Announcement on Banking by the Minister for Finance: Statements

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

The Irish banking system has faced its most significant crisis ever. The core of the problem has been the scale of reckless lending that took place over many years. The consequence of such reckless lending must now be faced and the capital position of all the viable banks is being restored in order that the banking system will be in a position to meet adequately and responsibly the needs of the country and its citizens. The Minister's statement on banking on 30 September was a very important milestone on that road to recovery as it sought to bring finality to the capital requirements of the banks and the extent to which the State will be required to fill the breach.

The State's involvement in the banking sector, going back to September 2008 and the initial bank guarantee, has at all times been focused on the requirement to protect and support the financial and economic position of the State. Although this has been said on many occasions, it needs to be repeated. Given the very stressed international financial environment at that time and the significant reliance of the banking system on external wholesale and debt funding, in the absence of a State guarantee, the Irish banking system as a whole would not have been able to fund itself and the system would have faced the risk of immediate collapse. While we have faced very difficult economic, fiscal and unemployment problems over the past two years, a sudden failure of the financial and banking system in the autumn of 2008 would have had a very much graver impact. As former President Clinton put it pithily on his recent visit to Dublin: "If you don't have a banking system, you're toast."

This crucial step of introducing the guarantee gave the Government vital breathing space to address the fundamental problems of the banking system. The Government availed of that opportunity. It established NAMA, which has forced the banks to face up immediately to the losses on their land and development and associated loan books, and it recapitalised the banking system, which included taking some of the banks and building societies into State ownership and taking substantial stakes in the two main banks. This has not been an easy route. It has proved to be a difficult and expensive, but also necessary, process if the banking system is to be repaired in the interest of the economy and the citizens of this country. The Minister's statement on banking on 30 September 2010 has been a very important step in this regard.

A very important objective of the Minister's statement has been to restore international confidence in the banking sector. Certain steps have been taken in that regard, not least the reforms to the regulatory system and the appointment of people with real expertise and credibility in key positions. Key legislative changes have also been made. The Central Bank Reform Act 2010 commenced on 1 October 2010. This Act provides for the establishment of a new unitary Central Bank combining both central banking and regulatory functions. It will be governed by a new Central Bank commission chaired by the Governor, Patrick Honohan. This is the first in a series of Bills to reform the Central Bank. The next Bill, to be published later this year, will add to the powers and functions of the Financial Regulator. Further legislation early next year will consolidate and make more transparent the body of law relating the Central Bank and the regulation of financial services. The new legislation will equip the Financial Regulator with the powers necessary for the more hands-on financial regulatory regime that is now required.

The Minister indicated previously that he is examining options for the introduction of legislation to deal in a systematic way with distressed financial institutions. His aim is to ensure that the State has in place a range of tools to address problem institutions effectively in the interests of maintaining financial stability, minimising reliance on public moneys and ensuring continuity of key banking activities. In view of the role performed by central banks in resolution frameworks for financial institutions, the Department of Finance is in consultation with the Central Bank with a view to the development of draft legislative proposals which will be considered in due course. This is a complex area where policy is evolving internationally. It is necessary, therefore, to ensure any model introduced in an Irish context conforms to best international practice.

The most distressed of our domestic banks is Anglo Irish Bank. The future plan envisages the splitting of the bank into two licensed and regulated credit institutions — a recovery bank focused on recovering maximum value for the State from the loan assets and business of Anglo Irish Bank not being transferred to NAMA and a funding bank to safeguard fully Anglo Irish Bank's deposit base. The Central Bank has determined and advised that in the expected loss case an additional €6.4 billion in total capital will be needed for the recovery bank and funding bank structure to continue to meet the minimum capital requirements in the coming years. A total of €22.9 billion has already been provided by the State since Anglo Irish Bank was nationalised early in 2009. This additional capital requirement brings the projected total gross cost of the restructuring of Anglo Irish Bank to €29.3 billion. This additional capital estimate was based on the information available, including estimates from NAMA of the likely discounts on loans transferring to it based on its own analysis. This additional capital will be provided by increasing the promissory note issued by the State and by appropriate burden sharing exclusively by holders of Anglo Irish Bank subordinated debt instruments. The Central Bank has estimated that in the stress case the level of losses in Anglo Irish Bank could potentially be €5 billion higher than in the expected case of €29.3 billion. The stress case indicates the upper boundary of the level of losses. It should be emphasised that it does not represent the Central Bank's expectation of the likely outcome. The Government will, therefore, capitalise the new structure to the expected case requirement of €29.3 billion.

Much has been said about senior debt obligations in Anglo Irish Bank. The position is that senior debt obligations rank equally with deposits and other creditors under Irish law. There are no plans to change this position. The Minister has indicated clearly that there is no question of seeking to impose losses on holders of such senior debt in Anglo Irish Bank or in any other credit institution in the State through any legislative measures. Any alternative strategy as advocated by some creates a significant risk of jeopardising the banking system and the State's access to international debt markets and cannot be countenanced on that basis. Commentators and critics, expert or not, do not have to take responsibility for the consequences if their view is acted upon. Markets do not always — perhaps seldom — act in a perfectly rational manner. Governments must take decisions, often under pressure, in real time and will not take conscious risks that may endanger the whole system.

The principle of appropriate burden-sharing by holders of subordinated debt, however, is one which the Minister accepts. In keeping with this approach, the Department of Finance, in conjunction with the Attorney General's office, is working on resolution and reorganisation legislation which will enable the implementation of reorganisation measures specific to Anglo Irish Bank and the Irish Nationwide Building Society, INBS, which will address the issue of burden-sharing by subordinated bondholders. The legislation will be consistent with the requirements for the measures to be recognised as a reorganisation under the relevant EU directive in other EU member states.

Although smaller in scale, INBS is arguably in an even more distressed position than Anglo Irish Bank. The fact that the State, which now controls the society, is required to inject €5.4 billion in capital is testament to this. This level of capital injection amounts to around 45% of the society's liabilities at the end of 2009. This stressed position of the society is the outcome of very risky and poor lending provided by the society over a number of years. It is a real indictment of the board and senior management of the society over that time that the taxpayer is required to deal, especially on such a scale, with the consequences. As a small gesture, the former most senior manager in the society voluntarily offered to return some of the bonuses he received from the society in recent years. This offer was made, it was stated, out of his respect for the members of the society. Despite this statement, the bonus remains to be returned to the society. Given that the owner of this distressed institution is now the people of Ireland, the Minister has expressed his full support and encouragement to the board of INBS in its efforts to see this offer by the former chief executive of the society honoured in full.

The Minister has made it clear that he does not see a future for INBS as an independent stand-alone entity and he has asked the NTMA and his other advisers to explore the options open to him to bring finality to the position of the society. The European Commission will be fully involved in this process. The further capital investment by the State in INBS will reassure depositors in the institution that, whatever the future may hold for the society, all its deposits will remain secure.

Regarding the other covered institutions, AIB has already taken steps to meet its capital requirements by the sale of its Polish subsidiary, among other steps. This is expected to generate capital of €2.5 billion. In view of the increased NAMA discount for AIB, however, the Central Bank has concluded that an additional capital over and above the amount identified last March will be required. As indicated in the banking statement of the Minister for Finance on 30 September, the new total capital requirement for AIB, after taking into account the capital generated by the sale of its Polish subsidiary, is €7.9 billion. In the current stressed market conditions, the bank is unlikely to be able to conduct a traditional privately underwritten transaction on a substantial scale. To afford every opportunity to AIB to raise as much as possible of the required capital from the markets and to minimise further Government support, it has been decided that this capital requirement will be met through placing an open offer to shareholders of AIB shares to the value of €5.4 billion. This transaction will be fully underwritten by the National Pensions Reserve Fund Commission and is expected to be completed in 2010. If necessary, the commission's underwriting commitment will be satisfied by the conversion of up to €1.7 billion of its existing preference shares in AIB into ordinary shares along with a new cash investment for the balance of €3.7 billion in ordinary shares. This transaction structure assumes the disposal of other assets in due course. In the event that AIB's residual capital requirement is not met through asset sales by 31 March 2011, any shortfall will be met by the conversion of a proportion of the remaining €1.8 billion of preference shares. As a consequence of these actions, it is likely that the State will hold a majority shareholding in AIB.

Regarding Bank of Ireland and EBS, the Central Bank has advised that no further capital over and above its existing level in the case of the Bank of Ireland and that already announced last March in the case of EBS is required. EBS is in discussion with a number of parties about its future, and any adjustment in its capital need that arises for the State will be accommodated in the outcome of those discussions in due course.

As an historian by background, I am conscious there have been other more summary ways of dealing with the authors of these problems or those deemed to be such. The original Star Chamber of Henry VII and the chambre de justice during the prime of Louis XIV were designed to make financiers who had made vast sums in contrast to the penury of the state disgorge their ill-gotten gains. There are faint echoes of this in the treatment of some Russian oligarchs in much more recent times. As a sometime 18th century French historian, recent events have given me new insights during the revolution into the unpopularity of financiers who had accumulated vast wealth, very often at the expense of the state, in the last decades of the ancien regime. Despite Ireland being a republic that originally took its inspiration from the ideals of the French and American revolutions and despite the best efforts of the statutory authorities, we need to reflect on the reasons the wheels now seem to move so slowly and whether any legal and constitutional protections unintentionally make it more difficult and cumbersome than it should be to bring people to justice or, more relevantly, to make them disgorge gains they are not entitled to hang on to.

The Irish public finances have also been very severely impacted upon by the sharp deterioration in economic activity in recent years, particularly through our tax revenues. To put it in context, tax receipts in 2010 are likely to be some 35% below their 2007 peak, which would see them effectively back to 2003 levels. Following an era of surpluses for almost all of the decade between 1998 and 2008, large deficits, not seen for well over 20 years, have been recorded in more recent times. The 2010 budget set out a medium-term fiscal consolidation plan to bring our deficit to below the Stability and Growth Pact threshold of 3% of GDP by the end of 2014. We have taken substantial measures to correct the imbalance in the public finances. Fiscal adjustments designed to yield 5% of GDP in 2009 were implemented between July 2008 and April 2009. The 2010 budget implemented a further set of adjustments, mainly on the expenditure side, amounting to €4 billion or 2.5% of GDP.

As regards the emerging fiscal position for this year, it is encouraging that the most recent Exchequer returns of revenue and expenditure up to the end of the third quarter on 30 September provide further evidence that the stabilisation in the public finances continues. Overall taxes are exactly in line with target, while expenditure is almost €1.6 billion down year-on-year, demonstrating the impact of decisions taken by Government. An underlying general Government deficit of 11.9% of GDP is expected this year, which is broadly in line with the budget day forecast.

It is the case, however, that on a purely headline basis the general Government deficit this year will be extremely high at around 32% of GDP. This is owing to the accounting treatment by the EU Statistics Office of capital support being provided to some of the financial institutions. It should be stressed, however, that no additional borrowing is required this year as a result of this large headline deficit and the Exchequer is fully funded through the first half of 2011. In addition, the funding costs of the capital support to the banks are being spread out over the next ten years or so, thereby lessening the immediate impact on the Exchequer, which means they are manageable in that context.

The Government remains fully committed to bringing the general Government deficit below the Stability and Growth Pact threshold of 3% of GDP by the end of 2014. The focus now is on securing the necessary adjustments which must be delivered to maintain ourselves on a sustainable and credible path towards consolidation. Work is under way on a four-year budgetary plan, to be published in the first half of November, that will set out the annual measures required to ensure that target is met. Restoring sustainability to the public finances is essential to underpin future economic growth. An adjustment above the €3 billion figure will be required next year and the extent of the additional amount will become clearer in the coming weeks as the Department of Finance assesses the most up-to-date economic and fiscal data available in the context of preparing the four year budgetary plan. The 3% target has also been publicly accepted by the two main Opposition parties, which is a positive development, and officials from the Department of Finance have been providing technical briefings to Opposition spokespersons this week.

It is vital we have a credible path to show how we propose to reach our target. By ensuring a sustainable fiscal environment, we can set the right conditions to assist the economy in returning to growth. The four-year budgetary plan will set out our revised annual headline targets and the necessary adjustment to adhere to a credible deficit reduction plan over the medium term. The plan will take on board the most up-to-date economic and fiscal data and the implications for the fiscal consolidation process. To underline fully the strength of our resolve, the Government will make a significant consolidation effort in 2011. The Government is determined to take whatever steps are necessary to ensure the country returns to a sustainable fiscal position.

As part of the budgetary plan, we will also set out a strategy for underpinning and encouraging sustainable economic and employment growth over the medium term. It is only through adopting policies that enhance our economic growth and job creation prospects and improve our competitiveness that we will achieve the necessary targets. Encouragingly, the substantial improvement in competitiveness which has taken place over the past year or thereabouts is feeding through into stronger exports. Recent figures show a broadening of our exports, with a strong performance recorded across a number of sectors. Provided we continue to improve our competitiveness, for instance, through appropriate wage policies and raising productivity levels, there are grounds for optimism.

The announcement of the four-year plan and renewed commitment to tackling our public finance deficit has been generally well received by the international financial markets, with our bond spreads narrowing in response. The plan will be a pathway towards renewed fiscal sustainability. The 2011 budget, which will be presented to the Dáil on 7 December, will be another important step on the road to achieving this goal. The Government has, therefore, taken and will shortly take further firm decisions that are necessary to restore the economy and the public finances to a credible and sustainable position.

Senator Paschal Donohoe

I welcome the Minister of State. This afternoon's meeting between the party leaders featured strongly on the Order of Business this morning when Senators from all sides welcomed the talks. It is vital the political system responds to the unprecedented economic times in which we find ourselves. I hope this afternoon's discussions will help create confidence in the measures being taken to address the current crisis and send out a positive signal to those outside the country on whom we rely to fund our public services. My party will play a constructive role in these discussions because the national interest is at stake.

As Senator MacSharry and I have repeatedly stated, the inability of the State to borrow on the bond markets at an affordable rate is a grave challenge. We all have a role to play in addressing this problem and ensuring the country is in a position to borrow sustainably in the coming years and reduce the amount it needs to borrow.

I was a struck by a number of comments made by the Minister of State. Unlike him, I am not a French history enthusiast and know much less about the subject than I used to. Whenever possible, however, I take time to read Irish history and I like to study those periods in our history that may have relevance to our current circumstances. In recent weeks, I finished an excellent book by UCD economist, Professor Tom Garvin, entitled News From a New Republic. The book is about Ireland in the 1950s, the conditions in which people lived and the atmosphere in Leinster House at the time. One of the themes running through it is that the significant decline in economic growth and living standards in that decade led many people to the conclusion that independence was not working. A different approach was required if Ireland was to avoid national paralysis. Individuals from across the political spectrum and the public service, including Seán Lemass, TK Whitaker, William Norton and Gerard Sweetman from the Fine Gael Party, challenged the negative view of the country’s future and set out to create conditions that would enable Ireland to restore its position. Their approach resulted in the economic success the country experienced in the latter part of the 20th century and early years of this century.

The prevailing mood among commentators must be punctured. We need to have confidence that Ireland has a successful future in store. The steps needed to ensure better days lie ahead must be taken now. This is deeply relevant to today's debate because one of the elements required relates to the treatment of those who were responsible for the country ending up in its current position. I note and approve of the time the Minister of State spent commenting on developments in Irish Nationwide Building Society. Much of the current discussion has focused on the role of Anglo Irish Bank in bringing the banking system to its knees. Given that Irish Nationwide Building Society accounts for only a fraction of the banking system and is much smaller than Anglo Irish Bank, the requirement on the State and taxpayers to inject €5.4 billion in capital is the most outstanding example of mismanagement, reckless behaviour and reckless corporate governance in recent banking history.

The Minister of State also referred to the former chief executive of INBS and his bonus. We have seen many different faces of capitalism in recent years. I am reminded of comments made about a businessman in another era who was described as the worst face of capitalism. The worst face of capitalism was demonstrated by the behaviour of a certain individual who claims his duty was to his building society, one which is now owned by the people, and has not yet given any indication that the bonus he received will be returned.

The Minister also referred to the need to review the legal and constitutional mechanisms in place for dealing with circumstances such as those I have described. I cannot think of a better example to illustrate the reason this needs to be done. I draw a parallel with the work done by the Criminal Assets Bureau in seizing the wealth and assets of those who inflict great evil on society. The financial cost imposed on society by those individuals is but a fraction of the financial cost imposed on the nation by those in the banks. We need to adopt the philosophy behind the Criminal Assets Bureau when tackling individuals such as the person to whom I referred. If possible, the scope and competence of CAB should be extended to encompass the role of individuals in the banking sector. If that is not possible, we need to move in a similar direction to ensure those who brought the country to its knees pay a price for doing so.

I wish to comment on a number of points relating to the banking guarantee scheme, some of which were touched on in the Minister of State's contribution and others which were not. In a debate that has gone on for so long and that is of such importance, it has become difficult to come up with something new. However, I wish to comment on some information on the period that led up to the instigation of the banking guarantee scheme that came into the public arena recently via the Committee of Public Accounts, as well as some recent information that has emerged on the role of promissory notes and the cost they will impose on the Exchequer.

I remember the night on which the banking guarantee scheme was introduced into this House. It was in fact a very dramatic morning because Members debated it through the night and as the Minister for Finance, Deputy Brian Lenihan, was making his point, the sun was rising behind him through the window on that side of the Chamber. While all Members were hoping this was the dawn of an era in which such difficulties could be put behind them, little did they realise it was only the start of it. I spoke on behalf of my party that evening and one point I made was that Fine Gael was acting in good faith, based on what it was hearing from the Government and on the difficulties being faced by the banks. A point then made by Fine Gael, to which I wish to return, pertains to the sheer breadth of inclusion of debt this banking guarantee scheme brought in. This brings one into the arena of the roles of subordinated and senior debt and the differences between the two, as well as the legal obligations this could create.

However, I refer to the report published by the present Governor of the Central Bank on the guarantee scheme and the resolution put in place to deal with it. The point is made that the inclusion of all forms of debt into the banking guarantee scheme "complicated [the] eventual loss allocation and resolution options". It goes on to state that it "pre-judged that all losses in any bank becoming insolvent during the guarantee period — beyond those absorbed by some providers of the capital — would fall on the State". As someone who supported the scheme based on the information to hand at that time, it appears the inclusion of so many different forms of debt under the umbrella of the banking guarantee scheme at the very least has greatly complicated the job of the present and future Governments in ensuring the burden of loss and the difficulties the banking system now has created will fall equally on everyone involved, that is, bondholders, investors and the taxpayer who Members seek to represent.

As I was preparing for this debate and considering this theme, I had an opportunity to review briefly some documentation that was made available to the Committee of Public Accounts regarding the period leading up to the implementation of this scheme. One indication that emerged from these documents is that the precise form of the guarantee, and the associated breadth of debt inclusion that was introduced into the House that night and which has been supported over the subsequent two years, was not recommended to the Government by its then advisers, Merrill Lynch and was not recommended for inclusion in any of the documents that were made available to the aforementioned committee by any senior civil servants at that time.

I refer to one great question that remains to be resolved and that as someone who voted for this scheme I have a great interest in understanding. What was the rationale at the time and what is the rationale now for the breadth of inclusion of the debt that the banking guarantee scheme developed? The Minister of State must agree that the options for resolving this issue at the least cost to the taxpayer have narrowed considerably on foot of this decision. While this point is being raised at a political level, it will be important to find an answer to this question for fear that we get into similar difficulties at some point in the future. While I hope this will never happen again, the lessons learned should be made public and should be acknowledged.

My final point relates to reports that are beginning to become available regarding the stance of hedge funds on debt and the action the Government might take in that regard. I acknowledge The Daily Telegraph is a newspaper that frequently abandons the need to be impartial in respect of this country. However, an article appeared in that newspaper on 30 September last which indicated the possibility of hedge funds taking legal action against the State — I believe there also is the possibility of another prominent business person in the United Kingdom so doing — were the Government to take action regarding subordinated as opposed to senior debt. I would be grateful were the Minister of State to indicate whether this is the case and whether it is a matter for which the Government has been preparing. I conclude by stating that the spirit of an organisation such as the Criminal Assets Bureau and the work it does would go a long way towards restoring the confidence of people that those who led us into this mess will face the consequences.

Senator Marc MacSharry

I join other Members in welcoming the Minister of State. I also welcome the opportunity to make some points on the subject of banking. I welcome the analogies made by the Minister of State in respect of French history. Throughout these debates on the scale of the banking issue, I have made the point that unlike Louis XIV, one cannot set up the guillotine on St. Stephen's Green and begin to line up those who one considers to be most culpable in making a contribution to the mess in which the country finds itself, much as many people would like to so do. Nevertheless, this does not detract from the essential need to provide closure by way of retribution and appropriate punishments doled out to those concerned, whether in banking or political circles or otherwise, when all the facts are known in the fullness of time. Many facts already are in the public domain and as Members are aware, investigations are ongoing into the banks. The reports prepared by Messrs Regling and Watson and Professor Honohan, the Governor of the Central Bank, have been published and investigations by the Joint Committee on Finance and the Public Service are ongoing. The scheduling of this debate has been unfortunate because the aforementioned joint committee is meeting as Members speak to consider an interim report and that is where I should be. Moreover, a commission of inquiry also is under way. While one regrets the pedestrian nature with which these investigations continue, we have due process in this country. Despite everyone's yearning for a pound of flesh, to quote Shakespeare, I believe due process will provide this, however much one must put up with the frustrations at present.

I was interested to hear Senator Donohoe's contribution and I acknowledge his contributions always are highly constructive. Were all the Opposition parties to adopt a similar approach to the Senator in the leaders' meeting this afternoon at 4 p.m., I am sure the required consensus and international message of agreement on matters such as the bottom line and on the national intention to deal with our problems could be achieved. I was interested when he drew an analogy with a book he had read by the economist Tom Garvin, who had discussed the 1950s in Ireland, when people here had a basic acceptance of their limitations. They were resigned to accept their relative poverty or at best their mediocrity and consequently were not as optimistic about the future or as open-minded in looking to what they could achieve as they could have been. It reminds me of a recent contribution made by President McAleese at a function I attended. She stated that the resignation of the past held Ireland back for many decades. Senator Donohoe mentioned how many people contributed to us clawing our way out of that mindset. Equally however, the President noted that the indignation of today could paralyse us and I felt that no truer word was spoken. This is not to absolve anyone from the sins of the past or any perceived guilt by bankers or politicians or in respect of macroeconomic policies or otherwise. However, it is important that while the ongoing investigations continue, slow as they may be in coming to conclusions, Members must focus on solutions and taking the appropriate actions. Painful as are the realities that have become clearer in recent years — from the banking guarantee to the scale and depth of the banking hole, as announced by the Minister for Finance on 30 September — I am confident the appropriate actions are being taken.

Senator Donohoe asked if the breadth of the debt covered by the bank guarantee was appropriate. He mentioned that Professor Honohan had raised this as a particular question in his report. That is looking at a problem with 20:20 vision and the benefit of hindsight. It was a critical moment for Ireland, our banking system and how we would be viewed internationally. It is easy for academic economists and others to say we should or could have done this or that. We did what we did and it was received very well internationally. It was seen as a decisive and determined step to take control of the situation and assure the international community that, whatever the situation in Ireland, team Ireland was prepared to take the appropriate actions to deal with it. I prefer not to focus on that action but to look to the future in considering how we will deal with these problems, but I take Professor Honohan's point. He is doing a splendid job and I was delighted to see that, for a change, we had appointed someone other than an in-house person to the governorship of the Central Bank. However, in the context of the international perception of how Ireland was coping with her problems at the time, the banking guarantee sent a signal of confidence to the international community. Now we face the challenge of assuring the bond markets and others if we are to maintain a supply of credit from the wholesale markets to this country.

It is important that we have consistent messages. In recent weeks we have talked about the possibility of achieving political consensus. That is not to say we must agree on every aspect, but we should agree on the length and breadth of the problem. We must agree on the 3% deficit figure and the actions to be taken to reach this figure by 2014. While we can reserve the right to disagree on aspects of the tangibles, it is important that we agree on the fundamentals.

The scale of the announcement of 30 September was incredible. One could set out to do so, but it is simply impossible to justify. A disgraceful situation was allowed to emerge and it arose for a number of reasons. The very good "Freefall" programmes on television dealt in detail with de-regulation throughout the world, with vast amounts of money crossing borders. An international regulatory regime failed the global market. We were citizens of the world. Our own regulatory system failed our expectations and needs. Many steps have been taken to improve it and the guarantee is ongoing.

I have a few specific questions on regulation. Mr. Matthew Elderfield has done a fantastic job heretofore. It is prudent for a bank to have increased capital. We distinguish between tier 1, core capital; tier 2, secondary bank capital, and other levels. More capital must be in equity than previously, which is all very prudent. However, as we try to heal the banking system and get credit flowing again to an extent where it can support business and the real economy, have we set capital levels that will recapitalise the banks very well and allow for a rainy day that will never arrive because we are no longer engaging in that kind of borrowing? We should have had such capital reserves ten, 15 or 20 years ago. We may very well have recapitalised the banks, but because of the proportion of capital in tier 1, are we hoovering up too much equity in order that small businesses cannot borrow it? I am not an expert on banking, but it occurs to me that some of the improvements the Financial Regulator is making to the capital requirements of banks may be strangling their ability to have capital to lend. That is the question.

Are Mr. Elderfield's improvements being dictated by Brussels or are they home grown? There is talk of Basel III. I wonder what that might hold. I would like to think it would focus on a broader set of regulations that could be agreed not just on a pan-European but on a world basis and would prevent the incentivisation of the creation of derivatives that might get us into this kind of mess again in the future. At summits of world leaders one sometimes hears an acceptance that something like the current crisis will occur again and that we must make sure we will have a fund big enough to buy us out of it. Would it not better to focus on preventing it ever happening again?

Many tranches have been transferred to NAMA, but I understand none of the NAMA bonds has issued. Could this, potentially, strangle the ability of banks to make available what little money they have to the small businesses and families which require credit?

The depth and scale of the banking disaster cannot be justified. Where we are today would once have been unimaginable. It is vitally important that we send a message loud and clear that team Ireland will get out of this mess and take the appropriate actions. These actions may vary from one political party to another, but the broad direction must be agreed. There must be national agreement. If this does not happen, our ability to get money at appropriate levels of interest will be impeded next spring when we wil be back in the bond markets. I hope today's meetings in Government Buildings can reflect this.

Senator David Norris

I welcome the Minister of State who must be used to turning up in this House and listening to what we have to say. I will try not to repeat too much of what I have said before because I have spoken in most of the major financial debates. There is a responsibility on all of us to contribute at this very difficult time.

One of the hopeful signs is that what I have heard of today's debate has been constructive on both sides. I welcome the contributions of Senators MacSharry and Donohoe who always has a balanced and reasonable tone. This morning he remarked on the figure of more than €80 billion in savings. I presume people are saving in banks or, as I am doing, prize bonds. He suggested a degree of hope and the optimism about which Senator MacSharry was talking about when he referred to team Ireland would lift us out of this rut. If we can create a degree of confidence, some of that money may be released back into the economy for productive purposes. That is something I would certainly welcome. It would be an extremely important development.

This is a huge problem and there is no point in simply venting anger. Anger is an enormous reserve of energy, but unless it is channelled productively and creatively, it is negative and creates further damage. For that reason, we need to establish the clear facts, address them and move on. This country has got out of much worse situations. We have had a very troubled history. I am not a dyed in the wool green republican and have never used phrases such as 800 years of brutal British oppression or the jackboot. However, we have had a very troubled history, but we managed to rise out of it and in the middle of an extremely difficult situation, domestically and internationally, create an independent and vital country. We are moving towards 2016. Whatever one thinks about them, a group of brave people with a certain vision established the independence of this country and it will be a reproach to all of us in the political system if we find in 2016 that our financial and political affairs are being directed by forces outside the country which are not concerned about the welfare and interests of the Irish people. In the middle of this catastrophe, we have to ensure that in rectifying our financial situation we do not remove humanity from the equation and that we leave society with a human face.

It is also important that we do not betray the current generation of young people. I visited UCD last night to speak to the law society but I was kidnapped into an enormous meeting of the student representative council, which was planning a huge march on the issue of fees. I managed to dissipate the tremendous ovation I received by stating that fees need to be considered in light of the serious situation in which we find ourselves. Free fees is a nonsensical and ugly phrase and it is also an oxymoron because one either charges fees or one has freedom. I believe in equality and the noble words in the 1916 declaration about cherishing all the children of the nation equally. Given that registration fees already stand at €1,500 and will probably increase to €3,000, residence in UCD costs €4,5000 and then money must be found for books, travel and food, it must cost at least €10,000 per year to educate a young person at third level. These costs must exclude wide sections of society. Our meagre resources need to be directed at ensuring all who are qualified can attend third level education. I would prefer a free universal education system but until we have a tax regime that is similar to that in the Scandinavian countries, it is not a practical reality. I had to advise the students of my opinion, although I doubt I won many votes by doing so. I told them I always believed in telling the truth, even when it was unpalatable or vote losing.

The bounce will come because of the qualities of creativity, innovation and imagination about which Senator Harris spoke so movingly on the Order of Business. These are the resources which businesses internationally recognise as the most fruitful grounds for success. It would be a great tragedy if our young people found it impossible to stay around to contribute to their country. It is already tragic that the overwhelming majority of our recently graduated nurses are using their undoubted talents and special qualities in the UK's health service. I remind Senators of the cost of that to the taxpayer.

I remarked earlier there is not much point in railing against the banks. I was interested to watch Vincent Browne do a real job on Michael Soden on "Tonight with Vincent Browne" last night. Mr. Soden thought he was being invited to promote his book but he was also asked about the culture of cronyism and the golden circle in the banks. He seemed to take a NIMBY attitude in arguing that such practices were prevalent in other banks but not the Bank of Ireland. There was a problem in that people were being appointed because of personal contacts and it is important we look beyond that small circle. I was astonished to hear the responses of the senior commentators and financial experts when Vincent Browne asked whether a deaf and dumb person picked from the street could have made a worse mess as director. They tried to evade the question but eventually admitted such an individual would have been no worse. That is a serious problem.

It is an obscenity that the greatest transfer of wealth from the poor, the weak and the vulnerable to the rich I have ever witnessed is currently taking place. The money has not evaporated. I ask the Minister of State if it is impossible to learn the identities of the bondholders. I am told it is impossible but I hope that is not the case because we are writing a blank cheque to cover the gambling expenses of senior figures in the financial world and we do not even know who will cash it. It was suggested in the other House that some of the discredited bankers are bondholders. Particularly when we are imposing charges such as the 50 cent prescription fee on the terminally ill and the homeless, it is intolerable that we may be rewarding negligence to the point of criminality. It appears we are witnessing what I call the Leona Helmsly effect. When that extraordinary New York speculator was brought up on tax charges, she stated she believed only the little people pay tax. The little people are now paying for the indiscretion, stupidity, folly and greed of the bankers.

Senator MacSharry made a number of interesting suggestions when he appeared recently on a radio programme. He raised an issue which I subsequently addressed on the Order of Business regarding our bonds, the interest on which has been forced up to unacceptable levels by the completely discredited ratings agencies. They should not be allowed near the markets. I understand we are not allowed to use our own funds to invest in our own bonds because of a technical legal hitch. I ask the Minister of State whether amending legislation could be introduced to allow us to benefit from the yield on our own bonds. I am glad to see that interest rates have eased recently, however.

That we face a very serious situation was clear from the demeanour of the party representatives as they left the Department of Finance on Monday. They were so shocked that, unusually, they did not think it appropriate to score political points. That is useful, at least. We are left to address a difficult, but not impossible, situation. It is probably unrealistic to believe we can meet the 3% deficit target by 2014 and if it is attempted in a savage way it might lead to a serious contraction in the economy with further negative repercussions down the road.

Other problems have emerged in recent days in the broader political sphere. An interesting but troubling article was published in today's The Irish Times about the move by Chancellor Merkel and President Sarkozy to introduce a formalised version of the emergency measures used to assist European economies in difficulty. As I understand these measures will be confined to the euro area, the United Kingdom will not be able to veto them. This proposal might require a referendum. I would be interested in hearing the Minister of State’s perspective on the problems such a referendum might produce in our current difficulties. It would be a difficult issue to address irrespective of what Government is in power.

The same newspaper also carried an article by Vincent Browne pointing out the continued existence of significant tax breaks. If a wealthy person invests €100,000 annually in a pension fund, the State will pay €48,000.

I understand the reasons this measure was introduced, and I do not believe it was particularly for very wealthy people. It should be stopped instantly because it is not supportable at present. We need to examine this situation in order to give people the confidence that it is not just the ordinary person on the street who is being left again with the bill.

Another issue needs to be considered. When I suggested that, for example, Anglo Irish Bank should be left to the operation of market forces, which should not be suspended, and that it should be left to go down, the Minister for Finance, Deputy Brian Lenihan, said it was of systemic importance. This suggests that, nationally and internationally, the system is seen as more important than the people. I do not think so. In a previous debate, a speaker said the Greek word for "crisis" has a root which is the same as that for the word "opportunity". We need to take this opportunity to re-examine radically the position of banks in our country and to avoid a situation where, for example, the outfall flowing from this affects all kinds of other issues. One example of this is the hotel industry. Banks are repossessing and coming to own hotels, and then opening them at less than cost in competition with others which are desperately trying to run their own legitimate enterprises. The infection is spreading down the chain and for that reason we need to investigate.

It has been stated in a newspaper that we are still one of the 15 richest countries in the world. Will the Minister of State tell us whether this is true? I note that when we were said to be one of the richest countries in the world, it was based on an analysis of the value of property. I would be surprised, and extremely glad, if we were still one of the 15 richest countries in the world, but I am not sure that information is accurate.

Acting Chairman (Senator Diarmuid Wilson)

Before calling Senator Boyle, I welcome Deputy Máire Hoctor and her party to the Visitors Gallery.

The essence of this problem has been from the start that if we did not tackle the debts that were put upon us by these institutions and if we allowed default to happen, given our public finances are in such a state, our ability to borrow and to do so at effective rates of interest would be utterly compromised. That is where the problem has been all along. Until we understand that as a political system and until we are able to convince the general public of that problem, we will not move forward on this issue. This is why today's meeting of the party leaders is at least a sign of hope.

There is a linkage between the statement of the Minister for Finance on the banking situation and our ongoing budgetary situation. It has been claimed in political point-scoring in this Chamber, particularly on the Order of Business in recent days, that somehow figures have been hidden and that the situation has been known to be worse for a considerable period. The reality is that until this statement was made, until the analysis was done in regard to what the actual end-figures for the banks would be for the banking situation and until there was a response by international rating agencies and others as to how that affected the cost of borrowing in this country, we did not know the increase in the cost of the public finances. We have regular public announcements regarding how the budgetary strategy is progressing every month, whether the tax take is in line and where public expenditure is going. Throughout 2010 and until this statement was made, all the figures were on course. It was the intention to have a budget with an adjustment of €3 billion — this again has been misrepresented in debate and in media reporting — made up of some public expenditure cuts, some capital expenditure cuts and some changes in the tax system. This seems to have been missed by many who either deliberately choose to misrepresent the situation or have no real understanding of the nature of the problem at hand.

That said, now that we have the actual banking figures, outlining the truly horrendous cost of €35 billion for one institution in particular and a possible maximum cost of €50 billion, the real public frustration is that — I am being very careful with my words — it is known that key individuals in ownership and managerial positions in many of these institutions have behaved in a criminal manner. The fact there has not been a legal liability for this action is an ongoing matter of shame for this country and something that causes a great deal of public anger. Until we address the issue of individuals who through their greed, incompetence and negligence brought about this situation, we will not progress and get the type of confidence we need within our public as well as international confidence in restoring our economic well-being. I am not sure whether it is our common law legal system or reluctance as to how we go about dealing with white collar crime, but until we introduce a culture where people who have committed crimes of this nature and scale are treated in an appropriate way, we as a country are diminished. This cannot be said strongly enough.

I hope the individuals concerned will be identified, called upon by prosecuting authorities and dealt with by the judicial system adequately, quickly and with all legal principles intact. It is important that people are brought to account. This is a truly horrendous sum that has inflicted huge damage on our economy, and it will take many years to repair properly. The fact it happened at all has unnecessarily put the country in a situation where, despite our wealth and our potential to be an even wealthier, more prosperous and more equal society, we are forced to deal with issues of this type before dealing with more pressing social equity issues. That is the real shame of this debate.

That said, these interminable and regular debates are necessary as part of the national conversation we must have to make sure we get this right. What has been put right has to be acknowledged — again, this is a failing of the Opposition — in terms of the regulatory system, improvements in the Central Bank, reports from people such as Messrs Regling and Watson and the report introduced by the Governor of the Central Bank. It is to be hoped Mr. Nyberg's inquiry will be successful. In addition, the Joint Committee on Finance and the Public Service has done good work. All of these are helping to peel away the layers of an infected and diseased onion. We must remove every layer before we can have a banking system of which we can be proud and which will help to restore our tarnished reputation on the international front.

The prime culprits in all of this, namely, Anglo Irish Bank and Irish Nationwide Building Society, infected their counterparts. I refer, in the case of Irish Nationwide Building Society, to the EBS and, in that of Anglo Irish Bank, to AIB. The scale of the infection created a rollercoaster effect, whereby we are now obliged to deal with a problem that is greater than should have been the case. Mistakes have undoubtedly been made in trying to deal instantly with the scale of the problem. One of those which must be acknowledged relates to Anglo Irish Bank, one of the major financial institutions. The Government did not move quickly enough to ensure the changes necessary at management level were made. Those who were part of the problem — members, one could state, of the ancien régime at the bank — and had created many of the difficulties were allowed to linger too long. These individuals failed to deal with the difficulties to which I refer.

We now know the nature and scale of the problem and have introduced many of the changes that are necessary. New directors and chief executives have been put in place in the banks. The only thing the State and its political system to need do now is ensure the people will have confidence that these mistakes will never be repeated. The fact that questions remain about the latter remains a challenge to all of us.

Acting Chairman (Senator Diarmuid Wilson)

I call Senator Alex White who has eight minutes.

The way to move on is to carry out a proper and convincing analysis of what happened in the past. This would allow people to understand what happened and have confidence in the future. Such an analysis has not been carried out. I accept that due process must take its course, but there have been incredible delays in bringing people to book. The Minister of State referred to a number of legal and constitutional obstacles and I am of the view that there are more of these than has been indicated. I am also of the view that the Government is perhaps beginning to contemplate these obstacles. If the latter is the case, perhaps the Minister of State will indicate whether we should be addressing these, either through the introduction of legislation or by moving to address the constitutional issues that arise.

Each day one hears anecdotal evidence of properties being disposed of or of their being transferred into the ownership of spouses or other family members. The country is rife with such stories. In my other occupation I was visited by ten or 15 people who were recently in the employ of one of the failed building firms in this city. Those to whom I refer are young men and women who have young families and are down €5,000, €7,000 or €10,000. They need the money to which I refer in order that they and their families might survive and they are aware that their former employers still retain certain assets. I do not want to be specific in this regard, but I might be on a future occasion. The individuals in question can see that the companies by which they were previously employed still have assets at their disposal. Can Members imagine the frustration to which this gives rise? Can they understand how the people in question feel, particularly in the context of their helplessness and, in fairness, that of the system to recover these assets?

We have in place a regime for dealing with receivership and liquidation. However, we must address these issues in the context of the circumstances in which individuals and families find themselves. The latter perceive there is a complete absence of justice with regard to the way the matters to which I refer are being resolved or addressed. If there are legal and constitutional obstacles, I would be extremely interested to hear the Minister of State elaborate on them. Perhaps the Government might return to the Houses with more refined thinking on possible changes to the law which it might be necessary to make. Even if we cannot assist the people to whom I refer, perhaps matters might be changed in order that others might not find themselves in the same position in the future.

There is an ongoing debate on Anglo Irish Bank and whether there is a basis for making a move in respect of its senior bondholders. One of the difficulties with which we must grapple — again the Minister of State merely touched on this matter and, as in other instances, quickly moved on — is the complete absence of a reliable statutory resolution mechanism to allow us to deal with banks which fail. We should develop such a mechanism in order that we might use it in the event of a bank failing. We ought to have such a mechanism. It is many months since others and I first raised this issue in the House, but all the Government states is that this is a matter which it will address at some point. The Minister of State did not exactly state this issue is not relevant, but it does not appear to be high on the agenda. It ought to be high on it. Therefore, I ask the Minister of State to comment further on it.

The budgetary position has brought about the shock and debate from recent days. It is a debate in which we are all engaged and I am involved with the discussion in my own party. All politicians and people concerned about the future of the country will engage in the discussion in the next few weeks. I thought at one stage in his speech I heard the Minister of State say that the stabilisation of the public finances is encouraging, and I believe this is a stray phrase that got into his speech from somewhere else.

Deputy Martin Mansergh

I said exports were encouraging.

Senator Alex White

We can check that but I will accept the Minister of State's explanation. Such a stray phrase may have been in his speech seven or eight months ago but it would be extraordinary for it to be there now. There is no confidence that the public finances have stabilised in recent months, and the news from recent days has set everyone back. When we talk about credibility, consensus and how people have called upon the Opposition to come forward to support the Government in such measures that need to be taken, we must understand the parameters clearly.

I cannot understand the logic of some Government figures and supporters in the media looking to the Opposition for specific budgetary measures to be brought forward in circumstances where the Government has not even begun to set out parameters. The Taoiseach said this morning it would not be possible to do so for another month but the Government is still asking Fine Gael and the Labour Party about measures to be included in the budget. It is illogical. If the Government genuinely wants to engage with the Opposition it must come forward with all the information. I appreciate briefings are ongoing this week and we can appreciate the confidentiality aspects.

Fintan O'Toole or some other commentator made the point in The Irish Times today that we should engage the entire the community in this debate. If we are to be faced with an adjustment over the next four years that will be double what we thought it would be, there is no way the issue should be resolved within the Oireachtas. We must bring the public with us on the debate as there is no question that taxation matters are required along with inevitable cuts in public expenditure. We must have that debate in public as much as we can because there has been an enormous loss of confidence in the Government. Although I am not a supporter of the Government, this loss of confidence has been catastrophic. No one wants to live in a country where the Government is on the floor in terms of public confidence, which is the case. There is a lack of confidence in the system and people do not know where to turn to. They are almost at a stage where they do not believe anyone, and in any democracy that is incredibly dangerous and does not lead to any kind of opportunity for a proper resolution.

There will be much disagreement in the course of the next few weeks and months but information and clarity are fundamental to our efforts. The Government must tell us what it expects next year for growth rather than just the scenarios given during the week. Is the Government so worried about projections because the forecasts given in recent years have been so spectacularly wrong? It will not give any projections for employment and growth next year. Where does the Government see these issues because we need that kind of information within the next few weeks? At that stage we can begin to have the kind of informed, intelligent and meaningful debate required over the next few weeks and months.

Senator John Hanafin

The first factor to be welcomed from the statement of the Minister for Finance on banking on 30 September is that we have a clear scenario within which we can work. We have figures for the final cost to the taxpayer of the banking crisis. I am cognisant that although the bill will be much higher than initially anticipated, given that we had the lowest debt to GDP anywhere in Europe at €30 billion, with significant savings in the National Treasury Management Agency, we had the means to face this crisis.

The difficulty I see at the moment is not the way the crisis is being managed but the fact that the media and certain elements of the Opposition are creating a scenario suggesting that we cannot manage our own affairs. Nothing could be further from the truth, especially when media commentators speak about the IMF coming in. Last year we spent less than 17% of our gross income on debt repayment, whereas in the 1980s we paid 33% of our net income on debt repayments. At that stage there was an 18% rate of unemployment, an 18% rate of inflation and we paid a rate of 15% for money. We were fortunate that we had our own currency at that stage but in real terms, given that this is now a wealthier economy, we are in a better position and can manage our own affairs. Nevertheless, there is much that we can and should do.

There were calls in this House today for a debate on whether the media is giving balanced reportage. This is important because we are only harming ourselves in this respect. The United States started in a similar position, with banks and financial institutions like Lehman Brothers, Bear Stearns, Goldman Sachs, Wachovia, AIG, Freddie Mac and Fannie Mae collapsing. That country had a belief in itself and is now in a better position than us, although there is no reason that should be the case. There are large amounts of savings but they are not moving in the economy because people are fearful.

As we have the final figures, there is an expectation. We know the finance system will operate well and prudently. There are new funding requirements for banks and as a result of the Basel process, they must hold more cash. There will be less money available for lending in future as a result. This is all the more reason for us to keep an eye on our banks and see how they operate. There cannot be a position where banks are getting in funds and using them to clear overdrafts or decrease overdraft amounts. We cannot have overdrafts transferred to term loans because we are told such activity is a new loan. The banks must continue to behave in a proper and prudent manner. The interests of the State, shareholders and customers come first. In this way the institutions will be much stronger in future.

The eventual figure for Anglo Irish Bank is €29 billion, with Irish Nationwide Building Society at more than €5 billion. These figures indicate that those banks had reckless lending. The only question we must ask is in what instances were people encouraged to lend and where were they encouraged to lend on the basis of bonuses. Was there knowingly reckless lending to achieve bonuses? If that is the case, further action will be required.

I am very conscious we will find it very difficult in some quarters to get straight answers on how the Opposition will deal with difficulties as part of a consensus. In fairness, Fine Gael has come forward but we have not yet had plain speaking from the Labour Party. If it wants to go the old route of plain opposition without explaining to the public the truth of the matter, the public will in time realise that, as a knee-jerk reaction, it may have looked at the Labour Party but, in the end, the party did not give clear answers. Such action will not stand to it and all parties in the House must realise that measures must be taken, some of which will be difficult.

The targets for 2014 are ambitious but achievable. We must work cleverly together. We can consider our export growth and look at employment opportunities while we make cuts. It cannot just be a one-way street.

I spoke on the Order of Business about specific projects. I had in mind projects such as wind turbines for farms. I have been told from what I am sure is a reliable source that the VAT element of wind turbines means that the rate of return is a ten-year cycle. If the VAT element were done away with on the basis of their green credentials, their return would decrease to eight years which would become viable bank lending. This is a clear case of regressive taxation. In this instance because of the high rate of VAT, the business cannot proceed. If the VAT was eliminated, the current business would include the production of the wind turbine, the construction of same on a farm, the energy and money generated therefrom, which is guaranteed by the ESB, and the substitution of imports of oil. It is a win-win situation. We must examine whether we have any such examples of regressive taxation which we can deal with to create employment.

I can think of many instances, in particular in Tipperary, where hill farmers in Comeraghs, the Knockmealdowns, the Galtees, the Slieveardagh hills and the Silvermine mountains would be only too glad to take the opportunity to install wind turbines. If necessary, funding for the banks could be raised in the form of a bond with a specific purpose. The ESB has guaranteed the price. It is something the Minister of State could examine.

I am also conscious of the fact that there are people abroad who are advising us how to run our business. Fitch ratings agency recently suggested we are not having enough mortgage foreclosures. Having worked in the mortgage sector, mortgage foreclosures are very bad business. It is very costly to try to repossess a house, not only in terms of legal fees but also in terms of security fees on the house, auctioneer's fees and maintenance of the house. On the other side there is the trauma to the family and the cost to the State.

Acting Chairman (Senator Fiona O’Malley)

I ask the Senator to conclude.

Senator John Hanafin

That was quick.

Acting Chairman (Senator Fiona O’Malley)

The Senator's time has expired.

Senator Liam Twomey

The Acting Chairman is very tight.

Senator John Hanafin

The certainty which has been given by the statement of the Minister of State means that we can now go forward with a clear plan of what we need to do. I hope we will do it collectively and, in that light, the actions the Government has taken to date, some of which were unpalatable, were needed. We took action in time. If we continue on this road, we will be on the road to recovery quite quickly.

Senator Liam Twomey

I note the Acting Chairman likes to stick to time so I will do my best to finish on time. I was quite taken by the bloodthirsty suggestions of the Minister of State for dealing with errant financiers. I doubt if it will come to pass but the Minister of State should also bear in mind that it was not just financiers who had difficulty holding on to their heads during the French Revolution. There were a few politicians——

Deputy Martin Mansergh

Of all descriptions.

Senator Liam Twomey

——and like-minded thinking individuals at the time who also suffered the same fate as the financiers to which the Minister of State referred. I hope he will not be actively encouraging it because his former party leader will be the first person who will be led up to see the blade of the guillotine if that day comes.

Senator John Paul Phelan

He has to come out of the cupboard.

Senator Liam Twomey

We have to get him out of the cupboard. That is the way life goes. The economic and banking policy of the Government over recent years has been a combination of wishful thinking and hoping tomorrow will be different. It was not too long after the last general election that we realised dark clouds were forming on the economic front domestically and internationally. It reached its crescendo in 2008 but it still took the Government time to respond to the seriousness of the issue.

In the course of the debate on the bank guarantee scheme in September 2008 in this House, when I tabled an amendment to the Bill to the effect that we should not spend more than €10 billion on bailing out the banks, the Minister, Deputy Lenihan, stood where the Minister of State is sitting now, looked across at us and very earnestly informed us that neither he nor the Government had any intention of spending more than €10 billion on bailing out the banks. Four months later, he had no problem spending €4.5 billion on bailing out Anglo Irish Bank and by the time we have got to the second anniversary of that statement, the amount involved has risen to €50 billion.

There is a sense in the House that somehow €50 billion is the final figure and that we can all talk about closure in terms of the cost of the banking crisis. That is not the case. There is still a need to clear through all the loans of the banks and there may still be a few landmines which have yet to go off — poor quality loans which are still in the institutions. A change was made recently, from €5 million €12 million, to the limit of loans with which NAMA will be involved. That can only indicate that NAMA is being snowed under with some of the work that is coming its way and that there may still be a lot we need to know about the banking system in this country.

If that has the effect of increasing the bailout cost, it is something about which we need to know. We need the Minister, Deputy Lenihan, to put aside the sort of High Court theatrics in which he often engages in both Houses of giving apparently earnest and informed opinions which incorporate a certain amount of showmanship. When they are exposed as being wrong, he points out that he did not know the right answer, in which case he may be deemed incompetent. Either that or he is participating in a form of cover-up.

The Minister of State saw what happened to the interest rates on Irish Government bonds in this country throughout last year. It may be that this sort of thinking is spooking international investors. That is something we must deal with. We must start talking about being more open, and not just with international investors because they do not understand our priority in dealing with the crisis here, which is the citizens of the country. We are not giving them the clear answers they want. There is a need for the Government to put some of its old ways behind it and start engaging, not just with the Opposition, but with the people who will end up paying for the crisis over the next two generations. That is not happening. Even though we participated in consensus talks and are quite happy to go to the Department of Finance and keep confidential whatever information it wishes to keep confidential, we still have not heard much from Ministers about what will happen over the next month. Major issues will have to be dealt with over the next month. We are still holding to the old-fashioned way of waiting for the budget night when all will be revealed, like opening night at the opera. That is no longer appropriate. There is a need for the Government and all of us as public representatives to engage with the people on what will be needed in future. The banking crisis has shown us how something can go badly wrong and that is why there is a need to engage with the people. What the people will have to suffer and pay for over the next couple of years is quite serious.

In the context of the big figures we will discuss in a few weeks' time, paying back the promissory notes to which the Minister of State referred will cost us in excess of €1.5 billion per year. That is more than we spend on all accident and emergency departments. That is the very real impact of the crisis and what we are paying for. When the Minister for Health and Children, Deputy Harney, starts talking about how she will cut a billion here and a billion there, the people who will be affected are those paying for the Anglo Irish Bank bailout. That is the harsh reality of the situation and there is no other way of looking at it.

They are the things which are annoying. The public is angry that no one seems to be paying for this.

Senator John Paul Phelan

They are paying.

Senator Liam Twomey

I am not just referring to the former Taoiseach before he came out of the closet. I am also referring to senior bankers and officials. It angers people when they read reports that because an individual had discussions with a person in the position of Financial Regulator whose competence has been completely discredited, it allows him or her to be immune from prosecution. There is also the issue of the transfer of assets.

When I was a Member of the other House, I asked the then Minister about the transfer of assets. The position is not as outlined by Senator White in that transfers are not occurring secretively. One must register one's property dealings. Many people are simply transferring assets to family members. There is no big deal about it as they are doing it quite openly. One must ask whether there is a deliberate attempt to protect significant assets. I refer not only to the family home but to assets worth millions of euro rather than hundreds of thousands of euro. When I made inquiries about this, someone said to me a two-year rule applies. In other words, if a developer whose assets are being transferred to NAMA and who has given security to the banks on other assets transfers those other assets to another family member, nothing can be done about it after two years.

Acting Chairman (Senator Fiona O’Malley)

I ask the Senator to conclude because his time has expired.

Senator Liam Twomey

Thank God we are having talks on the economy regularly because I was only getting into my stride. I will take direction from the Chair.

Senator Larry Butler

I agree with much of what Senator Twomey said. We must be more open and should set out the budget parameters well before the budget. These parameters should be discussed very openly in the Lower House and certainly teased out to a much greater extent in this House. This House now has a great opportunity to do so before the budget. I welcome the growing consensus that we must meet our 3% target by 2012 or 2013. The longer we delay, the more it will cost us.

Senator Twomey pointed out the actual cost of paying back on promissory notes, approximately €1.5 billion. That is a very substantial sum to be removed from the economy every year. Therefore, those who suggest we can spread the payments over a further three or four years are only fooling themselves and the people. They are dragging the economy down further. We must tackle the whole budgetary system in regard to what we are borrowing. While the banking crisis is causing a major problem for us, it is not the only problem. The major problem is that we are borrowing more than we are taking in taxes. The sooner we operate within acceptable budgetary parameters, the better.

It is important to bear in mind that we have saved our banking system from collapse. The Government has done so on behalf of the people. However, it is now time to consider mortgage holders who have a major problem. Some 300,000 mortgage holders paid more than they should have done for houses. Of course they are responsible themselves in that they did make a purchase. The banks also have a responsibility but the people are the taxpayers who bailed out the banks. Therefore, we should have a system in place whereby the banks would take an equity stake of at least 20% to 25% in the mortgage holders' houses that are in negative equity at present. This would reduce the mortgage repayments of the householder. It would ensure that the householder would not be put out of his or her house. We must introduce a system to assist mortgage holders because they are the taxpayers who are supporting the banking system. Without a banking system, we would not have an economy. It is disingenuous for anybody to say we had a choice other than to support our banking system.

It is important to have a stimulus to create more jobs in the economy. One of the best stimuli we have is the insulation retrofit programme, which now employs over 6,000 people. We are saying the programme could be rolled out over ten years but I would like to see it rolled out over five years. This would allow us to double the number employed in the programme, bringing the total to 12,000. To create this number of jobs by other means, one would have to attract four or five multinational companies, which one might not get. My proposal, which would result in more energy-efficient houses, would not only help with our balance of payments but would cut down on the amount of foreign oil and gas required to be imported. This should be option number one in the budget.

Before the introduction of the euro, some 70% of our pension funds were invested in Ireland. This figure is now approximately 25%. An important step the Government should take would involve asking fund managers to invest more in Irish funds. The Danes provide a good example of this. Some 80% of the Italian debt market is home invested and this is forming a great cushion for them. The Spanish have started to invest more in bonds in their pension funds. These are the sorts of initiatives we need to consider.

The 39-hour week is far too short. It should be a 44-hour week. This could be achieved by adding an hour to each day of the five-day week. That would result in much greater productivity. It is vital to have productivity in every sector, both private or public. These are a few of my ideas. It is important to bear in mind that Mr. David Beers of Standard & Poor's stated recently Ireland would be one of the first economies in Europe to achieve a turnaround, and that its turnaround will be much quicker than those of the bigger economies. That was encouraging. Miss Gillian Edgeworth, economist with the Italian bank UniCredit, said the Irish economy had turned the corner although it was still in quite a fragile state.

There is confidence but it is up to us to help ourselves. I know we can do so because we are a resilient people. We can do this much better than most believe we can. We have confidence in ourselves, we have young, well-educated people and we have ideas. If we go to work and put our shoulders to the wheel, we can succeed.

I am very much encouraged by the Opposition's approach to the next four budgets, which will be crucial. We should not forget that the Opposition will probably be in power by the time the four budgets are completed. My party, if in opposition, will also be responsible.

Senator John Paul Phelan

We will hold the Senator to that. I agree wholeheartedly with most of what Senator Butler said, but I want to take up a couple of issues. I agree that the State stepped in to save the banking system from collapse and on the day we introduced the bank guarantee scheme I stated it was something that turned my stomach but that we had to do it. The State did step in, but, unfortunately, in the stepping in we virtually brought the economy to the point of collapse. That is a slight exaggeration, but it has had significant knock-on effects. Senator Butler referred to the budgetary process. The fact that a four year agreement is being sought between the various political parties on the broad parameters of the budgetary layout shows how near to collapse the public finances have come.

I agree with Senator MacSharry that perhaps in certain elements of the media and among politicians too much emphasis has been placed on retribution. However, we have to look at it from the point of view of the people who will pay, ordinary taxpayers. At lunchtime today I spoke to a woman who works in the Houses of the Oireachtas. She told me the biggest loan she had ever taken out was to buy the carpet in her first house. She and thousands like her who never took out loans to buy second and third properties will, with those who took the big gambles, be asked in the next four budgets to take extraordinary cuts to their standard of living and incomes.

I am not an expert on French history, unlike the Minister of State, and I am not one for using the guillotine, but the authorities have to take immediate action to ensure those responsible for the banking collapse in this country and the other difficulties that have led to our current economic problems face justice. I am not speaking about retribution; I believe in equity. As such, if we will ask the general public to make extraordinary sacrifices, on the basis of equity, we have to ask that those who took the decisions be held to account for what they did. That is not asking too much.

The general public has shown extraordinary restraint. We see what is happening in France this week where it is proposed to raise the retirement age to 62 years. I did not realise the age of retirement in France was 60 years. When one compares that to what has happened here, the general public has shown extraordinary restraint. If we are facing into a budget that will reduce public expenditure by €5 billion or €6 billion, the general public has a right to expect that some of those who made the decisions which were responsible for bringing us to this crossroads will face justice for what they have done. Honestly, I do not get a sense from the Government that it is overly anxious to bring many of them to justice, but perhaps the Minister of State will correct me. Some of those who need to be brought to justice are politicians and the man in the cupboard, to whom reference was made, is the prime example. There is also the cosy relationship that continued for so long between the bankers, those in government and the Financial Regulator. I know an inquiry has been promised and will take place, but Garda investigations have to take their course before any charges can be brought. With the general public, we need to see more action being taken.

This is not specifically a debate on agreeing a four year budgetary plan, but I say to the Minister of State at the Department of Finance that if the Government is serious about engaging with the Opposition — at this stage I believe it is — there needs to be serious reform of the budgetary process. On budget day the Minister for Finance goes to the Dáil to present what is a fait accompli and for the rest of the day the Dáil votes on various motions. This is no longer acceptable; we need more rigorous engagement in the Houses of the Oireachtas, with Members on all sides being able to offer their opinions prior to the Minister presenting a budget. The announcement of the budget is less than seven weeks away.

I am not a financial expert but recently I was listening on the national airwaves to Mr. David McWilliams, with whom I sometimes agree, as he spoke about the level of investment in the country. This morning I listened to Mr. John Bruton who correctly extolled the virtues of the International Financial Services Centre which is comparable with any similar facility in the world and in some areas it is a world leader. Mr. McWilliams has referred to the fact that €300 billion from the United States has been invested in various funds in the IFSC, earning between 1% and 2% per annum. He has also made the point that the Government should engage in whatever measures are required to try to ensure this money is invested more productively in the economy. If a slightly higher rate of return was promised to those investing, much of this money could become available. Perhaps the Minister of State is in a position to outline his views on this and other potential sources of funds.

Senator Butler spoke about the choices the Government had to make and stated some people, more or less, wanted the banking system to collapse. No one suggested this. Everybody realises a working banking system is essential.

Senator Jerry Buttimer

Hear, hear.

Senator John Paul Phelan

However, the fact is that for many, particularly those involved in small businesses, there is no working banking system in place. The Government made decisions, including to take over Anglo Irish Bank; to invest a huge sum in the recapitalisation of Irish Nationwide Building Society, a very small bank; and to own 90% of our largest financial institution, Allied Irish Banks. I urge the Minister of State to ensure those involved in these institutions and others who were responsible for landing us in this mess will be held to account for the damage and havoc they have wreaked on the country. I can give him a list of people in south Tipperary and south Kilkenny — I am sure he knows them himself — who have been forced to leave the country and whose futures have been ruined. They have thrown back the keys to houses and have debts that will follow them for the rest of their lives because of decisions made by people involved in the institutions in question. We need justice in the midst of all of this.

Senator Fiona O’Malley

I welcome the Minister of State back to the House. I thought this was part of another debate that had taken place previously and that I had already made a contribution to it; therefore, I am glad to have an opportunity to make a further contribution. I think the Minister of State is here more often now than when he was a Member of the House.

I want to make the point to Senator Phelan that we tend to forget that the banking system did not collapse. That is what we need to remember. To be fair to the Senator, he corrected himself.

Senator John Paul Phelan

I never said that.

Senator Fiona O’Malley

You did.

Acting Chairman (Senator Jerry Buttimer)

Through the Chair, please.

Senator Fiona O’Malley

The Labour Party has the luxury of not having to face up to the reality of the consequences of decisions it took. If we had all followed the course of action taken by the Labour Party — this is where I applaud Fine Gael — there would have been a collapse and the IMF would have been in the country by now.

Deputy Gilmore and his Labour Party colleagues can surmise and reflect, with the benefit of hindsight, on what would have happened. There is no question but that the collapse would have occurred. We would already have given up our sovereignty. That is completely forgotten in the debates that are taking place now, partly because the collapse did not occur, fortunately. Of course it has been difficult and painful for citizens of all ages, including taxpayers. Responsibility for paying for all of this will fall on the shoulders of people who are not paying tax at the moment because they are too young to work. Everyone keeps talking about taxpayers but we should refer in the first instance to the citizens of this country.

The Minister of State quoted President Clinton's recent statement that "if you don't have a banking system, you're toast". One of our problems is that the justifiable public anger about what has happened has led to calls for people to be put behind bars so they can pay for the mistakes they have made. People have the right to make such demands and I would not criticise them for doing so. While we should not interfere with the processes of law and order, it is frustrating that they move so slowly. People in other jurisdictions have been serving sentences for some time. We need to do something about our system. People's anger will not be quelled until those who are responsible for this crisis are seen to be paying for it and taking responsibility in the eyes of the law. If the law is to have any meaning, it should be that when one falls foul of it, one is subject to it. The sooner that happens, the better.

Those who are angry sometimes fail to recognise that the Government has no cause to carry for the bankers of this country. If we had needed to support or bail out our economy in the same way, that would have affected every one of us. When I meet those who are protesting outside the gates of Leinster House, I can understand why they ask why we are supporting the bankers rather than ordinary people. When the economy is thriving, all of us enjoy the benefits. We cannot have an economy without a secure banking system. Many people have suggested there is one rule for the banks and another rule for the customers of the banks, particularly mortgage holders. There needs to be some kind of recognition that people are in difficult straits. I do not think it is in the interests of the banks to foreclose on people who are in mortgage arrears and having difficulties.

We are blessed that a good regulator has been appointed to the banking system. He is clear about what he wants to do. The changes that have been made to the Central Bank governance structures are to be welcomed. We all agree that very good people have been appointed in key banking positions. We should listen when the regulator looks for support. When I was listening to the radio over the weekend, I heard somebody make the point that the praise we are all heaping on the regulator needs to be accompanied by demonstrable supports and resources and the introduction of the legislative changes he is seeking. I ask the Minister of State to remind his Government colleagues of the need to meet the needs of the regulator, who has come here to do a difficult job. We are glad he has taken on that task with such gusto. It is not enough to pay lip service to his needs. We need to resource that office properly. We may now be paying the cost of not having resourced that office sufficiently in the past. We need to support the regulator and the people associated with him. I hate to identify singularly with the office holder, who plays one part in an important function. We need to be cognisant of that.

The Government, particularly the Minister for Finance and the Taoiseach, is to be applauded for the difficult decisions it has taken. Everybody now has the benefit of hindsight. Ten days ago, the Minister for Finance starkly pointed out that he is responsible for making the final decisions on these matters. That is the difference between the position of those in government and our position. We can pontificate and surmise about what might have happened, but the Minister, Deputy Brian Lenihan, has to make decisions and live with the consequences of them. We do not tend to appreciate sufficiently how difficult it is to make tough decisions when one's back is against the wall and to live with the consequences of those decisions. That is why certain commentators should be more charitable at times. I am always wary of academics, in particular. Although the Minister of State has a learned background, he is not strictly an academic.

Deputy Martin Mansergh

I have never had tenure in my life.

Senator Fiona O’Malley

Perhaps that is why the Minister of State is so wise. I am suspicious of academics who live in ivory towers. They are great theorists, but we need a mixture of the theoretical and the practical.

Senator Paul Coghlan

I welcome the Minister of State, Deputy Mansergh. We see him so often that he could almost be described as our House Minister. We appreciate his presence. Like other speakers, I recognise the importance of banking for the future success of the economy. We have been through a frightful period and we are not out of it yet. Although there are outstanding issues, we hope matters have been stabilised. This debate follows on from the Minister's statement of 30 September last. We need to lance the boil of banking before we can move on from the current controversies. As Senator O'Malley said, those who were involved in wrong-doing need to be held accountable. The public has rightly contrasted the speed with which justice was dispensed to the man who drove a cement lorry into the gates at the front of Leinster House recently with the lack of speed with which the authorities have pursued those who drove the economy into the ground. We are anxious to ensure the threat to our economy is righted. We need to see accountability. This has to happen rather than being left in abeyance. Perhaps the Minister of State can update us on that front.

We need to reflect maturely on what we want from banks in Ireland. We should develop a clear strategy to meet our banking needs. The strategy should deal with issues like the regulatory structures that will apply, the role of the State in banks and the process by which the State will be removed from bank ownership. We all agree the State should not have a role in the banking sector, just as it should not have had a role in the bed and breakfast business, which happened when an arm of the State owned hotels. Sadly, many hotels are now under the control of NAMA, in effect. How can we ensure there are adequate levels of competition in the banking market to meet the needs of consumers? I would like to hear the Minister of State's thoughts on the so-called "third force" in this sector, which was much trumpeted in the past but about which we now hear nothing. What banking practices will be acceptable and what practices will not be acceptable? Sanctions and enforcement processes need to be clear and strong.

The key public issue that is causing problems is the level of personal debt. It would be hazardous to look at debt forgiveness processes. I do not doubt that many people are in distressed circumstances, but the bulk of the population is able to meet its commitments. The silent majority would be rightly outraged if preferential treatment was afforded to some mortgage holders. A proper scheme of forbearance is required, with some long-term storage of debt a possibility to overcome the block imposed by negative equity.

I also wonder about the exact information available on mortgage debt and negative equity. To help cut through the fog, it would be worth getting the Credit Review Office to assume some role to deal with how household debt is being handled by the banks. Are they being fair, reasonable and responsible? Again, I salute the work done by Mr. John Trethowan in that office. He was a very prudent banker and was certainly no relation of any of the cowboys who took over in Anglo Irish Bank and, sadly, some of our other institutions which followed Anglo Irish Bank down that road.

We need to look at what we are seeking from the banks. We should not expect them to lend to risky projects, despite the many applications which I am sure they receive in that regard. They should be conservative and prudent in their lending practices. Proper security must always be provided. Given much of what is being transferred to NAMA, there is not proper security and the taxpayer will end up picking up the tab when the promissory notes are called in. There is a role for a State backed investment company similar to the ICC which could be used to fund riskier profile projects. I look forward to hearing what the Minister of State has to say in that regard.

I salute all the efforts made by Mr. Matthew Elderfield since he took office as Financial Regulator and what Mr. Patrick Honohan has been managing to achieve in his role as Governor of the Central Bank. I will not refer to their predecessors. We have received reports and commented on these matters.

I raise the issue of retribution. Nothing has happened about the exceptional support from Irish Life & Permanent received by Anglo Irish Bank in artificially boosting its deposits. That was totally contrary to the national interest and fraudulent. There was also concealment by Anglo Irish Bank and Irish Nationwide Building Society. Will the Minister of State update us on these matters? What standards were applied by the auditing and accounting firms? What did they have to say about all of this? The Irish Association of Investment Managers and the Pensions Board were also strangely silent. It would be shocking to compliant taxpayers if these matters were left without receiving proper treatment. They are of the utmost concern to Members of this and the other House and citizens generally.

AIB is the most systemic bank and has a large branch network which is so vital and essential to the economy. The State is heading towards 90% ownership, although I do not know if an exact percentage has been decided on. Perhaps the Minister of State might comment on the matter. Is he satisfied the Government has shown a firm hand in taking control? Are there still legacy directors in place? There was a total management clear-out in Anglo Irish Bank and, to some extent, other institutions, but I am not sure that has happened in AIB or Bank of Ireland. I look forward to hearing what the Minister of State has to say on that matter.

I refer to the NAMA hotels, some of which are competing unfairly with traditional hotels. They are damaging our hospitality and tourism product, which is wrong. I mean no disrespect, but they employ many non-EU nationals who are not able to show the customer traditional Irish hospitality. I would like the Minister of State to comment on the hotels under the control of NAMA.

Senator Paschal Mooney

I welcome the Minister of State. This is one of a series of regular debates on banking which are important in order that both sides of the House can receive the most up-to-date briefing and feed into the overall debate.

The Minister had little choice on 30 September other than to continue the bank guarantee scheme which I understand will continue only until the end of this year. I also understand something short of a blanket guarantee was given in September 2008, which is only right. Will the Minister of State respond to public concern about how those who invested speculatively — the subordinated debtors — will be treated? Will there be negotiations on the renegotiating of their loans which would be of benefit to the taxpayer?

In the face of a barrage of criticism levelled at the Minister for Finance in recent weeks about decisions the Government had taken in the financial sector in the past two years since the bank guarantee scheme was introduced that it had got it wrong, I was surprised to learn this morning that a few days before the decision was made to give a blanket guarantee in September 2008 the then head of Irish Nationwide Building Society, Mr. Michael Fingleton, had written a letter to the Department of Finance in which he had made it quite clear that in his opinion Irish Nationwide Building Society was viable as a going concern, as was its loan book, although there might have been some difficulties surrounding some property loans. It coincided with a similar letter sent by Anglo Irish Bank and the information conveyed to the wider stock market in the weeks leading up to the demise of Anglo Irish Bank that it, too, was a viable operation. In fact, the chief executive of Anglo Irish Bank admonished people for not buying more shares, despite the fact the share price had been collapsing since the previous spring and that the world and its wife knew things were not right with the bank.

Perhaps it is the nature of politics, but it is very unfair that the Government and the Minister for Finance, in particular, should be pilloried about decisions taken on the basis of the information available from those who were at the time seen as people of great probity. Growing up I was told the best job was that of a banker, a doctor or a lawyer. They were classed among the elite. Now I do not believe bankers would get into the premier division or into the league such is the odium with which they are viewed. However, that is being unfair to those who continue to be employed in the banking system and are trying to clear the wreckage of those who were in command. In that context, I compliment the Minister who has made it clear that there has effectively been a clear-out of those who made the decisions on reckless trading in the past few years and that this development continues. I welcome the recent appointment of the former head of Intel to the board of AIB.

The EU initiatives providing for a common regulatory regime must be welcomed. Perhaps the Minister of State might give some information on how they are progressing. I agree matters are very volatile and that it is like a moveable feast. Chancellor Merkel and President Sarkozy seem to have reached a consensus, which marks an improvement in that the Germans were holding out for a strengthening of the regulatory regime, while others were somewhat lukewarm. Perhaps the Minister of State might have some up-to-date information on the matter.

I cannot help but reflect on a book entitled, This Time is Different, which was reviewed a number of weeks ago and of which I have yet to get a copy, although I intend to do so. Essentially, the premise on which the authors based their narrative was that, on each economic cycle going way back to the time of the Romans, the comment always made by contemporary government or rulers is that it will be different this time, and I could not help but reflect on the economic cycles that we have gone through in this country. Even at the height of the Celtic tiger, there were many saying it could not and would not last. I remember standing in this House in 2004 asking questions about the over reliance on the construction sector where it had already been statistically proven that 25% of our national wealth was dependent on it while the European average was only 10%, stating it was not sustainable and asking where was plan B. I am not for one moment suggesting I am joining the ranks of those who, in hindsight, can say, “I told you so”. I did not say so. I did not know we were going to undergo the enormous tsunami that hit this country’s economy from January 2009 onwards following the previous 12 to 18 months of volatility in the international financial sector. We are now dealing with the fallout of that.

I want to finish on a positive note. On casual reading of the financial pages of the national newspapers, particularly the commercial and financial sections of The Irish Times over the past few weeks, one cannot help but note a number of key positive factors that are feeding into the Irish economy to reinforce the view of the Minister, Deputy Brian Lenihan, that the economy is turning in the right direction. Commercial rents are up in the past two quarters. Liffey Valley has now filled all its vacant spaces. Several other of the shopping centres in Dublin, Waterford and Cork have also attracted international franchise holders who are at the very forefront of the retail industry internationally. If the economy is so bad and if the projections are so uncertain, why is it these persons are taking corporate decisions in Boston, Berlin, New York and elsewhere to come to this country to sell their wares? There are certain indications that we are moving in the right direction. I am particularly looking forward to the third quarter Exchequer returns because I believe there has been an improvement since June in the economy. For the moment, however, all one can do is commend the Government and the Minister and the Minister of State at the Department of Finance on the policy direction taken and wish them well.

Senator Jerry Buttimer

I welcome the Minister of State, Deputy Mansergh.

Listening to Senator Mooney's remarks I was struck by the fact we must live in different worlds. If one walks or drives around the city and county of Cork, or even around the capital city or many of the main provincial towns, one will see "To Let" signs aplenty in idle and empty buildings. While I agree with the Minister of State's sentiment that we need a banking system, there will be more pain and misery for the people in the budget in December as a consequence of the banks being bailed out.

The Minister of State talked about "The core of the problem being the scale of reckless lending that took place". That is a good analysis, but he neglected to put in a couple of other lines where at its core is the lack of accountability, the lack of responsibility by those who ran the banks, the lack of action by the regulator, poor political judgment, and the fact the Minister of State's colleagues in Cabinet were cheerleaders as this country plummeted into a financial crisis and waved the pom-poms in the tents in Galway. The Minister of State can come in here and give all the fine speeches he wants, but let him go out to the streets where the people are not only punch drunk, but are angry, frustrated and fearful. They see no light at the end of the proverbial tunnel and they want hope.

I canvas, as I am sure he does, four days a week and I meet young people, middle-aged people and grandparents. I will never forget the week after this "black Thursday" was brought upon us. I will never forget the pain and anger of the people I met in Cork. I am struck by the image of grandparents who are now bailing out their children and looking after their grandchildren, and other grandparents who have seen their grandchildren emigrate.

We live in a changed Ireland that has been sullied and disgraced by a few. The banking system almost brought the country down, to paraphrase The New York Times. The Minister of State stated what former President Clinton said, “If you don’t have a banking system, you’re toast”. This Government forgot that, to quote the former President’s other famous line, “It’s the economy, stupid”. It is the economy, and the Government forgot that. The Government doled out money with great panache over the ten years of the Celtic tiger. It threw money here and lost sight of what it should be about. The Minister of State can take all the republican principles that Fianna Fáil is great at talking about, but the Government threw it away. They binned it at the risk of having three terms in Government so a former Taoiseach can go around the country with his chest out saying, “I did it my way”, for ten years and more.

They can blame Lehman Brothers and the world recession which were part of it, but the political reality is that the ordinary person in Ireland who did not engage in reckless behaviour and did not go out on a limb is now being pummelled. The middle class of Ireland is being crucified. Let us call it as we see it and forget about all the hypothesis and intellectual arguments. That is the reality.

I agree with the Minister of State that we need a banking system and we need better regulation. I do not have all the answers, but it is an absolute disgrace. He is in south Tipperary, Senator MacSharry is in Sligo-North Leitrim and I am in Cork where the ordinary people are apoplectic with rage. They do not see a Government in charge because the Minister, Deputy Brian Lenihan, has got it wrong at every step of the way. The media created a cult around this great Minister, who has not got any figure right in the two years since he became Minister. I understand why we must create international confidence in the bond markets, but it is not merely about international confidence. We must give the people confidence. We must give them hope. They see none of that at present.

All they see is pain to be inflicted, and they must pay for it. There is not one person being held to account. I read the Minister of State's speech where he referred to Henry VII and the Russian oligarchs. He is correct and I could not disagree with him, but we have not had a person held to account. The people want those who are responsible to be held to account. They want to see justice. That is one part of what they want. We have inflicted on a generation a millstone around their necks. What has been the legacy of the Celtic tiger era? I really hope the Irish people will see justice because they deserve it. They see people going to the courts in America, they see people getting big fat pensions and severance payments and they see the courts being used as a stalling process, and they want to see — as the Minister of State mentioned in his remarks about the French and American republics — not this slow process but swift justice. That might be simplistic, but that is where the Irish people are at and they deserve it because they have been let down by a few. It really is extraordinary.

Are we at the end of the matter? Can someone tell us that there will be no more coming back to pay out more money for the banks? Can we be told that "black Thursday" was the end of it?

While I am fully in favour of restoring international confidence in Ireland, let us for one moment dwell on what the banks and Government have done. We must consider the small businesses that are in trouble, the houses that have been repossessed and the people who are in mortgage arrears. People are experiencing fear and trepidation every time a registered letter arrives or there is a knock on the door in case the bailiffs have arrived or someone is delivering a summons. This is a genuine fear experienced by many ordinary people.

The Minister of State and a number of Senators stated the banks did not collapse. The banking system may as well have collapsed because the banks have gone to ground and are no longer lending. In Private Members' business I will discuss a letter I received from a person in business who is struggling.

The Minister of State, whose bona fides I accept because I respect him as a decent and honourable person, referred to reforms. How could a Government allow people to be treated so callously and badly? The former Taoiseach, Deputy Bertie Ahern, has stated the Financial Regulator did not ask to meet him. As the man in charge, Deputy Ahern was driving the bus, while the current Taoiseach, Deputy Cowen, was the Minister for Finance. Are the trappings of power such that these individuals cannot relate to reality?

Many people are unemployed, many homes have been wrecked and many livelihoods placed in jeopardy as a result of recklessness. I am not an economist or intellectual but I live in the real world in which people are suffering, businesses are struggling and public servants are being hammered and asked to go to the well. Will the Minister of State offer people some hope and accountability, which is the least they deserve? To paraphrase Hamlet, is it so rotten in the state of Denmark that we cannot have hope and accountability?

The Minister of State made a fine speech, with which I do not disagree. Will he explain the reason taxpayers are being asked to endure hardship and suffering? The answer is that Fianna Fáil and its cronies allowed the crisis to happen. That is the political reality and while the Minister of State will no doubt attempt to rebut me, the Cabinet, the Fianna Fáil Party, its appointees and the regulatory system it oversaw were the cheerleaders for the demise of this country. We were lucky Ireland did not fall over a cliff. I only hope the country will recover.

Since last Christmas, 16 of my past pupils, who include graduates, PhDs, postgraduates and trained craftspeople, have contacted me seeking references before emigrating. We need accountability, not only the restoration of confidence in the bond markets. People must be given hope. We need a general election to clear out the current lot once and for all.

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

I thank all those who have contributed to the debate. As a Member of the other House, I did my calculations and found that at least one in five Senators contributed to this debate, which is good.

I will respond to two general points before addressing some more detailed matters. The stringency of the budget in December will not be mainly due to the bank situation but to the gap between revenue and expenditure, which is in the order of €18 billion to €19 billion. This gap has to be reduced. I qualify that to the extent that it is the case that the sovereign debt crisis and additional pressures imposed by the banking crisis mean we need to be even more up-front in the forthcoming budget than we had originally intended. The straightforward equation that the pain in the budget is because we have to bail out the banks is false. The budgetary correction is because a huge gap has opened up between expenditure and revenue. This has relatively little to do with what we have had to do in terms of the banks.

My second point is also budget related. It is often suggested that the Government should put all its cards on the table. As many speakers noted, Opposition spokespersons have been briefed on the general parameters of the financial position facing us and there is discussion with party leaders. I warmly welcome the decision of the two main Opposition parties to agree and accept the goal of a 3% budget deficit by 2014. They have made a vital contribution to maintaining confidence in this country. Such confidence is essential if we are to borrow to address the gap to which I referred.

On the issue of laying one's cards on the table, it used to be the case that the economic outlook relating to the budget and a preliminary Book of Estimates were published several weeks before the budget. I have no particular problems in principle with this approach, although the Estimates were generally somewhat revised in the budget, especially social welfare expenditure.

On taxation, laying one's cards on the table, as it were, is simply not an option. Resolutions dealing with VAT and excise changes are passed very quickly on budget night for a reason. If there were an authoritative general discussion from the Government on what it proposed to do, people would take all kinds of evasive action, for instance, hoarding. There is, therefore, a rationale for budget secrecy on the taxation front. This also applies to various forms of business taxation. We should be a little more realistic in our discussion of these matters.

I thank Senator Donohoe who spoke first for the Opposition and, not for the first time, made a fine speech. The Senator referred to Professor Tom Garvin's book on the 1950s and the existential doubts some people harboured at that time. A point I have made in many speeches both in my constituency and in the House is that, as we approach the centenary of the 1916 Rising, the idea that one wins independence and sovereignty once and can take it for granted forever after is far from being the case. In each generation, we have to defend our independence and sovereignty, as we are having to do. We did not expect to find ourselves in this position two or three years ago.

Senator Donohoe was also correct to refer to the fact that subordinated bondholders, albeit by no means all of them, are pleased with the situation. Senator MacSharry asked whether banks are being over-capitalised to secure them against a future scale of risk that is unlikely to arise for the foreseeable future. The Central Bank is independent in the regulation of credit institutions, including the setting of regulatory capital levels. It does so having regard to the risk weighting of the assets and other features of particular banks. The Central Bank is also having regard to the new capital guidelines being formulated in Basel III and at European Union level. The Senator also asked whether NAMA has been slow in starting its work and issuing bonds. One must remind oneself that NAMA was only established last December and is just over ten months old. Obviously, it had to be staffed and established, codes of conduct had to be drawn up, etc. It already has taken in loans with a nominal value of €27 billion and is expected to complete its work on valuation by the end of this year. Moreover, the banks have access to markets and the European Central Bank with appropriate collateral for funding.

As Senator Norris effectively paraphrased the Minister for Finance, anger is not a policy and he was correct. Sometimes each generation thinks the crisis it faces is the worst that has ever been faced. The truth is that over many decades, Irish Governments have faced acute problems. This was true in the 1920s, 1930s, 1940s and 1950s in particular but also in certain years during the 1970s and 1980s in respect of the currency crisis and so on. This undoubtedly is a particularly bad economic crisis and it probably does not have a parallel either here or elsewhere, leaving aside wartime, except for the late 1920s and early 1930s. However, in respect of the mass unemployment and general poverty that then existed, we obviously are not in the same league at present.

The Senator also made a valid point about what the Government is being forced to do. Obviously, it would much prefer to deal with deficiencies in the social and health services and so on. However, the Government is forced to deal with the banks and deficit issues because without that, everything else would fall. One could argue about what led to this point and if I have time, I will argue a little further later on. However, over the past two years the Government has had a real struggle to maintain the basic fabric of our institutions. I refer both to the banking system, without which an economy cannot function, and to the social services in order that the Government can pay civil servants and social welfare recipients and can provide our health and education services. While one can argue strongly at the margins whether this or that should or should not have been cut, or that more money should have been provided here or there, at least all the basic services have kept going. The Government was threatened with a much more dire situation than that. In addition, it has been threatened with the prospect of what would happen unless it took affairs in hand itself and to be fair to the Opposition parties, including their spokespersons, they understand this point very well. Either we deal with these problems ourselves or we let someone else come in and dictate to us, probably with very little sensitivity, what we cut or eliminate and what taxes we change. I consider it to be very important to maintain control over our own affairs and I believe this sentiment is shared right across both Houses.

There was much debate on the question of holding people to account, to which I made my own contribution. While doing so, I hope I made it clear that what I was talking about was not a form of retribution, and future deterrence always is as important as retribution, but recovery, by which I meant that moneys that were wrongly appropriated would be recovered. I expressed a view shared by everyone, which is that our system seems to work very slowly. Although the United States, like Ireland, has a written constitution, the Americans appear to be able to cut to the core a lot more quickly than us. As I noted in my contribution, I wonder whether we have built up a system of legal and constitutional protection that hinders the process in such situations of bringing to justice those who ought to face justice. I do not simply refer to errors of judgment or of policy, as there is a clear system of political accountability and governments are subject to the electorate. I refer to cases in which laws have been broken and reckless or false trading fall into that category.

In the case of a lot of financiers, the cry during the French Revolution was not so much to the guillotine but à la lanterne, as people were simply strung up. No one is suggesting anything like that and no one wants summary justice. However, it is a paradox that in a democratic and republican system that is regulated and institutionalised, it seems to be quite difficult to achieve even proper justice within a reasonable time. One measure that might be adopted in the future is to get an appropriate set of people to investigate what have been the obstacles to achieving this during the period under discussion.

Senator Alex White spoke on whether matters have been stabilised. In a sense, the answer is both "Yes" and "No". Matters have stabilised in the sense that the rapid deterioration in the public finances that set in during 2008 has stopped. Moreover, as I stated during my contribution, the budget projections are on target. However, stabilisation has obviously not been achieved in the sense of being back on safe ground where there is nothing more to be done except for ticking over. This is the reason the country has a stringent budget ahead of it and a four-year plan is being discussed between the leaders of the main parties. The Stability and Growth Pact has a threshold of 3% of GDP. We cannot, in the true sense of the word, say we have achieved stability until we are back under that level.

Senator White talked, a little exaggeratedly, about catastrophic loss of confidence and so on. There is much confidence in the Governor of the Central Bank and in the Central Bank under his management. There is, clearly, much public confidence in the Minister for Finance, Deputy Brian Lenihan, who has had to lead the economy and the finances through this extraordinarily difficult situation. He has done so with great courage and determination and has been articulate in the leadership he has given on the subject.

As to forecasts being wrong, in a rapidly moving situation, as it was in 2008-09, it is extraordinarily difficult for anyone, here or in any other country, to make firm and accurate forecasts. The forecasts that have been made this year are accurate, with some relatively minor adjustments. Notably, the current growth forecast is somewhat lower than at the beginning of the year. Sometimes people talk as if decision makers should have perfect foresight and knowledge of the depth of a problem when it first arises. That is unrealistic.

He is a well-educated common man.

Deputy Martin Mansergh

He spoke about people in ivory towers. I have never been an academic, although perhaps my style is slightly academic. The French Minister for Finance who is very capable was previously a professor in an American university. Every American Administration draws academics from the universities such as Mrs. Condoleezza Rice. I am not sure we always make proper use of our resources in that respect, perhaps owing to a common prejudice.

Seanad Éireann debate - Wednesday, 20 Oct 2010

Announcement on Banking by the Minister for Finance: Statements

Seanad Éireann debate -
Wednesday, 20 Oct 2010