I thank the Minister for introducing the Bill. Fianna Fáil will support the legislation, not out of any great sense of conviction that the second Greek bailout deal will necessarily work either for Greece or Europe, but because we do not believe it is for the Irish Parliament to seek to block a deal for Greece which the Greek Parliament has backed and on which the euro group has signed off, especially since that Ireland is not a financial contributor to the package involved in this facility.
The fundamental question is whether this particular deal for Greece will work either for Greece, as a member of the eurozone, or the eurozone itself. I am not convinced it will work and only time will tell. I suspect it is only a matter of time before there are further crisis meetings at euro group level to deal with issues concerning the sovereign debt crisis and with Greece. Some critical questions remain as to whether Greece has the capacity to deliver on its obligations under the second Greek bailout, in particular the tax increases, spending cuts, privatisation targets, structural reforms to the economy, public sector redundancies, wage and pension cuts. It must be acknowledged by all that its record to date, to say the least, has not been great. It is hoped Greece will be in a position to deliver on its commitments this time. I suspect it will. We all have a vested interest in the return of stability to the eurozone and in the Greek situation being dealt with in a comprehensive fashion.
The second key issue is whether this bail out, if implemented, will be enough. I wonder if the euro group believes Greece will return to borrowing on the international bond markets at the end of the second bail out. In my view, it will not be in a position to do so. I hope I am wrong. However, only time will tell. The introduction of this legislation in the House this evening comes against the backdrop of pretty grim economic data released by EUROSTAT which demonstrates that in quarter four of 2011 the eurozone economy contracted by 0.3% and Commissioner Rehn's confirmation today that the eurozone is back in recession.
The proposal before us, which has been signed off on by euro group members and by the Greek Parliament, represents the collective wisdom of those in power in Europe that this deal is sufficient. While it buys time for Greece and the eurozone, I suspect it will be only a matter of time before many of the issues contained in this deal will need to be revisited.
The legislation we are debating today represents the latest instalment in the attempts to stabilise the crisis in Greece, which has been ongoing since 2009, and proposes to give the country breathing space to allow it recover. While Greece, Ireland and Portugal are all in EU-IMF programmes, the origin of the crises in Greece and Ireland are very different. In Ireland, a banking crisis precipitated a crisis in the public finances which was compounded by the collapse in the construction industry whereas in the case of the Greek, public spending was deliberately understated for years. While Ireland stepped out of the original Greek loan facility when it became part of an EU-IMF programme in December 2010, the success of the Greek programme remains of critical importance to Ireland as it is essential to the overall stabilisation of the eurozone. This is especially so given our reliance on an export-led recovery.
By the end of 2009, as a result of a combination of global and domestic factors, namely, the world financial crisis and out of control government spending, the Greek economy faced its most severe crisis since the restoration of democracy in 1974. As a European Union, we need to accept that attempts since then to get ahead of this crisis and put in place a range of measures that would allow Greece to get back on its feet, have been a complete and utter failure. In truth, Greece has often acted in a manner which undermines international confidence in the country and the wider eurozone. In early 2010, it was revealed that successive Greek Governments had been misrepresenting the true state of the economy in order to keep it within EMU guidelines. This allowed Greece to borrow money it simply did not have the capacity to repay.
To avert a default in May 2010, other eurozone countries and the IMF agreed to a €110 billion rescue package, which included €80 billion in loans from euro area member states and €30 billion from the IMF. Ireland participated in this facility. While Greece was required to adopt harsh austerity measures to bring its deficit under control, this has understandably not met with the unquestioning acceptance of the Greek people. Who can blame them? The question that needs to be asked is, was it the austerity package which led ultimately to the need for a second bailout or was it an abject failure of Greece to live up to its obligations under the terms of the agreements that caused whatever investor confidence existed in the country to evaporate completely?
Alongside this additional loan facility there is a write-down of debt by private sector investors. It became increasingly obvious in recent months that this would inevitably have to be done, despite denials by European leaders for many months prior to that. The depth of the crisis into which Greece had plunged meant there was no feasible combination of fiscal measures, namely, tax increases and expenditure cuts, which would have achieved a situation whereby Greece could fully discharge its debts. Even during the best years for the European economy Greece ran deficits. Its crisis is largely a public expenditure one, which has led to an enormous national debt. Incredibly, none of the Greek banks has to date been nationalised. The Irish crisis was largely caused by a property bubble which created massive problems in the banking system and public finances.
The inflexibility of the European Central Bank's approach to the banking crisis here meant that the burden of rescuing the banking sector fell predominantly on taxpayers in this country, leading to a huge increase in the outstanding Government debt. It should be recognised that our capacity to deal with our difficulties is considerably greater than that of Greece. We remain one of the wealthiest countries in the EU. Our 2011 GDP per capita is forecast to be $39,000 - $3,000 above the eurozone average of $36,000 - while Greece's is forecast to be $28,000. Of even greater importance is the manner in which our respective economies function. We are a market orientated economy and we have a generally vibrant traded sector. While the troika has highlighted that areas such as the legal and medical professions undoubtedly need to be opened up, we have a far more dynamic economic base as we continue our process of recovery.
While the banking sector will never be allowed to return to its previous practices and it would not be desirable for the economy to ever again be so dependent on construction, we are not in need of wholesale economic reforms - certainly not of the scale facing Greece. We need to continue to do what we do well, namely, attract foreign direct investment. In terms of assisting indigenous exporters, we need to build on the gains to date and to give them every possible support. Greece is different in that it has a general government debt level of approximately €350 billion. As a country, it is plagued by a combination of weak exports, poor tax collection and stifling bureaucracy. The study of the Greek debt situation by the European Commission showed that its debt level was set to spiral to 200% of GDP. I understand that the write-down in Greek debt, which accompanies this new loan facility, will bring its debt to GDP down to around 115% before rising again to 120% by 2020. In contrast, without a write down, Ireland's general government debt will, according to the Government's medium term fiscal statement, be 106% of GDP at the end of 2011. Under the base case scenario set out in the statement, our debt to GDP will peak at 118% in 2013.
In August 2009, the OECD estimated the size of the Greek black market to be around €65 billion, which is equal to 25% of its GDP. This leaves a huge deficit in Greece's annual tax revenue. Estimates put this at up to €20 billion per annum. No other European country is facing such a structural deficiency in its ability to levy and collect taxes. By contrast, the Irish Revenue Commissioners estimate that the Irish black economy is approximately 13% of GDP. While this is in itself a cause for deep concern it highlights that the Greek situation has been made considerably worse by its failure to put in place an effective tax collection mechanism. I suggest it would be a worthwhile exercise for the European Commission to engage in a community-wide assessment of how the black economy throughout Europe can be tackled. In an increasingly globalised world, there is an obvious need to maximise the sharing of information and to apply best practice across borders. In addition, reforms of the Greek economy which have long been talked about need to be put in place immediately. While I spoke against the German suggestion that Brussels appoint a proconsul to Athens to run Greece's affairs as this would be profoundly undemocratic in nature, I believe there is a need for very close monitoring of the implementation of the commitments Greece has given. Clearly, implementation will be fundamental in this case. Greece is set to benefit from a once-off debt reduction, but it will be months or, possibly, years before we will be able to discern its full effects on the Greek economy. While a second bailout and a write-down have become inevitable because of the state to which Greece has fallen, it is not a strategy without considerable risks. It is not one that Ireland should follow; assuming sensible policies are pursued that can stimulate economic growth, Ireland can emerge from the crisis and pay its sovereign debts in full.
It is important to draw a distinction between sovereign debt issued by the Exchequer and bank debt. Ireland should continue to seek to reduce the net cost of its bank recapitalisation. The comments made by the IMF on Friday on the Government's efforts to renegotiate the promissory note structure with our European partners are highly significant. They offer the Government a clear window of opportunity that must be seized to secure a reduction of the overall burden in recapitalising the banking sector. In the public manner in which it was expressed, this support had not been offered previously, although all Members will have understood the IMF to have been supportive of Ireland, both in respect of burden sharing and the redesign of the promissory note structure. However, unless this opportunity is taken now, particularly given the repayment of €3.1 billion due on 31 March, it may not present itself again. I genuinely wish the Government well in its efforts to negotiate a redesign of the promissory note structure that will deliver a genuine reduction in the bank debt Ireland must pay.
The position within the Greek banks is worth noting. According to its Ministry of Finance this week, bank deposits in Greece have fallen by approximately €70 billion since the start of the crisis in 2009 and this trend is accelerating. Approximately €16 billion of the funds withdrawn were transferred abroad, mostly to the United Kingdom. However, the rest either has been spent or is being hoarded in cash by households preparing for the worst case scenario of a Greek exit from the euro. What is extraordinary at this stage is that no losses have been imposed on the senior bondholders in Greek banks, despite burden sharing of 70% by private sector investors in Greek public debt. This highlights the absurdity of the strategy imposed by the ECB, although this lack of burden sharing may well change, given the write-down of the sovereign bonds held. Three years into the crisis the European Union still does not have a common agreed framework for winding down insolvent banks and avoiding all costs falling on the taxpayer.
In addition to the loan package being put in place under the terms of the euro area loan facility, there is an urgent need for investment in the Greek economy which is underdeveloped in comparison with other European countries. Originally the Greek Government aimed to raise approximately €50 billion by 2020 from privatisations by selling land, utilities, ports, airports and mining rights, but recently this target has been revised downwards substantially because of the worsening economic position. While some of these proceeds inevitably must be used to pay down debt, there is a strong case for allowing Greece to use some of the funds to refocus its economy in a way that ultimately would allow it to grow its way out of its problems.
Apart from tourism, Greece has few sources of foreign earnings. There is a minimal indigenous export sector and it has a poor record in attracting foreign direct investment. This may be a legacy from its relatively recent return to democracy, although in more recent times the reputational damage it has inflicted on itself certainly must have deterred overseas investors who were considering investing in the Greek economy. I suggest the European Investment Bank, EIB, should have a much expanded role to play in this regard. The EIB was established as a policy-driven bank to support the European Union's priority objectives, especially European integration and the development of economically weak regions. For the fiscal year 2009 it approved approximately €104 billion in various loan products, of which €93.6 billion was within EU and EFTA member states, with the remainder dispersed between so-called "partner countries". Solidarity between member states is a key founding principle within the European Union. If Greece is serious about meeting its commitments, as I believe it is, as a community we must put our money where our mouth is and not simply lend Greece the money it needs to keep ticking over and pay its remaining debts. We must work to ensure it has a sustainable economic platform on which to build its recovery and the wider eurozone recovery.
Although the European Investment Bank should be at the forefront of bolstering the Greek economy, the European Bank for Reconstruction and Development, EBRD, established during Ireland's Presidency of the European Union in 1990, also could have a role to play. While its mission was to support the formerly communist countries in the process of establishing their private sectors, the scale of the Greek crisis and the underdeveloped nature of its economy mean that Greece needs all the sources of help it possibly can find. The EBRD has been particularly successful in supporting the building of self-sustaining market economies.
I wish the the Government and all of the Minister's colleagues at Eurogroup and ECOFIN level well as they seek to build an economic recovery across Europe. The statistics released by EUROSTAT today were deeply disappointing and confirm the scale of the challenge that lies ahead both for the European Union and Ireland as a country heavily reliant on its exports. Given the stagnant market into which many Irish exports are being sent, this creates difficulties for Ireland and makes it all the more important to develop new markets in the emerging economies. I note that during the debate on the Finance Bill Members discussed some measures that were designed to stimulate support for the indigenous sector, in particular, as it sought to develop markets in new and emerging economies.
I look forward to the remainder of the debate on the Bill. Fianna Fáil will support it, even though, as I stated, we are not convinced this is a permanent resolution of the issues concerned. However, given that it has been given the support of our European partners and domestic backing by Greek politicians, one must give it a go and hope it will have the desired effect.