of financial engineering is to do it in a manner that does not create a further capital requirement in Anglo Irish Bank because of the changing interest rate. We have been trying to work it out but I do not know whether we will arrive at a solution.

I do not wish to go to the European authorities just to kick the ball around. If I go to them I would like to go with a proposition and to ask whether we can do something or if they could help us to do it. We are considering proceeding along the lines suggested by the Deputy. The difficulty is to design a solution without causing more trouble. I would like to close off Anglo Irish Bank. We have taken matters so far. We have taken out the deposit base. It still has a banking licence. It should be run down completely in the next nine years, by 2020. The bank is deleveraging its assets. Members will have seen the advance publicity on the loan book in the United States. We are pulling it back and making progress. I do not wish to open up an issue again whereby we are coming back seeking more capital for Anglo Irish Bank. I will not do that. If that is the price of redesigning the promissory note, we will stay with the existing promissory note. That is the problem we face.

I referred to SMEs. Deputy Doherty inquired about upward-only rent reviews. The Minister for Justice and Equality and the Attorney General are doing work on it. I do not think they will have legislation ready but I urged the Minister to announce the heads of a Bill when he gets to that stage. The Deputy pointed out some of the difficulties himself. There are constitutional difficulties in designing the legislation. Regardless of the direction one chooses there is a possibility of infringing the constitutional rights to property. One must proceed very carefully. Work is being done. We realise the urgency of the issue. If NAMA owns a shopping centre and one allows downward rent reviews obviously one will change the capital value. If the banks are deleveraging something where one can vary the rent downward that immediately changes the capital value and then one cannot sell. There is an impairment on the market on commercial property until there is clarification of the policy position on that, but we are aware of it and we are dealing with it urgently. I do not wish to make work for other Ministers but I suggest the Deputy would table a parliamentary question to the Minister for Justice and Equality. I am sure he will give the Deputy an answer.

There was one other question.

It related to burden sharing with senior bondholders that the Minister announced in the United States. When will he raise that with the ECB and is the Minister still pursuing that approach?

I intend raising the matter. The Deputy is aware that the situation changes all the time. I wish to raise it at an appropriate time. Policymakers-----

Is it still intended for the autumn?

Yes. I raised it with the troika already. It has been raised at that level with the European authorities. We have had discussions on it. We will see what happens.

To be clear-----

Deputy, please.

It is a specific question. The Minister committed to raise the issue with the ECB in the autumn.

The committee has 27 members. In fairness, the Deputy has asked very searching questions and we have all been very interested in them but I wish to let other members contribute. There might be an opportunity later if the Deputy wishes to make a rejoinder.

It is a very simple question. It relates to burden sharing.

I call Deputy Higgins.

I will raise the matter.

This is the autumn. I raised the issue already in the summer.

The Minister did not raise it with the ECB. That is the forum at which he needs to raise the issue.

The ECB is on the troika at a very senior level. I raised it with the man representing the ECB on the troika. I did not raise it with Jean-Claude Trichet yet but I will.

The Minister's introductory remarks this morning were really covering up what is by any standards an ongoing economic disaster with a veneer of optimism that is transparent in view of the real world in which we live and where many Irish people find themselves at the present time. The result of the austerity programme the Minister is implementing, which is identical to his predecessor's and at the behest of the IMF and the EU - he has changed nothing - is making a catastrophic situation for our people.

I put it to the Minister that his attempt this morning to somewhat question and undermine the figures on the live register do not stand up. A total of 469,713 people are on the live register. The Minister made some qualifying remarks. He said that anecdotally there was a very good tourism season. That should have taken thousands more off the live register, which does not include the tens of thousands of mainly young people who are forced to emigrate. I do not think his comments improve the situation.

I do not have to hand the ESRI report published this morning but a comment on it by The Irish Times economics expert said the ESRI’s expectation of further contraction in the domestic economy both this year and next is grim but realistic. Is that not the real world the Minister should have come to talk about this morning?

Every job in the export sector is valuable and should be defended but the export sector is highly capital intensive and is not where the bulk of employment lies or can be created against a background of mass unemployment. What can the Minister offer this morning to the unemployed and young people coming into the working environment, other than on the basis of current policies, continuing suffering, stress and emigration? This situation arises only months after the jobs initiative and underlines that the policy of saddling the Irish people with the debts of European speculators and banks is an ongoing disaster and needs to be changed. The ESRI had the gall to say that rescuing banks investors has been of benefit to the wider euro area as it has contained contagion in banks in other countries. My source again is the review of the report. Consequently our people have been saddled with saving the skins of the major European speculators, which of course was exactly the quest of the EU, IMF and ECB in coming to Ireland. As for the point briefly debated by the Minister regarding the burden sharing of the senior bondholders, I note the Minister stated he would raise the matter. When talking to the ECB or otherwise, it is easy to raise it in the sense of simply stating one should have it. What does the Minister intend to do about it? Does he have figures or organisations in mind that should take the hit, as opposed to the Irish people?

As for the banking situation and the future role the banks will or should play in the recovery of the domestic economy, I despair when one of the Minister's main signs of optimism is that a bunch of vulture capitalists from Canada and the United States saw fit to put some money into the Bank of Ireland. Have we forgotten what happened in Europe as recently as this summer, whereby these same individuals or organisations or their like were involved in the most barefaced speculation at the expense of the European taxpayer and working class, particularly in the southern European countries? What hope can members have of the future envisaged by the Minister in which the banks will play a significant role in significant investment into the economy to create the tens of thousands of jobs that are needed? I suggest a future banking system should be totally revamped based on the experience of the past. Rather than depending on vulture capitalists and various chancers and speculators who caused the problems and disasters we face, it should be based on a publicly-owned and democratically controlled banking system. While the current Allied Irish Banks would not be a model for this, such a system would invest significantly in infrastructure and would create, in an emergency fashion, tens of thousands of badly needed jobs.

On the mortgages question, why do the Minister and right-wing economic commentators keep referring to debt forgiveness in respect of the disastrous situation facing many working or now unemployed people who have a crisis with their mortgages? This terminology is highly judgmental and detrimental towards the victims of the property catastrophe because forgiveness implies guilt. However, the majority of homeowners who are in trouble bought homes during the time of the craziness of prices because they were obliged to have a place to live, to start a family or for whatever reasons. They were trapped in an economy in which the Government was standing over the system as a whole and the media was cheerleading the obscene rises in house prices, which of course were matched by rents in the private sector, with the effect it made absolute sense to buy and who therefore were the victims. In so far as one can have a simple answer to this disaster, is it not to calibrate downwards the value of homes that were bought at the aforementioned completely artificial and immoral prices forced on people to the real values based on the real cost of constructing a home etc. and to calibrate the monthly mortgage payments downwards accordingly? As for the urgency with which the Minister should move on this issue, one cannot be too optimistic when one has heard a number of Ministers - and in particular the alleged Minister for Social Protection - in the last week trying to shift the responsibility to the banks. The suggestion is they should be the ones to sort this when the Government was elected to so do and must make the rulings in this regard.

The Minister stated he would publish a pre-budget calculation regarding forecasts etc. in October. Can he provide a more precise date for this or will the presidential election on 27 October have any influence on this date of publication? Can the Minister provide members with a precise date for the budget itself, which he stated would be in December? The Minister volunteered to supply a briefing on some points he made with regard to bank recapitalisation. Will he get the Department of Finance to prepare a somewhat more extensive brief for public representatives on the full current position regarding the banking system? It certainly should pertain to recapitalisation and the type of figures he has just given but also to what has been happening within the banks in respect of the massive amount of money that was speculated by the European financiers etc. in respect of who they are and how much has been paid back to them and replaced by, for example, ECB money or whatever. The Minister should provide members with a fairly comprehensive briefing because they tend to read different articles in newspapers which give a different part of the picture every week. However, putting together the entire picture would not take a lot of time for a few of the Minister's officials.

Deputy Higgins has given his view of the world and of Ireland but has not asked many questions. However, I will answer the questions in so far as questions came through in his presentation. Obviously, Deputy Higgins has a different view of the economy and how an economy works than have I but there is nothing new in that in that as such a difference has existed for a long time. Deputy Higgins should note it is not correct to state the present Government changed nothing and is following the measures set down by its predecessor. There have been two rounds of renegotiations of the programme. The Deputy will recall the minimum wage was to be abolished but the present Government got rid of that proposal. He will recall that all bank assets down to a value of €5 million were to be transferred to NAMA but the Government has put in a limit at €20 million and everything below that value now is being handled separately by the banking system. Moreover, the correction to bring down the deficit to 3% was to take place by 2014 and, as Deputy Michael McGrath has acknowledged, the Government negotiated a further year and the target now is 2015.

In addition, a whole portfolio of instruments was put in place at the ECOFIN meeting in July and at the Heads of State meeting on 21 July. Many members present, many Members of the Dáil and Seanad, as well as many independent commentators, stated this would be impossible and the Government would achieve no reduction in the interest rate or if it did, such a reduction would be nugatory. However, the Government renegotiated a significant repricing of the programme, the final details of which are now being put into legal form. In addition, the Government negotiated a series of policy instruments that will be available to the EFSF fund that include lengthening the terms of the loan and providing the fund with the capacity to enter the secondary market to buy sovereign paper. They also include a commitment that any country that is fulfilling its programme and which still needs funds but cannot access the market will get direct credit lines from the fund. Consequently, the question of Ireland being obliged to re-enter a second programme is off the table because of the commitment within what was negotiated to the effect that if necessary, we would get the funds anyway. My expectation is that we will not be obliged to avail of them because I hope the corrections will have been made by then and we will have returned to having a thriving economy. However, it is completely incorrect to state the Government is following the same programme as the previous Government. It is not, because we have renegotiated the programme-----

The policy is putting the burden on the shoulders of the Irish working class.

Who is the working class any more? This is old-fashioned rhetoric. Everyone I know goes out to work in the morning if he or she can get a job and everyone else is unemployed and is looking for a job. People are trying to live on welfare and are trying to do other things but to try to divide Irish society into an imaginary group of people the Deputy thinks is carrying the burden while everyone else walks free is just old-fashioned rhetoric-----

It is not rhetoric.

----- which comes from a Marxist analysis-----

The working-classes are not speculators and bankers. They are, as the Minister stated, people who go out to work. I refer to taxpayers and small businesses.

----- that went out with the flood. Such remarks should be sent to the archive now going to the Dublin City Library, together with the rest of the documents from the Communist Party of Ireland, because it is as out-of-date as that.

It is their system of capitalism and the markets that has created the disaster, not anything else. Has the Minister ever recognised that?

Does Deputy Joe Higgins think that the Labour Party and Fine Gael Deputies were elected by some exclusive bunch of chancers and that working people did not vote for them? What kind of analysis of Irish society is that? If he looks at the votes he will see who represents whom in this country. Fianna Fáil had a bad election for a variety of reasons. I will not add to the party's burden but if one looks at the Fianna Fáil and Fine Gael profile of votes, both parties, traditionally, have got more of what Deputy Joe Higgins would call working class or blue-collar votes than any of the left-wing parties. Speaking of Deputy Joe Higgins' exclusive representation of the working classes, those are the facts of it.

We will publish the mid-term review in October. We have preliminary work done and will continue with that work. I cannot give the committee a date yet. Of course, colleagues in government will look at the date of the presidential election but I do not know whether it interferes with the publication date. I do not think it matters much. Everybody knows the state of the country and I do not think hiding issues from people for a couple of weeks will improve the voting situation. Deputy Joe Higgins could also have asked whether the date of the by-election in his constituency will interfere with the publication because it will be the same date as the presidential election. These issues will not be taken into account on the publication. We will publish it appropriately when we have it ready and we will try to give as much information as we can in that publication, but we will not be as explicit as one would be on budget day.

Deputy Joe Higgins's request for a further briefing on banking is a reasonable one. The information has been given out anyway in parliamentary questions etc., but we will try to give a compendium of the information that is extant and any other questions that have been raised to give the fullest possible information to all Deputies and Senators, not merely members of the committee.

I dealt with mortgage relief in answers to the previous Deputies. I agree with Deputy Joe Higgins. This is a significant burden on people, especially those who went in at the top of the market. They were induced and coaxed by many of the people the Deputy mentioned. Estate agencies were running campaigns through their friends in the media, stating "If you do not buy now, you will never get a house" and "You have to get on the first rung of the property ladder because if you do not, there will be no ladder and you will be renting for the rest of your life". There was all of this stuff, running for 18 months, which forced young people to take out mortgages which they cannot now afford or which they can afford but which leave them in negative equity, and all of that was very unfair. However, it was not the speculators, the bondholders or the boys from Europe who bought the sites. The situation was that the Irish banks moved away from traditional banking and no longer relied on their deposit base when organising their lending. They got money at approximately 1% on the inter-bank market from other banks all over the world, including Europe, and they lent it out to Irish speculators - our neighbours and friends. We all know them. We all can list their principals. Some 25 or 30 named persons own 40% of the assets that have gone into NAMA. There is no secret about these matters.

What happened then? Everyone was going to get rich by selling property to each other and everyone, right down the market, participated. Those of us who did not buy-----

Not everyone participated. I clarify this because that would be hurtful for many who did nothing, who could not afford to participate.

Many people stayed back.

They did not sit back. They did not have the money to get into that type of-----

Deputy Doherty has made the point.

People made a judgment as well that this might not last. They did not buy second homes, they did not buy in Spain, they did not buy on the Black Sea or they did not buy houses for rental, but many others did. Many people with modest incomes decided that the way forward was to have second homes in Ireland or apartments in Dublin, and rent them. They made the decision.

On the assertion that there was some kind of group of evil geniuses somewhere in Europe who induced innocent Irish people to get involved in property, most of this was done by ourselves. What was supplied from abroad was the credit flow through the Irish banking system, but it was Irish bankers, Irish speculators and Irish purchasers who did most of this.

Of course, the burden should be shared between the groups involved. The burden should be shared between the Irish taxpayer, the European taxpayer and the lenders. It is being shared by the Irish taxpayer, the European taxpayer and some of the lenders. I would always have argued it would be shared by most of the lenders.

We have taken €17 billion from those who were the real speculators, the unsubordinated bondholders. I described them as the real speculators because they got an extra margin on the interest for the risk they were taking and anybody who was rewarded for taking the risk deserves to be penalised when it comes to the end. In all, approximately €17 billion has been taken from the subordinated bondholders.

Where the crux arises is that I believe the unguaranteed bondholders, particularly in Anglo Irish Bank, should contribute as well and the European Central Bank disagrees for a variety of reasons. It will be a difficult argument but I will make the argument once more, as I have done in the past.

It helped to make this argument previously. What I stated in America was not a flight of fancy. It helped in the negotiations when we came back to Europe because it showed we were prepared to fight our corner. It helped significantly when we were renegotiating the new terms on the lower interest rate. We will continue to renegotiate and we make no apology for being tough in negotiation.

The position keeps moving and keeps changing. The big change that has taken place in this context is that some of the European Governments, particularly countries such as Germany and the Netherlands, were insisting on private participation by the banks in the Greek bailout and as soon as they got their way on it, the contagion ran into Italy and Spain. The crisis came into Spain because there was an approach to make the bondholders share in the burden, and that has made European policy makers very cautious. That was the principal cause of the volatility in the markets in August. Deputy Joe Higgins referred to the Sarkozy-Merkel meeting. They had the meeting to try to damp down the volatility. The volatility is still there.

In other words, the dictatorship of markets.

There is no dictatorship.

There is. Elected politicians are jumping to their tune all over Europe. That is the reality.

No. There are different forces at play. If one had a different model of a market, if it was the command and control architecture of governments in Eastern Europe which Deputy Joe Higgins recommends at the economic model,-----

Hang on now. I cannot go into the wrongs of Stalinism. That is not what we are saying.

-----one would have-----

We do not have time for an excursion through Stalinism and everything else.

-----no market and one would only have blue tractors which one could not start in the morning-----

Democratic socialism is a different issue.

-----so that one would not get the hay cut.

The Minister should not build up straw men merely to make his case easier. This is a disaster of the markets, of speculation and of the Europe Union. The Minister and elected politicians all over Europe, from the top to the bottom, are jumping to the tune of the sharks in the financial markets and working people and the poor are paying.

The Minister might finish.

The last question was on much the same issue. Deputy Joe Higgins described those who bought private equity in Bank of Ireland in terms far from endearment. They are respected private investors. They are not vultures or speculators. They were led by Fairfax Financial Holdings, which is a respectable Canadian investment company principally involved in the insurance business. They include Mr. Wilbur Ross, who, certainly, has decided to follow his money. Since investing in Ireland, he has been the best advocate of an Irish recovery whom I have come across. He was on Bloomberg this week where he gave an endorsement to Ireland about which I would blush if I gave it myself.

The Minister would not blush taking the money.

They also include Capital Research - part of the Capital Group - Fidelity Investments, and Kennedy Wilson. Kennedy Wilson is a leading internationally respected investor trading out of Boston and has approximately €100 billion in funds. It invests in serious businesses everywhere, particularly in the United States. One of the reasons bond prices are coming down is those buying bonds are not equity funds in to turn over a quick profit or speculators of any sort, including bottom feeders or vultures, trying to make a quick buck; rather they are serious long-term investors who are in the business of making a profit but who are prepared to wait for their profit and build up the bank and I am delighted they are in.

I will try not to overlap as I confine my questions to the banking system. The banks have been capitalised, in AIB's case to the tune of 99.8%. The Minister can correct me if I am wrong, but I believe a statement was made that there would be no interest rate increases once the banks had received funds from the State. I can outline much anecdotal evidence from my clinics of the banks doing just this. Statements about a lack of demand for credit are a fallacy because the vast majority of people whom I have approached have gone to the bank with their proposal only to have it indicated to them that they should not apply because they would be refused. As nobody wants to be refused, they do not apply. The Minister has pointed out that perhaps they might not want to go over the head of the bank manager. I came across a case recently in my constituency in which a Government agency was grant aiding to a figure of 50% the expansion of a small food business, but the bank would not come up with the other half. That is anecdotal evidence of what is happening in my constituency. This is driven by the banks' need to drive down their loan to deposit ratios. That is why credit is not being provided.

The Minister has stated the implementation of key policy decisions is being acted upon by the banks and that they have signed promises to release credit. The Minister effectively is the chief executive officer of the banks. If needed, legislation should be introduced to make them do this, as I would not accept promises from a bank. There are public interest members on the boards of the banks and they should exercise their power to get the banks to implement key policy decisions of the Cabinet.

The Minister has also said Irish banks are buying Irish bonds. Is that advisable? Why is that happening? Has a decision been made by the Cabinet on the sale of assets?

The availability of credit is an issue of concern in the political system and it is hard to evaluate the position. I have seen business plans and, on the face of it, it appears people should have been given credit, but they were refused. I advised them to appeal to the Credit Review Office, but the total number of appeals received was 98 when I last checked. The Credit Reviewer had found in favour of approximately 30 applicants. There is no law in this area, but the protocol is for the bank to honour his decision and if he says the bank should provide the money, it will do so in almost every case. I have seen other proposals during my clinics for which no credit should be given. Then there are other fellows, whom we have all come across, with a great idea which has no sense or meaning to it. They say the banks will not give them money, but I would not have given them money either. It is difficult, therefore, to get to the bottom of what is going on. Evidence from the Credit Review Office indicates that the lack of credit for SMEs is exaggerated because there have been so few appeals. We will check the position as we have a way of doing so.

I would like to deal with the general policy. I am not the chief executive officer of any bank. While the State holds 99% of AIB's shares, I am not the bank's chief executive officer. It has a board and in so far as banking decisions are concerned, the bank will make such decisions on commercial grounds and will not be interfered with by the political system. When it comes to implementing the policies we want on deleveraging, we will push this through the banking unit in my Department because we have agreed this with our European colleagues and the ECB. We will drive it as a matter of policy. That is why there is agreement on the Anglo Irish Bank North American portfolio. The bank had a different view of when that should be sold, but our view is that one deleverages quickly when one receives a decent price and takes the risk off the books.

With regard to the State's involvement in the provision of credit, we have given the banks capital on condition that credit lines are opened to certain sectors of the economy and the understanding and the commitment that certain amounts of credit will be provided annually for the next number of years. A total figure of €30 billion will be available. The economy needs between €16 billion and €17 billion, but we have provided for significant headroom because if we can get the domestic economy growing again in line with the export-led sector, there will be a need for more credit. The policy unit in the Department will insist that this level of credit is made available and it is achievable. However, that is a different proposition from saying we will take an individual's case and pursue it with the bank. We will not intervene on behalf of an individual, but we will put a mechanism in place to provide the credit lines the economy needs.

I refer to another issue raised by a number of members. It is not true to say only foreign companies in Ireland are thriving on exports and hiring people. Export-led growth has crossed over into the indigenous sectors of the economy. Farming is a clear example. Traditionally, it represented a huge proportion of the economy, but activity inside the farm gate now only accounts for 3% of GDP, which is small, but outside the farm gate in the agrifood sector, the level of activity is significant. The emerging middle classes, particularly in South-East Asia and eastern Europe, have what looks like an insatiable demand for Irish food. As families become more prosperous, parents want protein and dairy products for themselves and their children. Currently, the demand is unlimited. Agrifood companies are going well and hiring. However, many of the people they are hiring are not Irish. Some 3,500 Brazilians work in the meat industry and Irish people will not apply for these jobs for reasons I cannot explain. I presume it is hard work, but it is quite highly paid. As I said, export-led growth is crossing over into the indigenous sectors. We have had a good tourism season - I cannot put numbers on it - but that is indigenous also and it is expanding. In parallel with carrying out the changes we are making, if we take the economy sector by sector and have sectoral strategies for the economy, we can get manufacturing industry going, we can get the indigenous sectors going, we can get the tourism industry going and we can get the financial services sector going.

The final element is lack of demand in the domestic economy which is keeping the retail sector, for example, very flat. Much of it is in the head and psychological. If people believe things are going right, they will begin to spend again. Much of this is tied into the property market. Once the value of people's houses reduces, it makes them very cautious in spending. When the value of houses increases, for some reason or another they feel they can spend again because they have collateral. I do not believe they reason these things out, but that is the way it works in practice. I am saying nobody has all the solutions, but if we keep painting it black, it might stay that way. There are better ways of doing things.

I have drifted away from the issue of credit. Enough Deputies and Senators and others are coming to me to suggest that at least in certain banks there is a problem in certain viable businesses not getting credit. We will pursue the matter. However, I do not believe it is as big as is being stated. There is also a big problem with demand for credit for viable businesses. However, I will follow up what the Senator said.

Regarding-----

Quite a few members are offering. Perhaps there was a question the Senator asked that was not answered.

I had a question about Irish banks buying Irish bonds. With 58 repossessions this year and 90,000 distressed mortgages, one must deduct that the banks are already doing deals to allow people to stay in their houses, taking over the mortgages. The figures of 58 repossessions and 90,000 distressed mortgages do not stack up.

The banks are buying very small amounts of Irish bonds for liquidity purposes. If they are cash-rich, they buy paper, on which there is a return; when they need cash, they sell back. This liquidity exercise would be normal and we would not interfere with it. There is nothing improper, chancy or risky about what they are doing on the margins.

The Senator asked what was happening on the mortgage side. The Central Bank report stated 70,000 people had impaired mortgages that had been restructured by the banks. It stated 35,000 of these were performing and that the people concerned were meeting their obligations under the new restructuring package. Therefore, it is quite clear that there has been considerable activity on the part of the lending agencies on a case-by-case basis in the past 12 months or even longer.

I thank the Minister for his tenacity in being able to present to us having had almost no holidays. In the past six weeks there has been considerable activity. On 21 July the eurozone Heads of Government and State met and the second Greek bailout programme was presented with add-ons in respect of how Portugal and Ireland were to be treated. There was no discussion. I am here to make my contribution to an informed and honest conversation as best I can in order to try to find some solutions and not to continue to paint the picture black, as the Minister said. I am all in favour of having light because light is the great disinfectant when there is disease or a wound. Let us have some light in considering what has happened in the past six or seven weeks.

On 21 July we were told the second Greek bailout programme would essentially recognise a 2% write-down of its bonds - its obligations. That was not enough, not just in my view but also in the view of those who are up to date on the balance sheets and exposures and the obligations of sovereign states across Europe and the developed world. The best estimate from the people I best respect - and others respect - was a write-down of approximately 50%, which did not happen. Therefore, we were witnessing the application of bandages and ointments again.

Ireland did not even receive consideration in respect of a debt write-down. In that context, I want to bring us forward to the Wyoming symposium held last week on 27 and 28 August, at which Mrs. Lagarde, the new managing director of the IMF, presented. The symposium was called because the bankers of the world, to whom Deputy Higgins referred, particularly the Wall Street bankers, were concerned about the volatility that had led to the Swiss franc almost reaching par with the euro approximately two weeks ago, gold reaching a record price and the confidence of banks throughout the world in the securities and paper they held which was as fragile as it could ever be.

Messrs Cecchetti, Mohanty and Zampolli presented a paper on the real effects of debt, which I recommend to members. Mr. Cecchetti is an economic adviser at the Bank for International Settlements and head of its monetary and economic department; Mr. Mohanty is head of the macroeconomic analysis unit at the bank, while Mr. Zampolli is senior economist. The paper deals with the real effects of debt on economies. This includes the level of government debt, non-financial corporate debt and household debt in 18 OECD countries from 1980 to 2010. While Ireland is not included in the analysis, under these three categories of debt, we know its levels are far above those in the 18 countries examined. A table included in the paper shows that at 300% of GDP, everything is going into red territory for economic growth.

The Minister touched on the issue of growth. We have seen that there is actually contraction and we are only now reaching a level plateau stagnation. The open question agreed to by the Minister and the contributors is whether we are actually seeing some shoots and how strong are they. Is the figure 0.5%, 1% or 1.5%? The paper to which I have referred, which is very readable, shows we have a serious problem. It is arising in SMEs. Mark Fielding is telling us that SMEs approaching banks are not getting the credit they require, including roll-overs of overdraft facilities or trade finance if they are exporting. The figures show that 90,000 households are in distress. There has been some tinkering of loans that were up to date, not unperforming or barely performing and are now due to some financial engineering performing again, which may be postponing the write-down that is necessary.

Some 90,000 mortgage householders equates to approximately 300,000 people. To get a picture of how large a figure that is, one could fill Croke Park with 90,000 people and multiply it by three or four - some households have four or more people. These are pieces of the jigsaw that are hard to put into a picture. It is not easy in a conversation forum such as this to deal with the matter. The mortgage issue needs to be addressed on a case-by-case basis. We wonder, therefore, what is happening in the banks. Is there not a way of finding that out, aside from having public interest directors who meet once a month at most or perhaps once each quarter or once every six months? We could have inspectors, as is the case with the schools. We should consider having inspectors to visit the banks and check, for example, whether the loan portfolio divisions for mortgages have categorised the large volumes of loans into, perhaps, four classifications that can be handled in an efficient, effective and executive way.

That is just the mortgage situation. Consider also the point mentioned earlier, that NAMA was originally supposed to deal with loans above €5 million. That has now been changed to €20 million. In the category of loans ranging from €1 million to €20 million there are many loans in what is referred to as the property play-type loans, whereby people who had modest incomes bought a few apartments in Bulgaria or wherever. They would not have received loans of €20 million. The people who might have had loans in the €10 million to €14 million range are the professional classes. Their incomes prior to the bust would have been between €250,000 and €500,000, or perhaps more. The theory would have been that if the properties they were buying had rental incomes that were borderline for repaying interest, those incomes could be topped-up by these robust salaries. That is another part of the jigsaw.

This conversation is very important in the context of debt. The banks of Europe are capitalised at a very different scale from the scale for banks in the United States. In the US, banks are capitalised, on average, on a balance sheet basis of 10% equity or shareholders' funds, and more. In Russia, it is approximately 20%. In Europe, some of the banks are below 3%. That is the reason the markets were red hot in August, with people swapping paper or buying and selling paper at huge discounts, which means a high yield. There is a great deal of half-baked knowledge around. When the newspapers state that the cost of borrowing is 9% or 10%, that is not the case. Nobody is borrowing-----

I do not wish to constrain the Deputy in any way but time is passing. I hope colleagues will direct questions to the Minister. He is here today and we might not have him before the committee too often between now and budget day. The information the Deputy is giving the committee is extremely helpful and useful, but it would be helpful if there were questions for the Minister in the next half hour or so. Other members wish to ask questions.

This is important.

Do not think for a moment that I do not think it is important. I am simply trying to organise the business of the committee.

The biggest single occurrence in July, after our meeting of 26 July following the meeting of the Heads of State and Government of 21 July, was the capitalisation of the banks. We have had a great deal of discussion about this. The reason the banks were capitalised in that way is that on 29 November last year the previous Government and the troika signed us up to an €85 billion package. At that stage, the true extent of losses in the banks that were due to be recapitalised was not known. There was a contingency amount of €35 billion to address it.

We have now effectively used up our National Pensions Reserve Fund; we are down to less than orange on the tank. We could have done it a different way, by insisting to the ECB, which advanced huge amounts of money to redeem senior bondholders, that there should have been a creditor capitalisation of the banks.

Deputy, I must ask you to draw your comments to a close. Other members are waiting to ask questions. Much of what you are saying is extremely interesting and useful and, in fact, there might be an opportunity for this committee to facilitate a presentation along the lines you are now pursuing, but I am anxious to help other colleagues who wish to ask questions of the Minister. That was the principal objective of this morning's exercise. We will have an opportunity to debate these issues-----

The United States' Government was downgraded-----

I do not think the Deputy heard me.

I did hear you, and I am resisting your direction.

If you resist me, I will have to be a little more forceful on the issue. I am in the Chair and I have a responsibility to other colleagues. I insist that the Deputy wrap up his presentation in the next couple of minutes so I can invite other colleagues to ask questions. That is the principal objective today. I am not saying that any the issues you are discussing are not important. They are extremely important, and we value your expertise and knowledge. We will have an opportunity to hear that on future occasions, but I must have regard to other colleagues.

The Minister gave headings in his paper today - where we are, whether the economy is growing, what has happened with banking capitalisation, where we go from here. The biggest banks in the world are teetering on the brink of collapse at present. Bank of America received an investment of $5 billion from Warren Buffett the other day because the share price was collapsing. We must pay attention to this, because we must pay attention to how we get out of our own debt situation. We must make the point to Europe that there must be a significant write-down in the obligations of our banks so the banks can, in turn, transfer write-downs to our households and businesses.

Is the Deputy going to put a specific question to the Minister? Otherwise, I will call on Deputy Daly, who is the next person who indicated that he wished to contribute.

I wish to support and encourage the Minister, Deputy Noonan, at his meetings in the next week or two to give everything he has in the tank to bringing forward the argument that our country's banking system needs write-downs of at least €50 billion. I have said this to the Minister and I said it to Mr. Van Rompuy when he was here about six weeks ago. The way our banks should have been capitalised was through €25 billion in creditor capitalisation and €50 billion by way of debt write-down of obligations owed to the ECB. That must be discussed. When the original troika agreement was on the point of being signed, Timothy Geithner actually reversed on writing down senior bondholders at that time because Bank of America had credit default swap exposure to Ireland.

Chairman, I sense there is an unwillingness to have a discussion or conversation. In deference to that, I will conclude my remarks. It is a great pity.

It is important that we clarify this for the committee. We had a discussion before the summer about the committee's work programme and how we would manage our affairs. This morning's discussion with the Minister is part of finalising our work programme. I do not know what structure the committee will devise at the end of the next week or two, after we have met this Minister, the other Ministers, the NTMA, NAMA, the Governor of the Central Bank and so forth. As I have said to the Deputy both in the committee and privately, I am anxious to afford every opportunity to each member of the committee both to state their views and to debate the issues in this committee. I wish to emphasise that, lest there is a doubt about my attitude and the attitude of other members of the committee towards having that type of debate.

This morning we arranged to have the Minister make a presentation and to afford members an opportunity to ask questions. That process will assist us in finalising our work programme. It is not an attempt to constrain anybody, but there are only 24 hours in the day. We have been sitting since 10 a.m. and it has been extremely useful. There have been searching questions asked of the Minister and he has done his best to answer them. That is what I want to take place over the next 20 minutes or half hour.

I will ask a question. Does the Minister welcome insights or observations on what has happened in the last six weeks, particularly in the context of highly volatile financial markets and given that Ireland has been locked in a cage since last November?

I am entirely at the disposal of the committee while I am here. I will fall in with whatever formulation the committee decides; I will answer questions or listen to submissions. I always find Deputy Mathews's submissions very interesting because whenever he speaks he brings new information to the table. None of us has a monopoly of knowledge and new information that enables one to get a different insight into something or to see something from a different angle is extremely helpful. The question put by the Deputy concerned insights and I would like to see the paper about which he talked which emerged from the Jackson Hole conference. Perhaps the committee might like him to circulate it. His question was if the negotiations between Heads of Government on 21 July marked the first stage of a process that would continue. When the euro programme was put together a number of years ago, the main drivers were political rather than economic. After the unification of Germany, anyone watching the geopolitics of Europe and with a passing knowledge of European history was able to see that the biggest fear was that there would be a return to the position in Europe in the 19th century and that Germany would again become a dominant central European power and break with the Atlantic alliance. That was the strategic thinking at the time. In a further attempt to bring European countries together the Franco-German axis decided to introduce a common currency which was driven as a solution principally by France. We could see it re-emerging in July with reference to the Sarkozy-Merkel crisis meeting. Because it was politically driven the architecture of the common currency zone was never designed to enable Europe to protect its currency in times of crisis. The policy instrument to protect the euro is being fitted retrospectively and we have had several instalments of it. Considering the sequence, Greece was rescued by bilateral action through the first bailout. When the crisis occurred, a meeting took place and individual countries committed to supporting Greece. By the time it was Ireland's turn, the EFSF and ESM funds were in place. These are new European institutions.

Ireland is different because the banks are the source of our problems.

We have been locked in jail because of the loss of €100 billion.

I am describing something different. There was a notion that every country in Europe would be queueing up for a bailout and would remain part of a programme forever if an element to counter moral hazard was not introduced. The Dutch were very strong on this point and a motion was passed in the Dutch Parliament that no money should be given to any programme country unless there was an add-on of at least 200 basis points to counter moral hazard. I argued that we did not need such an element because no one in Ireland wanted to be part of a programme, that the austerity measures were very severe and affecting everyone and that the political parties which had contributed to them were being punished severely. I used the example of Fianna Fáil in this regard. I argued that there were sufficient safeguards in place to protect against moral hazard in our democratic system without adding anymore and that the price was too high. They have moved towards repricing and introduced other policy instruments. However, the argument about guarantees, eurobonds, specific credit lines and different structures for banks is still part of the agenda.

Mistakes are being made and some elements of the second Greek bailout programme have not been wise. It has caused consternation in the markets. Aligned with this, the brinkmanship shown in the United States between the Democrats and the Republicans, when they could not put a programme in place because of politically devised division, led to the US Government rating being downgraded. No one expected this to happen. August was a dreadful month and one did not know where one was going in terms of policy. We had to watch it every day. I decided that the best thing Ireland could do was to state its position, keep its head down and not get dragged into other people's rows.

Have we made the point sufficiently that the provenance of our position is bank losses and that this should not have been the case? I do not think we have; we have been steamrolled.

The second point is related to whether Goldman Sachs advised on the recapitalisation of the banks and received fees.

I have been over this ground with the Deputy privately and publicly. His position is that the burden of bank debt is dragging the country down and that it is not possible to return the country to solvency and to have a normal working economy unless bank debt is written off. His suggestion is that the banks should write off €50 billion and that the ECB should write off another €25 billion.

No, the ECB should write off €50 billion. The value of the remaining senior bondholder and pro-notes should be written down by €25 billion.

The total is €75 billion.

Yes, which would equate to a 35% devaluation in the eurozone.

That is a great solution, if anyone would do it.

It is the right solution, but they will not do it, unless the Minister offers it. However, we have not said it. I told Herman Van Rompuy personally.

When I make such suggestions to people in Europe, they think I am deranged.

That is the problem; they ask, "Who is this crazy guy?" I have to get into negotiating positions. I could go to Brussels tomorrow morning and say, "Here is a solution for you lads; we need a write-off of €75 billion, deal done." However, the problem is that while the Deputy's analysis is absolutely brilliant, his solution is what Emmet Oliver described in the Irish Independent as a further kindergarten solution.

It is not. They hold this collateral security, but we can say the security they hold - pro-notes and other scrappy security - can be torn up.

Apart from the figure of €85 billion, the ECB is providing us with liquidity-----

We provided European banks with full interest coupons for the years until 29 November.

Let us look at what the ECB is doing for us. It is providing for credit flow into the banks, separate from the programme, at a rate of 1.25%. That amounts to an enormous amount of money. They have kept the banks open and money in ATMs.

Deutsche Bank and Sociéte Générale-----

I ask the Deputy not to interrupt. I am allowing him flexibility, but I ask him not to interrupt.

That is my position.

The balance sheets of Deutsche Bank and Sociéte Générale are so fragile and the quality of their assets so suspect that this is what is driving the agenda in Europe.

There was a question about who had advised the Government. Many people advised on different aspects of recapitalisation. If the Deputy tables a question, I will supply full information. I do not want to speak from memory.

Goldman Sachs was paid for advice on recapitalisation.

Yes, but Deutsche Bank was there also.

I object to-----

I will provide a full list. The Deputy should table a question for written reply.

Given what it did under oath in the depositions in the United States, I object to Goldman Sachs earning any fees in advising the Government on the recapitalisation of the banks.

I thank the Minister for his helpful presentation and overview. I want to be helpful in this debate by making a suggestion. Growth is the key in the domestic economy. However, the banks are not helping the SME sector. This is a debate that is open-ended between the Credit Review Office and the banks in terms of what they say and do. I genuinely do not believe the banks have an attitude that supports the SME sector to the level needed. We can make a comparison with Lloyds Bank in England, which is akin to comparing apples and oranges when one considers the size of the economy and the banks. The CEO wrote to SME customers in July outlining that the bank had lent £11.6 billion to the SME sector in 2010. It had increased the amount lent to the sector from the previous year, even in these depressed times. The CEO addressed each small and medium-sized enterprise, indicating the bank's support and anxiousness to help the SME sector to grow because of its recognition of the role of SMEs in the growth of the economy. The pillar banks here are not doing the same.

We can consider how many are applying for loans, but a major issue raised in my clinics concerns the provision of overdraft facilities rather than loans. Businesses trying to survive on a day-to-day basis are being hammered by the banks which are constantly reducing their overdrafts and not giving them the money they need.

Another issue beginning to come to light in regard to SMEs, and especially in light of the developments with Superquinn, is the poor image of the Irish euro in England. Many British suppliers are slow to give credit to manufacturers here which rely on their products. As the Minister knows, we rely on many imports, such as sugar, which we cannot get here. The British suppliers are being particularly tough with the manufacturing sector and it is causing problems.

Would the Minister consider setting up something similar to the stabilisation fund run by Enterprise Ireland to deal with the currency crisis several years ago? Would it be possible to offer some assistance to the manufacturing sector, in particular in regard to British suppliers and the difficulty getting any credit from them because of the poor image of the Irish euro? It hardened with the developments in Superquinn.

Another issue relates to employers. Last night I received a telephone call from a man who has an engineering firm, wants to expand his business and has a premises. Everything is going according to plan but his difficulty is getting four new staff. He is looking for a mixture of skilled and unskilled staff and he has advertised twice but still has not hired anyone. He will advertise for a third time. People have told him that unless he offers more than €700 per week or pays them cash, it will not pay them to leave the system. This is not just about the welfare system; it is also about the black market.

Has the Department of Finance any way to gauge the effect the black market is having because that is a very obvious example of where it is crippling the economy? Somebody cannot get four people to work even though there are almost 500,000 people unemployed. What is the Department of Finance attitude to the black economy and to gauging the effect it is having?

Several Deputies pinpointed the lack of credit in the SME sector. I have found over the years that if Deputies from different parts of the country tell me there is a difficulty, then there is a difficulty. I accept what they say. Regardless of information I get elsewhere, Deputies pick it up in their constituencies. There is something not quite right in the provision for credit to SMEs. We will not only do what I said but we will take a specific look at it to see if we can do anything further.

In regard to the English suppliers, the Tesco problem and Deputy Jim Daly's idea of a stabilisation fund, I am not too sure what will work but we will look again at something which might resolve that problem. I might have a word with the Minister for Jobs, Enterprise and Innovation, Deputy Richard Bruton, as well. There is a lack of credit in those areas.

I refer to the unavailability of people for work. I have heard from many Deputies around the country about people looking to hire employees but who cannot get any. I am not too sure about the reason. It seems to be something to do with the difficulty of signing back on if one signs off to do a few days work and the fact one can be out for perhaps two months. There is something wrong with the movement in the labour market from welfare to work which reduces the incentives to work. The incentives are there as well.

One hears people say welfare is too high but we must have a society which respects people and ensures they have a decent standard of living. A married man with a wife at home and four children would get approximately €450 per week on jobseeker's allowance, not jobseeker's benefit. He would get another €600 or so per month in child benefit. If one adds the two together, it comes to approximately €31,000 per year tax free. What gross wage would one need currently to deliver a net wage of that if one was in the tax system?

We cannot change-----

I am not making an argument for change but these kinds of arguments are being run. However, other arguments are also being run that there are jobs available and people will not work. I am not too sure why.

There is something in the labour market in the connection between welfare and work, in the rules, in the way one signs on and signs off and in the black economy. I suppose if one was on welfare and one could work for cash for a couple of days, it would make it very difficult to go back to work.

That is the big issue.

Every time there is an employment problem, suggestions are put forward that there are welfare jobs. However, if one goes back just three years, there was less than 4% unemployment. The figure is now 14%. It is a reasonable assumption that the 10% of people between 4% and 14% have been working so recently that they are all available for work and if they could get work suitable to their skill base, they would work. That is a reasonable assumption because the welfare system has not changed since then. The Minister for Social Protection is looking at the rules around welfare to see if people can move from welfare to work more easily than seems possible currently.

I welcome the Minister and his comments. I will address specifically the mortgage arrears problem and I welcome the Minister's comments that he is open to contributions from this committee. I bring to his attention the fact the Seanad has had several very robust debates on the issue of distressed mortgages and to a Labour Party Seanad motion which asked that a number of options be considered, including a debt to shared equity scheme and a debt to mortgage scheme solution.

It is in that context that I wish to comment on the interdepartmental group. I wish to bring the debt to shared equity scheme and debt to mortgage scheme or debt to rental scheme to the attention of the committee and ask that they be considered. I am somewhat concerned that the Minister seemed to imply that although we are out there in regard to the findings of the committee, a number of strands have been ruled in or ruled out. He indicated that extensive debt forgiveness is ruled out.

Most people would agree that the words "debt forgiveness" have been bandied about a great deal to describe a number of potential solutions to the mortgage arrears issue in a very unhelpful fashion. That should be put to one side because the word "forgiveness" has been used in regard to schemes which have nothing to do with debt forgiveness.

The Minister also indicated that solutions must be found on a case-by-case basis through open and meaningful engagement between the distressed borrower and the lender. I urge some caution because allowing for settlement on a case-by-case basis depends very much on the capacity of the lender and the borrower to reach an agreement. We know that several distressed mortgagees have had a very difficult time negotiating with their lenders.

Will the Minister ensure that some guidance will be given by his Department to lenders on what constitutes a reasonable amount of money that people should have to conduct their day-to-day affairs? We have heard some ridiculous stories about lenders which have suggested to people with mortgages that they give up smoking - they are getting up in the middle of the night because they cannot sleep - and other ridiculous solutions to encourage people to pay more money. There is plenty of international guidance on what constitutes a reasonable quality and standard of living and it should be issued to lenders.

As the Minister said, and as we know from today's newspapers, case-by-case and ad hoc settlements are being made. The more vulnerable a mortgage holder, the more likely he or she is to be under pressure and the less likely he or she is to reach a beneficial agreement. The reality is that there is no meaningful, independent and expert representative organisation to help people in this situation. Although the Money Advice and Budgeting Service is an excellent organisation, it would be the first to admit it does not have available to it the expert legal and financial skills necessary to carry out this function. The personal debt management agency promised in the programme for Government has not yet been established. Some form of independent expert advice must be available to people who are reaching agreements with their lenders. The fact that ad hoc agreements are being reached does not mean they are beneficial.

I ask the Minister to ensure a review is carried out of some of the organisations advertising on the public airwaves and pitching themselves at vulnerable people by suggesting they can solve their problems in one fell swoop. The organisations in question are not subject to regulations and vulnerable people, especially those who have borrowed from sub-prime lenders, are more likely to engage with them. It is easy to argue that one should not look a gift horse in the mouth or trot out some other cliché, but vulnerable people trying to deal with difficult circumstances are prey to moneylenders and other unscrupulous individuals offering potential solutions.

I also ask the interdepartmental group to consider the current position on buy-to-let mortgages. Until now, we have had something of a phoney war in respect of such mortgages, all of which, as we know because we live in a country which does not have non-recourse lending, ultimately impact on the family home. We have statistics to show that one in five buy-to-let mortgages is in difficulty. Such mortgages are also vulnerable to other measures coming down the track which do not appear to have been taken into account, particularly by the financial sector. I refer specifically to the role of rent supplement in keeping rents at a reasonably high level. Some 40% of the buy-to-let market is supported by the rent supplement scheme. If, as has been suggested, changes to the scheme are imminent, they will have an impact on the buy-to-let market. I ask the expert group to factor this impact into its equations when examining potential mortgage solutions.

The figure of 58 repossessed homes does not remotely indicate the level of distress in the market or the number of mortgages in difficulty. One of the recommendations of the Cooney report was that people in difficulty who stood to have their homes repossessed should be able to join the housing waiting list. Figures to be released soon will show that 100,000 households are on housing waiting lists. It is critical that we allow people in very difficult circumstances to join the housing waiting list as a matter of urgency.

While I will not comment in detail on Senator Hayden's submission, it is a strong one which will be helpful to the committee. I suggest she make a submission directly to the group examining these matters or, given that she presented her case so succinctly, forward to it a transcript of her contribution. I do not know how quickly transcripts of the joint committee's proceedings become available.

I am informed it takes approximately ten days.

That is a little long to wait. Perhaps the Senator will provide a separate submission for the committee.

We will try to expedite the process.

The chairman of the committee is Declan Keane. The Senator could send her submission to him at the Department of Finance, Merrion Street. He is not a traditional civil servant as he was brought into the Department, before my time, from KPMG under a type of placement arrangement. He possesses many accountancy and private sector skills and I am sure he will be interested in the Senator's views.

The Senator made one point about suspect and misleading advertising. I understand from the joint committee's correspondence with me that the Financial Regulator and the Governor of the Central Bank will appear before it. The Financial Regulator would certainly appreciate the Senator's remarks on the issue and I am sure he would give her a full answer on what he and the Central Bank are doing about the suspect advertising of financial services.

On a macro-level, we need to follow events in the European Union. Anyone observing developments in Spain and Italy will have noted that it appears likely France will be brought into the fold. My fear arises from the fact that people in a certain age group have an enormous burden of debt. This needs to be addressed not only at national level but also at European level. Current developments are akin to watching a slow train crash with different paths emerging at different times to enable a crash to be avoided. Burden sharing or debt forgiveness or some form of quantitative easing will have to be introduced at some point if Europe's economy is to grow again. Quantitative easing has been introduced three times in the United States where, unfortunately, institutions decided to buy gold and Swiss francs. Europe needs more burden sharing to ease pressure from banks, a problem being experienced in all countries. In addition, quantitative easing is required to create growth and substantially reduce relative personal debt.

Banking remains a major problem in Ireland and the main issue is mortgages. According to my rough figures from 2007 which the officials may wish to check, 65,000 mortgages were approved in that year, of which 85% were for more than 35 years. In other words, at the height of the market most mortgages were for prolonged periods. Invariably, these mortgages were 100% leveraged and in some cases more than 100% leveraged. The banks will be in a strong position in the medium to long term and it would not be prudent of the Government to allow circumstances to arise in which the current generation pays down debts on mortgages lent negligently for another 20 or 30 years. If these loans were not approved negligently, why are directors of the banks being removed? They behaved negligently and caused the economy to enter a downward spiral which has left people worried and unable to contribute to the day-to-day economy. Discretionary expenditure has been removed from many people for a prolonged period.

I have a solution which is also a question. Banks have a 1% margin on mortgages and require approximately 15 basis points to administer them. They also incur other costs. Why should they profit from mortgages they provided negligently? Surely, if we provide licences for banks which have engaged in wrongdoing, we must introduce burden sharing measures in the medium to long term. These should favour those who paid the highest price for their property as this would address their ability to make repayments by allowing them to pay down their debt a little quicker or put money into the economy. This option must be examined immediately. I am pleased to note the Minister is addressing the idea of equity sharing by the State. It is of paramount importance that no one is thrown out of his or her home.

Lending must be split. We are capitalising the banks, yet they are not sure how much of this capital is being allocated to property, cashflow and so forth. I have seen at first hand good businesses being turned away by the banks. This is not good enough. Deputy Mathews made a good point in this regard. The credit committees of the banks are key to resolving this issue. State appointed directors must take a hands-on approach and become members of credit committees. Departmental officials should be able to walk into the pillar banks and Anglo Irish Bank to determine what exactly is taking place and what measures the National Asset Management Agency is pushing on the banks. They should then report back to the Minister to enable him to decide what steps the banks should take.

We are moving in the right direction in respect of TEAM, my acronym for tourism, energy, agribusiness and micro-enterprise. All those agencies should be dialled up and should be encouraged. In reply to the people who asked how we know that tourist numbers are up, tourist figures for the south-west region show that the figures increased by 15% year on year in the most recent reported quarter. From conversations and as someone involved in business, I know tourist numbers have increased. We all know what is happening in the agribusiness sectors, but all agencies need to be dialled up a little more. I hope more money will be allocated in the budget for marketing Ireland. The product is there, it does not involve capital expenditure and it is an export. The issue of mortgages must be tackled given that so many people are petrified. The banks cannot get away scot free for negligent lending.

The Deputy has put forward some interesting ideas which we will examine. I agree with his recipe for growth which he stated in the House during the last session; it is the way to go. In regard to the economy, sometimes it is very confusing when we take it at a macro level and look at the entire picture whereas if we look at it sector by sector we get a better sense of the levers of policy to pull to get a better return. I agree with the Deputy on that approach.

I am not pessimistic about the future of Europe. It depends on the quality of the leadership and the quality of the policy decisions. The total debt of the eurozone 17 is only a third of the total debt of the United States. When one considers the debt in terms of those figures it is the US that should have the crisis, not Europe. The US is more cohesive politically. One man can make a decision quite frequently in the US whereas in Europe, 17 people have to be brought together and cross-check it with 27 people. The decision-making process is quite difficult. On the quantitative easing-----

I asked if there was a united fiscal policy to alleviate those problems.

There are elements of that in place already.

Are there any more to come?

I think so. As the policy instruments develop, they become a more cohesive fiscal policy. That is the trend. It has only got half-way or two-thirds of the way up the road and the big debates are to follow.

On the issue of quantitative easing, I do not know whether there will be another tranche of it in the US, Q3 as it is called. The US has done Q1 and Q2 and obviously there is a relationship between printing money and inflation in any economy. If one were to deal with the inflation risk by printing more money and putting it into infrastructural projects, the US is probably moving in that direction again. The US has other policy instruments because it is a very mature common currency zone. The decision to allow the European Central Bank back into the secondary market to buy bonds is a role that is vested in the EFSF once all the parliaments have ratified the new policy instruments - that is quantitative easing. Once they start to buy bonds on the secondary market, that will be a quantitative easing mechanism. It will be interesting to see how that develops when the power is vested in the EFSF fund. Either cross guarantees or a Eurobond type of formulation will come in due course and I think it will solve the problem and we will be like the US. The major effect is that it will spread the burden of the debt across the whole 17 EU states and will become a light enough burden on the collective, whereas it is a crisis for individual countries.

I understand that but the question is how does one make it relevant to the individual? Through a blend of burden sharing combined with a form of quantitative easing, the relative debt of that generation of people as well as the older people becomes more sustainable.

Yes, I agree. If one looks at the raw statistics, it is clear that there are a million households in Ireland that have no mortgage. There is about 1.8 million houses in the country and the number of mortgages is under 800,000. The burden of the debt is on a particular cohort of people, many of whom are in their thirties and were involved in family formation during the past three or four years. One cannot penalise them for two generations and ask them to pay into their seventies. They would never have discretionary spending available to them because they were an unfortunate cohort of people. We will see what comes out of the committee. One has to continue to address these issues. They will not be solved in one policy initiative. There will have to be solutions because we are in the business of making sure that the people we represent have fulfilled lives. That is the issue. There are various contributors to fulfilled lives and it is up to us, as policy makers, to continue to address the issues. The Deputy has certainly put his finger on one.

While I hope to conclude by 1.30 p.m. if possible, I do not wish to constrain members.

I welcome the Minister. What we are trying to do is well described in the Wright report, page 25, which states that the object of a renewed budgetary process should be to enhance ministerial accountability to Parliament and the public by creating a meaningful consultation period and taking broad feedback on the Government's fiscal plan, releasing more departmental analysis to inform public debate and providing third party validation of departmental analysis and the Government's fiscal plan through some form of fiscal council. We have a fiscal council.

I welcome the Minister and his officials. This is in contrast with the disastrous situation on the night of 29 and 30 September 2008 when a group of them walked in. There is no record of the meeting. Deputy Willie O'Dea, a former Minister, said a man called to his house in Limerick and asked him to sign. We still have not got the authoritative version of what the banks thought they were doing and how they managed to achieve, at the taxpayer's expense, probably as much as €100 billion, as Deputy Mathews has said. We must control lobby groups and pressure groups. Every Minister should register them daily with the Ceann Comhairle and the Cathaoirleach of the Seanad because, as Wright said, the transfer of power away from parliament to backstairs groups has been a disaster. This, as a percentage of GDP, is the worst one ever in the history of the world. The Minister will certainly have my support and that of all members of the Seanad in his attempts to control it with the Minister for Public Expenditure and Reform, Deputy Brendan Howlin, and the Minister of State at the Department of Finance, Deputy Brian Hayes.

Wright was concerned about the burden of the task on so few qualified people. He mentioned that of the 542 staff in the Department of Finance, only 39 were trained as economists. They were in charge of not just what the Minister has described today but €53 billion of Estimates in public expenditure. Therefore, we need to increase the level of expertise. What Wright said was that in a similar situation in Canada, 60% of the staff in the Department of Finance would have those qualifications and the Netherlands had 40% with those qualifications. He said we do not need 60% but I think we need more than 7% which is what we have. Another point he raised which is of relevance is that the Department told Wright that it always advised of the dangers this economy was getting into. The Minister has described them well, giving the example of a house price in Dublin increasing from €100,000 to €500,000 between 1997 and 2006, but the Department never wrote it down because it was afraid the ladies and gentlemen here would put in a freedom of information request and find out what was going on. It would have been great if they had found out what was going on and the Department's correct advice about the extension of credit had been public because we have ten or 12 books on the Irish economic disaster. If the Department's defence is that it was advising people but did not write it down - that in itself is part of the disaster. Wright said that a law introduced to provide more public access to information has not done so but has instead helped substantially to limit vital public records.

In regard to the two points I have made I hope more staff will be recruited and that there will be a tradition of writing more things down and allowing people here, if they want to discover what is there, to discover it because otherwise public debate is inhibited.

Some of the reaction to public debate has been straight. Mr. Morgan Kelly wrote about this; he did not cause it. We have heard remarkably little from banks, the Central Bank and the people at the core as to why they did not raise deposit requirements, why they did not intervene to stop what The Economist described as the highest house price growth anywhere in the OECD countries.

In regard to the comprehensive review of public expenditure and the shot across the bow, the Minister, Deputy Howlin, wrote to all the spending Ministers on 11 April asking them to do it before they were captured by their Departments. That is a serious problem. The construction industry had far too much in front, not just the visuals in the Galway tent. The Minister for the Environment, Community and Local Government cannot be a down-town office of the construction industry. We must have counter weights on him. It is a good idea to divide the Department of Finance into two Departments as we need two or three Ministers to combat the spending Ministers. The balance had been caused to tilt. We will be worse off to the tune of 42% in 2013 compared to where we thought we would be under the national development plan, according to Colm McCarthy's estimates in the State assets disposal report. That provides the Minister with an chance to pause capital expenditure and reintroduce a proper public capital programme, not just to make general statements but to quantify the costs and benefits in terms of the discount rate, which he said would have been 14% a few weeks ago but is now 9%, and the internal rate of return. We do not need general bland statements on behalf of interest groups that we are spending too much. I have grave doubts that much of the research and development expenditure is yielding any return in a country where 80% of students are taught maths in secondary school by people with no qualification in mathematics.

What will be the next bubble in the economy? The last time it was housing. The Minister will have a lot of mendicants calling to his Department saying developments in their particular field will revive the economy. The traditional Department of Finance attitude must prevail; it should demand some proof and analysis on what the return will be on the money provided. We are going to be in difficulty and must solve this problem.

We must look at corporate governance and the conduct of bank governors. The Office of the Director of Corporate Enforcement needs to take action quicker. Bank directors were in place when this was going on and must bear some of the responsibility. The public is extremely annoyed that no banker here has faced any sanction. That is the real problem of moral hazard.

We must also look at the accountancy profession. Two firms have been named in the books by our friends which covered things up through warehousing. They are still practising accountancy. Were these full and accurate accounts of the banks they were auditing? Why is it taking the chartered accountancy regulatory body so long to figure this out? We are coming up to the third anniversary, yet nobody seems to be willing to take much of the blame for what happened.

Are the heads of quangos losing any sleep? I am beginning to doubt if they are. The fear of the Minister for Public Expenditure and Reform was that spending Ministers were not listening to his Department or the Department of Finance, that they had been captured by interest groups, that we would not get the matter under control and that we would all face large increases in taxation. I looked at the travel and subsistence subheads. Of 43 Votes, 33 had been massively increased, this in a period when hotel prices are falling. The figure in Vote 1 is up by 52%, in Vote 8 by 87%, in Vote 10 by 47%, in Vote by 79%, and in Vote 15 by 74%. These are massive increases and the numbers are outrageous. Those drawing up the budgets will try to tell the Minister they have provided for big reductions in 2012, but they certainly fattened the numbers well for 2011. The Minister's predecessor had more time to deal with the matter and action should have been taken. The figure in Vote 39 is up by 92%, in Vote 36 by 76% and in Vote 35 by 61%.

How do we hope to progress the process of asset disposal? It is very important that we do so. The interest groups will oppose the Minister when he attempts to do this, but it has to be done. What amount do we hope to earn from it?

We have a record in terms of indiscriminate spending, the growth of bureaucracy, powerful pressure groups, moral hazard, regulatory capture and low standards of corporate governance. The recovery is not just taking place in tourism or agriculture. I disagree with Deputy Higgins that it was a failure of the markets. It was also a failure of banking and its regulation. It puts a huge onus on Parliament, the Department and the Minister and his ministerial colleagues, Deputies Howlin and Hayes, to get this right. That is the key to recovery.

A high proportion of departmental staff currently have a qualification in economics. One third of staff at administrative officer level and above have a degree, a masters or a PhD in economics. A total of 14 staff members have a degree in economics; a further 15 have a degree with a masters in economics; nine have a masters in economics as well as a non-economics degree, while one has a PhD in economics. The position has improved to that extent.

Are there any financial accountants?

Mr. Keane in KPMG is an accountant.

Yes, but that firm had its shortcomings in auditing.

I do not have a figure for the number of accountants, but we will get it for the Deputy.

A number of recommendations from the Government have been addressed and a significant number relate to the structure and resourcing of the Department. Recommendations on organisational work practices and skills are being implemented. They include changes to budgetary and other processes, including the establishment of an independent fiscal council; enhanced capacity in economic and fiscal forecasting; new working arrangements, in which the Central Bank and the NTMA have been strengthened - staff in both organisations are on secondment to the Department; enhanced capacity in providing tax policy advice, including a bespoke certificate on tax policy for tax policy staff and micro-economic capacity; substantial increases in the number of staff with technical economic and banking and financial skills, with further recruitment being planned. The budgetary and economic areas are being reorganised and further reconfiguration will take place, taking account of the recommendations that core functions be strengthened. Economic seminars are also scheduled to take place on a regular basis.

When I went into the Department, I asked for somebody from the Central Bank to be seconded to take over the banking function. We then decided that we needed a banking policy division which would be able to deal with all of these banking issues. As a result, the staff with banking skills who had gone to the NTMA were brought back into the Department. Mr. Torpey tells me that quite a number of those who came from the NTMA have accountancy qualifications.

One thing that surprised me was-----

Please, Deputy.

I am replying to Senator Barrett.

While I do not doubt its importance, I doubt whether it is wise to interrupt when members are still waiting for their questions to be answered. I ask the Minister to complete his response.

I want to reply to Senator Barrett. This has been amalgamated in the Department and is headed up by Mr. Moran who has come from the Central Bank. Mr. Torpey used to be in the NTMA building but is now in the Department. It is more streamlined. NTMA personnel obviously have very strong academic qualifications and many of them have accountancy qualifications also.

When I went into the Department, one of the things I noticed was that the management of the crisis was centred to a large degree. We have relationships with Brussels and other European capitals also. The skills needed are both financial and diplomatic but we had no diplomats. We had staff who had gained some diplomatic skills from travelling to Brussels, but in general we did not have such skills. The Tánaiste agreed to second some personnel to my Department. We have a guy at principal officer level coming on Monday who has spent five years in the embassy in Berlin. A First Secretary from the embassy in Paris is also coming. We have personnel with connections with the French and German Administrations who will now be part of the euro team at the Department of Finance. We are making changes and reflecting the skills set in the recruitment policies now required. The big initiative was to get NTMA people on board.

Work is being done on the issue of asset disposal. There will be a memorandum to the Government from the Minister, Deputy Howlin, in the next couple of weeks. There is a commitment in the programme for Government that €2 billion worth of assets will be disposed of, along the lines of the McCarthy proposal, but that is exclusive of any deleveraging through the banks, or any deleveraging being carried out by NAMA, or any sale of shares in banks that might be conducted in the future. The State is asset rich, with all the stuff that has come from the banks. If one returns to the core of it, as examined in the McCarthy report, the commitment in the programme for Government is to dispose of €2 billion worth of assets. However, I will allow the Minister for Public Expenditure and Reform to expand on that. I will put it this way - we do not see a difficulty. The policy is proceeding.

On the question of quangos and whether they are losing sleep, I know individual Ministers are either abolishing or amalgamating quangos but, again, it is part of the expenditure review and is more a matter for the Minister for Public Expenditure and Reform.

I know I have not answered everything.

There will be further opportunities.

Is there anything specific I did not answer?

Amid the culture of secrecy that Wright was concerned about, things were not written down because these folk here would ask questions under the Freedom of Information Act. They were given the right advice but it was not written down.

There is a general acceptance in the Department of the recommendations made in the Wright report. A statement was made when the report was published, before I became Minister, stating that the recommendations would be considered. Certainly, the way we do business in terms of our relationship with Parliament must change. I am not here as a reluctant witness. Exchanging information is an essential part of the process. There will be a bit of making it up as we go along, because we must see what works and does not work in practical terms, but we will have another go at it when the plan to 2015 is published in October, and if the committee wants me to come back I will do so.

I would like to concentrate on the issue of mortgages. The Minister talks about a hoo-ha over repossessions and debt forgiveness, and words such as that have been bandied about - in fact, they have been bandied about by many of the Minister's colleagues. The issue of debt forgiveness was initially put in the mix at Government level by the Minister of State, Deputy Willie Penrose, who is represented at the interdepartmental group. If serious economists are recommending this or saying it can be implemented in some form - perhaps debt for equity, which is not debt forgiveness - I do not see why the Minister is ruling it out before the cross-departmental committee has even discussed it, when a Minister from one of the Departments represented on the committee has said it should be discussed.

What disappointed me about the Minister's speech on the issue of mortgages is that there was absolutely no mention of the programme for Government commitments in this regard, many of which are quite sensible and reasonable. The Minister spoke about the interdepartmental group and the actions taken by the previous Government, some of which still need to be fully implemented, such as the deferred interest scheme. There is no mention whatever of the various commitments such as tax relief, reform of mortgage interest supplement - which I understand from Deputy Ó Cuív was ready to be implemented when he left office - or adjustment of interest rates. There was much confusion even among Ministers and Government Deputies about the exact commitment in the programme for Government with regard to reducing interest rates. The Government's commitment was to ask the banks to come up with a plan to reduce their variable interest rates by 0.25%. Has the Government even asked the banks to come up with a plan? He said yesterday that they could not do it, but have they been asked to do it and did they respond by saying "No, we cannot do it"? People would be disappointed to hear the Government had not even asked.

The Minister has invited us here today to contribute to the cross-departmental group, which is helpful. I spoke in person, along with former Deputy Enright from the Minister's party, to the previous expert group because we had written a report on the issue, and its members were very open to such things. It was a wide group which included representation from the Free Legal Advice Centres. Are the likes of FLAC, New Beginning and the Society of St. Vincent de Paul now being invited to put forward submissions to the expert group? Yesterday, there seemed to be some frustration about the fact that they had not been consulted in any form. In fact, some of those groups had been consulted before. Members around this table will know that any of us can ring up FLAC to seek advice or get its view on an issue. It is very helpful to us. I certainly would not want it to be excluded from this process because it can provide a wealth of information.

The Minister talked about the level of mortgage debt in the country, and he was correct in saying that only 40% of households have a mortgage. However, those who have mortgages are concentrated in particular geographical areas such as Meath East and Dublin North. According to figures provided by the Oireachtas, the proportion of households with mortgages in such commuter belt areas is more than 56%. Thus, it is also a geographical issue. I would like the Government to consider seriously its own programme for Government commitments.

The issue of debt management advisers was raised by Senator Hayden. Fianna Fáil has produced a Bill which I wrote in consultation with a number of voluntary groups and with senior counsel, and Deputy Michael McGrath wrote to the Minister to ask whether he would be willing to establish this as a cross-party initiative. We understand that the resources of parliamentary advisers in the Department are tied up by the legislative commitments into which we have entered as a result of the banking crisis. We have produced a Bill on debt management advisers and if the Minister cannot for whatever reason agree to deal with it in Government time we will certainly be using our Private Members' time to deal with it. The area requires urgent regulation. I will not be too critical of the Department because there are so many other issues on its agenda. The Bill was not that difficult to draft because there are many examples of sectors of the economy concerned with lending that are already regulated, which provided precedents for us to use.

My third point is the national embarrassment that is David Drumm. I accept there is not a lot the Government can do about the situation. However, my colleague Deputy McGrath has written to a number of US Senators and the Secretary of State, Hillary Clinton, in this regard. I wonder whether something could be done on the basis of US immigration law. The United States is a difficult place to obtain a visa for, as we know only too well with all our illegal immigrants. It galls people when they see a fellow like that seemingly present legally in the States. They are saying, "If my cousin is over there and he cannot come home for a wedding, how the hell is that fellow allowed to stay over there?" What communications has the Government had with its counterparts in the US? Although bankruptcy is probably a state issue, and there is not much that can be done by the state of Massachusetts or whatever state he is in, immigration is a federal issue. Can the Government undertake to make inquiries in this regard? Deputy McGrath has received some replies and will be waiting for further ones. It is a national embarrassment and it is galling to the people. The least the Government could do is to contact the US authorities about it and I urge it to do so if it has not done so already.

I thank Senator Byrne for his contribution.

I am more constrained in answering his question on the mortgage issue than in any other area, simply because the interdepartmental group is to report in three weeks time, and I cannot come in today and give a ministerial view of what should be done without treating that group very badly by pre-empting its announcement. The Deputy will appreciate that.

One would assume that whatever the group comes up with will be in addition to what is in the programme for Government and possibly more radical. My question was why the sensible measures proposed in the programme for Government, which are small enough but would be helpful, are not being implemented, and whether the Government has written to the banks-----

We have commitments in the programme for Government and some of them will be considered in the context of the budget.

The Deputy talked about contacting the banks. The only way a bank or building society can refrain from passing on an interest rate increase is to reduce its overheads. We have asked all the banks to show us programmes for reducing their cost bases and their overheads. It is clear, and has been publicly stated and debated, that there will be redundancies across the banks. Once we de-leverage, pull the banks back from their activities abroad and effectively turn the two pillar banks into smaller banks, they will require fewer staff. That is the approach. Otherwise it would be an idle promise.

There are other things as well. We were considering a different way of treating, for tax purposes, people who took out mortgages between 2004 and 2008. That is essentially a budget matter, and we will consider it in the context of the budget.

Has the Government asked the banks to come up with a plan specifically for a 0.25% reduction in the variable rate, as in the programme for Government?

We have. The Senator is speaking with great authority this morning, but his Government did not leave us in great shape. When I entered the Department of Finance I was of the understanding that it had made provision for recapitalising the banks by setting aside €10 billion in the last budget, but by the first week in March I knew we would have to find €24 billion. That changes the arithmetic when dealing with the banks, especially when most of them are insolvent and the building societies are insolvent as well. I am not accusing the previous Government of not revealing what it knew at the time, but it was an evolving situation, and much of what was said during the election campaign was based on the premise that its figures were accurate, which they were not. They were wildly incorrect.

So no effort has been made-----

That is not true.

Please, Deputy.

All the Minister's figures are just nonsense.

I am sorry.

If the savings were to be accrued, they would be accrued anyway.

The commitment was not in respect of the recapitalisation. The commitment was-----

I am sorry. I realise it is late and people want their lunch but will Deputies please let the Minister finish?

What I am asking is-----

No, I am sorry. You have asked the question twice or three times. Let the Minister answer.

If anybody wishes to write to or to contact the people who are looking at this, a further three weeks remain to do so. Every one is aware of the position of many of the interest groups because they have published their positions and their submissions. However, if anyone has a bright idea on how this very difficult situation can be resolved, whether they are inside or outside the House, whether they are part of an interest group or simply a concerned citizen, they should get on to the Department in the next week or so. They should write to Mr. Declan Keane in the Department of Finance on Merrion Street and send in a submission, which will be examined. There is no ideological position on this matter and there are no no-go areas. We want to come up with solutions to ease the burden on people who have a heavy burden but we do not wish to open the flood gates for people who do not really need assistance and who see an opportunity to write off liabilities which they have assumed. One must make the distinction between those who cannot pay and those who will not pay. I have also suggested the other principle which is to keep as many families and people as we possibly can in their families homes. Within that, let us come up with solutions but it is an exercise in pragmatism, it is not an ideological position. Everyone can contribute no matter what their ideological approach but we are keen to get onto it quickly.

The Minister for Justice and Equality has answered questions on a number of occasions on the David Drumm situation on the basis of when reports will be completed and when action might be taken. A long investigation was conducted by the Garda Síochána and another by the Director of Corporate Enforcement, Mr. Appleby. The files went to the Director of Public Prosecutions, DPP, and the DPP has made a statement on this matter in an attempt to explain why the process is so lengthy. However, neither the Government nor anyone here can interfere with the DPP who is independent in the exercise of his functions. It would be great if it were like the United States and one did the preparatory work but that does not always work out either. Let us consider the Strauss-Kahn case-----

I did not ask about the DPP.

It looked great two months ago but it does not look too great now in terms of legal process. We have a different legal system here so the DPP must be careful. Mr. Drumm was an employee of Anglo Irish Bank. Anglo Irish Bank lodged an objection to his being declared bankrupt because we think it would be to his advantage to have been declared bankrupt. The Department has been fully informed and has fully supported the Anglo Irish Bank objection to Mr. Drumm being declared bankrupt. We were across the thing all the time.

Was the Minister informed that he would be libelled with the claim that he committed fraud?

We cannot have two or three people throwing questions with only a few minutes to go before the end of the meeting.

The specific question I asked was different.

I will let you back in once more Senator Byrne.

Will the Minister address the issue of management advisers at the end as well? My specific question was not about the DPP. Have there been any contacts with the US Department of Homeland Security or with our contacts in the United States about this guy? As far as I can see they do immigration checks on whomever they wish at that level. The question was not about the DPP.

I do not have any authority to start writing to anyone in the United States to declare that people who are Irish citizens are illegal immigrants. How could I get into that as the Minister for Finance? Why does Senator Byrne not write to them himself?

Deputy Michael McGrath has written on behalf of our party.

Senator Byrne has as much authority as I do.

I have two questions on the issue of SMEs. When does the Minister expect the independent review group he is setting up to report? Who does the Minister expect to be members of it? One of the issues with the bank guarantee scheme is that the banks are not giving credit and I expect the criteria they are using is rather risk averse. The Minister has referred to the situation of many people especially in the area of overdrafts for existing businesses. The banks are pulling the overdrafts and converting them to term loans and those involved have no overdraft with which to function. These are two key points. One of the issues with the Credit Review Office is that it has no legal powers. The banks can either comply or explain. Will that be considered as part of the independent review group the Minister is getting for the SME sector? I agree with the Minister's position on mortgages and the underlying principle that we keep people in their homes, ideally with an equity stake. This is important to allow them to come back regardless of the size of it.

There is an element of frustration among the general public with the David Drumm issue. I understand the legal constraints but not too long ago The Financial Times editorial asked whether one bank could bring down a country. That was Anglo Irish Bank. This is one particular individual. An affidavit has now been filed by the bank of which he was formerly chief executive stating that he started a process to apply for a visa in the USA in early 2008 and he went there in June 2009. The bank claims that shortly afterwards he took the allegedly fraudulent non-recourse loan. These are issues and the public is frustrated. I understand the legal case but I cannot emphasise enough the urgency in the case of Mr. Drumm. Many people were banking with Anglo Irish Bank and are now severely constrained. Mr. Drumm is in America and has not been called to account from the perspective of the public to date but I hope that will happen.

We will do the independent review as quickly as possible. By and large we will use the people who have experience of banking in the new banking policy area in the Department of Finance to do it. We will call on the resources of the Central Bank as well if we believe we need them. However, we are not going to design a big inquiry. We wish to find out what is going on and we have the people who can find out what is going on. Once we find out what is going on we are keen to do something about it. The idea is to get in quick, find out if there is a problem we have not identified previously and remediate it.

We will consider putting the Credit Review Office on a statutory basis but it is finding its way. The first thing that came back to me was that the limit of €250,000 might be too low for appeal purposes and we raised it to €500,000. Had it been put on a statutory basis I would have had to go back to the Dáil and it would have taken three months to do what I was able to do of a morning. Until we are certain of the role and how effective it is, it is better to leave the office with this flexibility. However, if it is to be a permanent signpost on the financial landscape it should be underpinned by legislation and we can do that.

I appreciate the concerns of everyone here and the general public with regard to the David Drumm situation. There are other names as well. However, in the first instance it is a matter for the DPP in consultation with the Garda and the Director of Corporate Enforcement. The legal process I envisage unfolding is if the DPP decides that there is a prima facie case against Mr. Drumm and a warrant is issued for his arrest then that would be the basis of extradition proceedings with the United States of America if Mr. Drumm does not come back voluntarily to Ireland. That is the way I envisage a legal process developing rather than going down the immigration route or various other routes. It is a straightforward process and we have an extradition treaty with the United States which has worked effectively in the past in both directions.

What about the bank guarantee?

What was the question?

It is linked in with the issue of SME credit. How are things coming along with bringing in a partial loan guarantee scheme?

At the time we brought in the jobs initiative there was an announcement on the matter and responsibility for progressing it lies with the Department of Jobs, Enterprise and Innovation. I understand significant progress has been made.

We have heard a good deal this morning about the difficulties facing SMEs, especially regarding the availability of credit. I suggest that business and other lending restrictions currently in place in credit unions should be reviewed so that credit unions are allowed to lend to their local communities and economies. On that note, will the Minister give us an update on the credit union review commission?

The credit union review-----

Deputy Mathews has indicated several times. I have indulged him but I will permit a short, 20 second question.

I will be under 60 seconds.

You said 30 seconds. You may proceed.

Everyone here should remember something that stood out. Last year between March and May nobody was in charge of banking and financial institutions in the Department of Finance. That ties in with Senator Barrett's observations and contribution. It is imperative that this does not happen again. There must be sufficient numbers of people with the sufficient levels of qualifications and experience to ensure there is continuity in crisis. It is unbelievable that for three months in the lead up to the troika agreement such a thing could happen.

In the same spirit, Deputies Spring and Doherty will have less than 30 seconds.

Are these the last questions?

No, I am indulging people on this occasion.

Can we put some officials from the Department of Finance on the credit committees of the banks so we can observe day-to-day activity?

I have three very quick questions.

I have one very quick question with three parts.

That is no defence. You need three, four or five.

That is a low blow. We are still suffering. I have a serious question which follows the discussion with Deputy Spring. I am not clear on the end game the Minister has in mind as our negotiator on behalf of the State at a European level. Where does the Minister want to see this end up? Germany, France and other countries speak to the media about what they would like to see happen. What would the Minister would like to see happen? He may not be able to achieve it but I would like to hear about it. Did Anglo Irish Bank tell him it was making a charge against David Drumm about his fraudulent behaviour?

I ask the Minister to give priority to the question asked by Deputy Heather Humphreys.

The commission on credit unions has been in place since June and has worked during the summer. It has met several times. Part of its terms of reference was that it would issue an interim report by the end of September and I am advised it is on line to produce it. We have to enact legislation on the credit unions. We are in contact with the commission as we draft the heads of the Bill so that as it explores areas it can advise us on the Bill. It will conclude its work next Easter with a full and final report. The interim report is very important so that we can move on with the Bill which we need to publish before Christmas.

On their capacity to lend beyond their traditional areas of lending, the commission will come up with recommendations along those lines and we will take its report into account. There are difficulties with the credit union movement. Some credit unions are impaired. There are various methods of resolution. Some would involve amalgamating credit unions, which has already happened in parts of the country.

There was a Grant Thornton report into the credit unions with which many people involved in them disagreed, but it also has to be taken into account. It is important work. There are difficulties with some credit unions and we need to quickly develop a policy base so that we can take action. They are very important in Irish society, not only in rural but in urban Ireland. When they were initiated in 1961 or 1962 they were initiated on a cross-Border basis. There were centres in Dublin and Derry. The Northern credit unions seem to have a stronger financial base than some of the southern ones. There are more than 400 credit unions in the Republic, some of which are very strong and others that are smaller and need to have their balance sheets examined. Work is in progress and is progressing satisfactorily. There is currently no major issue.

On Deputy Mathews's question on why no one worked in the banking section from March to May, the secretary in charge of banking was in place but the vacancy of assistant secretary that occurred to replace her had not been filled. There is some merit in his criticism but it is not true to say that nobody was minding the shop because the person who was the banking specialist became a second secretary in the Department and was in place during the period in question. The vacancy which arose was not filled, which is probably the information the Deputy had.

There were late tackles as well.

It is probably not possible to put departmental officials on the credit committees of banks. Deputy Mathews suggested something like inspections. There are a couple of things I do not want to do. I do not want the Department to get involved in day-to-day banking decisions because it is not its business, it is a job for bankers. I do not want to cross anything which is a function of the regulator because it is independent in what it does. If key people were in key places it might help.

There is a great deal of economising at the moment.

I will examine it. We would be here until late evening if we discussed my view on where Europe should go. I have the fault of all politicians, namely that we talk forever on interesting topics. I will be very committed to the future of the Europe. The primary policy objective for Ireland is to ensure that the euro comes out of crisis and we continue to be part of the euro economy. That is absolutely essential.

As a consequence of that, various additional policies have to be put in place in Europe to make sure the euro enters tranquil water, goes out of conversation and is a currency we are not discussing over cornflakes every morning. That is not the way currencies should operate. People in America do not discuss the dollar every morning, whereas in Europe we are all talking about the euro constantly. That means it is in crisis. We can have a fuller debate on the other issues.

I thank the Minister and his officials for their contributions today.

I also thank the members who have attended and been so assiduous in their questioning and commentary. This is the first session of a series of meetings and consultations in the coming days and weeks. We have a meeting tomorrow which will be attended by the Governor of the Central Bank, the deputy governor and the regulator. I look forward to that, as I am sure members do.

The joint committee adjourned at 2 p.m. until 10 a.m. on Friday, 2 September 2011.
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