If this Bill was intended to present a loan to the ordinary decent people of Greece, Sinn Féin would have no problem supporting it but we know that is not the case. The purpose of the Bill is to bail out international bond holders, who are predominantly German bankers in this case. The ordinary working people of Greece will will have to repay the debt to the Irish State.
Euro Area Loan Facility Bill 2010: Second Stage (Resumed)
Question again proposed: "That the Bill be now read a Second Time."
I ask the House and the Gallery to come to order.
This is yet another bailout of the bankers. As we opposed Ireland's bailout of bankers and international bond holders, we are being consistent in opposing the bailout in this instance. We would have no problem with helping our Greek neighbours in their moment of need but that is not being asked of us. We are being asked to bail out the bankers while the working people of Greece are being made to repay the money. We do not accept that proposition and we completely oppose this Bill.
I am grateful for the opportunity to speak on this Bill in the context of the wider economic situation in which we find ourselves. On 10 May 2010, the ECOFIN Council agreed on a €500 billion package of measures to support financial stability in the European Union. By this decision, member states are showing their resolve in supporting the overall European economy and the interests of all European citizens. The measures adopted by the ECOFIN Council are bold and I hope they restore confidence in the euro. EU finance ministers unanimously agreed to assist Greece through the use of loans which must be repaid within a fixed time period. Contrary to some reports which appeared in newspapers over the weekend, these loans will carry a significant interest rate of approximately 5% per annum to ensure that all countries make a return on them.
The agreement also provides that the funding costs of member states participating in the financial support package will be fully covered. Ireland's contribution of up to €1.3 billion will be sourced by the National Treasury Management Agency and made available over three years. Not only will there be a financial return to the State from these loans but there will also be wider economic benefits in terms of safeguarding financial stability in the euro area. Given that 40% of our exports go to mainland Europe, this will be vital for Ireland's own recovery.
The Bill before us will enable Ireland to play its part in providing financial support to Greece, which because of its economic mismanagement over many years can no longer borrow in the international bond markets at sustainable rates. This support is designed to safeguard the fundamental financial stability of the single currency area. Ireland will not be making a gift of this money and the full amount will be repaid with interest.
Since the commencement of the global recession, negative sentiments have regularly been repeated by Opposition Members. Positive questioning and constructive criticism are welcome and necessary but that has not been forthcoming in general, much to the shame of the Opposition in these times of national crisis. Examples of tribal negativity, knee-jerk reactions and irrational arguments include the debates over NAMA, the deposit guarantee scheme and the bank recapitalisation scheme. Many in the Opposition claim they are being ignored but nothing could be further from the truth. The Minister for Finance, Deputy Brian Lenihan, has listened attentively and with great interest to all the views expressed by his Opposition colleagues. This House held its longest sitting in many years to debate Committee Stage of the National Assets Management Agency Bill 2009.
It is interesting to compare the views of international experts with those of the Deputies opposite. The Financial Times reported:
"Yet Irish finance minister Brian Lenihan has led the way among ailing peripheral eurozone economies in taking the harsh fiscal measures needed to regain investor confidence. He set the example months ago that Athens should follow. . . Ireland is not in the same league as Greece: the former Celtic Tiger has a credible recovery plan and has bounced back before. Its public debt, now at 64.5 per cent of output, from 25.2 per cent pre-crisis, is certainly more manageable than Greece's ruinous 110 per cent, not least because Dublin — unlike Athens — has completed its funding requirements for this year.
As Athens forces the eurozone to confront its principal defect — one currency, one central bank governor, but no single finance minister — investors should not forget Mr Lenihan's first-mover advantage. He is at least 18 months ahead of his peers."
The economic outlook for 2010 has improved significantly and most commentators, including the Central Bank and the ESRI, now forecast positive growth in the second half of the year. This echoes the Minister's comments during December's budget debate. Exchequer figures published last week indicate that the public finances are stabilising. Tax revenues and public spending are in line with expectations, which shows we are meeting the targets set in the budget. The European Commission's economic forecast predicts Ireland will have a 3% growth rate in 2011. This reinforces the positive economic outlook for the Irish economy. EU Commissioner for Economic and Monetary Affairs, Ollie Rehn, has stated that Ireland's bold and credible measures are paying off. The President of the European Central Bank, Mr. Trichet, and the Minister for Economic Affairs, Industry and Employment of France, Christine Lagarde, have also commented favourably on the Government's strategy.
Today, Nouriel Roubini, the economist who became known as "Dr. Doom" in 2006 after he predicted worldwide financial meltdown, was interviewed on "Morning Ireland". He believes Ireland is going in the right direction even though policy changes are difficult. He is more optimistic for Ireland despite the difficult times we are experiencing and thinks the Government was willing to implement financial adjustments more credibly and sooner than Greece and other countries. He stated that Ireland has a more flexible, dynamic and entrepreneurial economy and that we have not lost as much competitiveness as Spain, Portugal or Greece. He sees a light at the end of the tunnel for us if the Government can hold to fiscal austerity and structural reform and that we might end up doing better in time. The Government's actions are paying off, therefore.
There are several hopeful signs. The purchasing managers index has gone over 50 for the first time in months, indicating an increase in confidence in that area. A recent editorial in The Irish Times spoke of hopeful indicators that the economy has turned the corner. The Bank of Ireland has succeeded in raising private capital funds which only weeks ago the Opposition was predicting could not be done. Yesterday’s bond sale by the National Treasury Management Agency raised €1.5 billion, with demand three times greater than supply. I have already referred to the views expressed by the ESRI and the Central Bank. Davy Stockbrokers has indicated its view that the economy returned to growth in the first quarter and that we have turned the corner. As a result of decisions taken by the Government in dealing with the banks, we have ensured there will be a payback in the future when the banks become profitable again. By contrast, the AIB-ICI bailout by a Labour Party-Fine Gael Government some years ago included no payback clause and a 2% levy remains in place.
The State and its taxpayers will receive a handsome return on its investment in the Bank of Ireland. The State will shortly receive more than €540 million for its previous investment in the bank. We will own more than €1.8 billion of preference shares which will yield some €180 million in cash to the Exchequer annually. The State will own up to 36.5% of this valuable bank, which it can sell in the future. Our policies are delivering a cleaned up, well capitalised and better funded bank that is in a position to provide the vital credit to support economic recovery and job creation. This transaction is good news for our economy, good news for the taxpayer and good news for Bank of Ireland's shareholders and investors.
We are in a global recession and the Irish economy has for several years been facing unprecedented challenges. The economy went into reverse for three reasons, namely, a steady loss of competitiveness, the bursting of the property bubble, and an international banking crisis which triggered a worldwide recession.However, the Government has taken bold decisions to address this, as it did in the 1930s, 1960s and late 1980s when faced with other crises, and we have seen decisive and innovative steps to manage our way through the crisis. In the last 18 months the Government implemented budgetary adjustments of more than €8 billion for 2009. Had it not done so, the deficit would have ballooned towards 20% of GDP, a level at which the very financial survival of the country would have been at risk. We have taken many decisions that have brought the country around the corner and set us on the right road for the future.
Fine Gael and the Labour Party agree we need to adjust public expenditure by €4 billion in 2010, but they differ entirely on how best to achieve these savings. For example, Fine Gael wants headline salary cuts imposed on the public sector, but the Labour Party is strongly opposed to such a measure. The Labour Party proposes an additional €2.3 billion in taxes in a full year, while Fine Gael tells us it is not possible to tax our way to recovery. This is surely an empty mantra given that the party proposes large hikes in employee PRSI to fund reductions in employer PRSI and the extension of the health levy to incomes over €13,000 which is the same as a tax increase. The Labour Party advocates a new top rate of tax, giving an effective marginal rate of 59%, which is simply a reversion to the failed policies of a more socialist past. Just as they are in regard to the banks, the two main Opposition parties are deeply and fundamentally divided on how to stabilise the public finances. This is at the core of the issues facing us. We need quick decisive action to put our public finances back on track. It is unclear whether the Opposition parties would, in government, be able to agree a coherent and credible economic policy. We do not want a repeat of the 1980s with the necessary action being delayed and deferred.
The most recent set of Exchequer returns covering the period to the end of April are in line with expectations and show that the action taken by the Government in managing the public finances is working. Our focus now is to continue to engender confidence in households, in the domestic business sector and in the international investment community by adhering to our stated plan and proving we can look after our own affairs. Recent developments such as those which give rise to the Bill before us today highlight the need to adhere to that plan.
I propose to share time with Deputy Reilly.
That is agreed.
I will begin by responding to Deputy Michael Ahern's contribution. The temerity of anybody in the Fianna Fáil Party lecturing Members on this side of the House on economic policy is extraordinary. In the context of talking about a credible and coherent economic policy, if this Fianna Fáil-led Government and its predecessors had a coherent and co-ordinated economic policy that took account of economic realities in the past seven years, we would not be in the appalling and catastrophic economic mess in which we find ourselves. A Fianna Fáil critique of Fine Gael policy is the equivalent of a convicted burglar giving advice on house security.
Fine Gael supports the Bill before us today. It is important that we have cohesion and solidarity within the European Union. This State clearly has a real interest in ensuring stability within the eurozone. It is important in dealing with economic issues, both domestically and across Europe, that we have a rational, mature and reasoned debate about economic and banking issues and that we do so without political abuse and name calling. There are distinct advantages to the State in being part of a monetary union. They include facilitating our trade with continental Europe and providing within the eurozone a currency stability that is essential to trade. Being part of the eurozone makes us an attractive location as a gateway to Europe for multinationals from the United State and other countries outside the European Union. We have also had the benefit for a number of years of low interest rates, a benefit that was tragically abused in the context of the property boom and bust.
It is and always has been essential that states adhered to budgetary constraints in the context of government deficits not exceeding 3% of GDP. This was at the foundation of the formation of the euro and the entering by this State and others into the eurozone. Unfortunately, not only this State but Greece, Spain, Portugal and Italy have all failed to adhere to these guidelines. This is part of the reason we find ourselves where we are today.
The European project always involved a pooling of sovereignty. That pooling of sovereignty facilitated this State in playing a role on the international stage greater than warranted by our size and extended to us substantial economic advantage. No one in Fine Gael is denying that is the case. There has been, in recent days, much discussion of the Commission proposals for budgetary oversight which, of themselves, are not inherently objectionable in that if the type of oversight that was envisaged had taken place over the past five to six years, we, in this State, may not have found ourselves experiencing the current difficulties. I am sorry the discussion on this matter has been misrepresented. What is objectionable is that the European Commission or European Parliament might engage in a pre-budget discussion of our macro-economic policy, while the House is prevented from doing so. This is a substantial democratic deficit.
This Government and its predecessor have staunchly resisted reforming our budgetary processes so as to involve this Parliament in a pre-budget consultative process to make choices or at least contribute to the discussion as to what choices should be made in determining macroeconomic policy. I will give an example of what I am talking about. We are told that there must be reductions of €3 billion next year. The savings of €3 billion which Government Ministers have been asked to formulate in a four week period, much earlier than is usual, could derive in a variety of ways. One could have €1 billion by way of a reduction in current expenditure, a €1 billion reduction in capital expenditure and €1 billion in tax increases. One could do it differently and mix the sums. One could have a €2 billion reduction in current expenditure, no reduction in capital expenditure and a €1 billion increase in taxes or one could decide not to increase taxes. One could have a variety of different mixes, all of which would have different impacts on issues of job protection, job growth, economic recovery and competitiveness. Politics is about choices and the House should be involved in making these choices. It should have an opportunity to be consulted before an overall macroeconomic policy or budgetary package is presented at a European level. We need a cost benefit analysis of budgetary proposals and choices open to us. We need to recognise, as Deputy Bruton stated yesterday evening, that financial retrenchment alone will not get us out of the mess in which we find ourselves. There must be policies that provide for job creation and job protection. The difficulty of balancing fiscal accounts by austerity measures in the middle of a deep recession must be recognised. There is a risk that we will do greater damage in administering the medicine by focusing solely on fiscal retrenchment.
The experience of Argentina showed the risk of deepening recession by fiscal consolidation alone in circumstances in which there is no growth policy available. No one should pretend that it is simple for this State to address these problems. For example — I have already made reference to this — we have a national interest in securing the stability of the euro area. There are, however, domestic economic advantages in the reduction in the value of the euro against the dollar. It increases our competitiveness in getting into American markets.
Let us not pretend that the issues that need to be addressed are simple or that there is a monopoly of wisdom on the Government side and there are not Members on this side who can make a constructive contribution in the national interest to the budgetary choices that must be made. Last night, Deputy Bruton, the deputy leader of Fine Gael, made absolutely clear that we must have a growth strategy and retrenchment alone is not enough. We must have particular regard to this. In a European Union context, we must also have regard to the need for greater economic convergence. Public finances are not the only issue to be addressed in the context of the economic crisis confronting this State and other European Union member states.
In the budgetary decisions made, we must also bring people with us, both in this State and other European Union member states in the context of what is proposed by the Commission. We cannot have an elite group in Europe, behind closed doors, exercising oversight on a pre-budgetary basis of macroeconomic policy in circumstances in which there is no public debate in this House. To bring the public with us, achieve social solidarity, the proposals for budgetary changes, the proposals to deal with our growing and terrifying large deficit must be given the oxygen of critical analysis and debate, choices must be publicly made. By all means, involve Europe in the process and discussion but first involve the sovereign Parliament of this State.
These are important issues. I am sorry that as a consequence of the contributions made last week by Deputies Kenny and Bruton the Government sought to name call and allege in some way that Fine Gael had joined the band of eurosceptics. Fine Gael, as a party deeply committed to Europe which wants the success of the European voyage to be maintained, is also concerned to ensure that the democratic deficits in this Parliament and at European level are fully and properly addressed and we have real debate on issues of fundamental importance relating to our economy, the economy of Europe and the eurozone which directly impact not only on our current economic condition but our capacity to recover from the recession in which we find ourselves.
Let us not undermine this debate by name calling. Let us look at the structural deficits that exist in this Parliament and at European level. Let us bring about reform in Europe and this State but let us do so in a considered way. Let us not adopt the approach Fianna Fáil adopted in the past seven or eight years that got us into these difficulties when that party believed it had a monopoly of wisdom, it should never let in the light of real discussion or give value to anything said on this side of the House.
I support the Bill because it will go a long way towards preventing the problems of Greece becoming Ireland's problems. It shows that Europe is capable of acting decisively and as one when faced with a grave crisis. However, notwithstanding my support, I have many concerns about the Bill. The root cause of the problem Europe faces is debt. Greece, in particular, has borrowed so much money that its ability to repay is in doubt. The financial markets decided that the risk of Greece defaulting was so high that they must charge the Greek Government crippling rates of interest on new loans. If debt is the root cause of the problem Europe faces, is more debt the answer? One day, Greece will have to source its funding from the markets again in the same way that every other Government in the world does. When that day comes, the country will be even more in debt than it is now. How will the markets react then?
It is nonsense to argue that Ireland will not have to borrow €1.3 billion for this bailout. If we take €1.3 billion from the National Pension Reserve Fund, we will have to borrow an extra €1.3 billion to pump into the banks. To allay investors' fears about Ireland being unable to repay our debts we are borrowing more money to lend to a country that investors believe is unable to repay its debts.
It is possible to calculate the total debt in the economy. EUROSTAT provides figures for every country's national debt and total debt for households and non-profit institutions serving households. This is the best indication of the total debt in Europe's economies. The figures are shocking. Every Greek worker would have to pay €90,000 to clear the total debt in the Greek economy. If this figure appears bad, the equivalent Irish figure is petrifying. Every Irish worker would have to pay €160,000 to clear the total debt in the Irish economy. The average mortgage outside Dublin is €183,000, while the average national mortgage is €205,000, so that puts the €160,000 into perspective. This is almost twice as high as Greece. The figure is astronomical.
This clearly highlights the dangers of the Government's plans for Anglo Irish Bank. It is daft to think that we can take on Anglo Irish Bank's losses when every Irish worker is already expected to repay €160,000. Keeping that bank open will be a catastrophe for this country. We simply cannot afford the money to bail out Anglo Irish bank. We need to terminate the guarantee to the bank and force the bondholders who funded the bank to take the hit. They are responsible for gambling their own money. They made great returns when that bank was expanding. Now there is no choice but to force them to accept and face the consequences of their gambles. We cannot cover their gamble with a two-way bet.
Debt is the root cause of the problems in Ireland and Greece. Instead of treating the root cause of this problem, we are just treating its symptoms. The medicine being taken risks making our problems much worse in the long run if we do not grow our economy and get people back to work. The EU and the Government will argue that they are tackling the root cause. They argue that budget deficits are responsible for more debt and must be tackled straight away and tackled head on. However, they are missing the full picture. Ireland, Greece and Europe will never get out of this mess unless we grow our economies. Economic growth means more jobs, more taxes and smaller budget deficits. Economic growth must play the largest part of the solution.
In the 1980s, the size of the national debt added to a feeling of hopelessness. It seemed insurmountable, yet within a few years Ireland took its place as one of the richest countries in the world. We did not do this by focusing exclusively on cuts. The lion's share of the credit for this turnaround must go to the policies that grew our economy. We slashed corporation tax and devalued our currency, and the result was a Celtic tiger economy that led to full employment and one of the lowest national debts in the world. We need to remember how we dragged ourselves out of despair in the 1980s and we need to ensure that Europe learns lessons from our experience.
Focusing exclusively on cuts will add to the problem. It takes too much money out of the pockets of ordinary working men and women. They cannot spend what they do not have. If they have less money, they will buy fewer goods and services and more people will be made unemployed. This is the vicious cycle in which we are caught. We need to do something to recover our standards of living. Both the Government and the EU are missing this point. Where are our policies to grow the economy? Where are our policies to get people back to work? Nothing is being done to create jobs. Where is the Government's job package? This is the key to our recovery and to a sustainable economy.
For every 100 young men that were employed before the recession, fewer than 50 are employed now. This is a tragedy for them and for their families. They are being forced to emigrate again not by choice, but by financial necessity. Unemployment is forcing the country into more debt because the Government no longer receives their income tax and must pay the social welfare bill for those who stay. A country that tries to get out of a crisis like this by only focusing on spending cuts and tax rises is like a boxer in the ring fighting with one arm behind his back. Both Europe and Ireland need to do something to grow our economies.
Europe needs to encourage economic growth in the troubled countries of the eurozone. All options need to be on the table, and the EU should allow interest rates and the value of the euro to continue to fall. All countries need to play their part. Germany must increase its DIRT rate on savings to encourage its citizens to put more money into the European economy.
I support this Bill because it has bought us time and because Ireland should show solidarity with Europe. We had their support in the past, so we can show ours now, painful and all as it is. However, it is not a solution to our problems. The root cause of this problem is too much debt. This Bill adds further debt to both to Irish and Greek economies. This needs to be tackled urgently not through raising taxes and cutting spending, but by focusing growing our economy and growing Europe's economy.
I was very interested in the last two contributions, as they showed the rich diversity of views that exist within Fine Gael.
When the financial position of Greece deteriorated, the governments of the EU decided that determined and co-ordinated action was required. We are now seeing legislation introduced to this House to reflect part of that. The Heads of Government of the eurozone endorsed the loan facility for Greece on 7 March. The loan facility for Greece makes sense and I disagree fundamentally with Deputy Reilly's contribution, but I will get back to that later. The arrangements agreed, which are the subject matter of this Bill, are to be implemented through bilateral loans that are centrally pooled by the European Commission as part of an agreed eurozone package. They are fundamentally different from individual borrowing by different countries. The arrangement is to be co-financed by the International Monetary Fund, which is very welcome because it means that the euro is being protected.
Deputy Shatter made the point that a devalued euro might have some benefits for us on occasion, but it also has some significant costs as we know from filling our petrol tanks. Deputy Reilly really should re-appraise his analysis of the bondholders of Anglo Irish Bank. A very significant proportion of the senior bonds are held by pension funds, while some are held by credit unions. To destroy pension funds or credit unions is an extraordinary proposition and——
The Minister of State's contention is that all bondholders are credit unions——
——the idea that we could renege on bonds that were the subject of a guarantee and to which the Deputy's party agreed is fundamentally wrong.
We are talking about terminating the guarantee, not reneging on anything.
Allow the Minister of State to speak without interruption.
Ireland is a small open economy depending on trade and inward investment.
If the Minister of State did not make false accusations, I would not respond.
I listened to the Deputy put a series of statements on the record that are simply false. I did not interrupt the Deputy once and I would be grateful if he could display the same courtesy. I will make my points and he can make his points. That is how we work in this House.
The lessons from Greece are for us all. Failing to deal with the crisis in Greece in a timely way has made the situation worse. Failing to deal with the crisis in Ireland, such as not dealing with bloated public expenditure, would make the situation infinitely worse. I would agree with the Deputy if the only area for public expenditure was capital investment in programmes that create jobs, but that is not the case. In Ireland's case, economic pundits and political parties, especially the Labour Party, have been saying that we could put off dealing with our public finances, but they should look at what happened in Greece. The impact of the Greek financial crisis has had a knock-on effect on the whole eurozone. If the Greek economy had been allowed to go under, it would have had a domino effect and that would have destroyed other economies in Europe. One of the economies that would have been destroyed is the Irish economy.
We are a trading nation. We have a particular interest in seeing off the challenges to the euro, especially the speculative challenges to the euro. Safeguarding financial stability in the eurozone remains essential for Ireland.
Debate adjourned.
Sitting suspended at 1.30 p.m. and resumed at 2.30 p.m.