Banks are secondary to the needs of the people
The government shoud reconfigure its priorities and consider those stakeholders who have yet to receive any consideration - the people - Peader Tóibín told the Dáil on Wednesday.
People are calling Thursday 31 March “black Thursday”. This is the second “black Thursday” and we are building up several black Thursdays in the country in an effort to bail out the bondholders. It is interesting that it was the new Minister for Social Protection who first used this phrase with regard to the bailout by the previous Government. Now, some five months later on this new black Thursday, we have the new critics who put €24 billion into the banks. It is ironic that on the same day they paid out €3.1 billion to Anglo Irish Bank and Irish Nationwide on the back of a promissory note. It is also ironic that Fine Gael Party and Labour Party members have stated that Fianna Fáil Ministers would be remembered for what they visited upon this country. However, within 40 days of the new Administration, they too have visited exactly the same and the chances are that their legacy will be exactly the same.
The Fine Gael Party stated that it would secure a decrease on the rates of interest before sorting out this tranche of the bailout and it has failed to deliver this issue. The Taoiseach informed the Dáil that he would not pump more money into the banks until there was clarity with regard to burden sharing, only to turn around and indicate that he would defer this issue until a decision was made on the results of the stress tests.
We now have the results of the stress tests. Will the Government deliver on its elected mandate or will it follow in the footsteps of Fianna Fáil and the Green Party and tie the people further to the defunct banks? The Government should get its priorities right. The prime stakeholders which should be given consideration are the people but they have received no consideration. The stakeholders most in need of a stress test are the people but they have received no stress tests by the Government as of yet. The most important people are not Chancellor Angela Merkel or President Nicolas Sarkozy. They are secondary to the needs of the people. In any other business sphere these banks would be put into receivership or liquidated. They would not be infused with the level of money that is to be put into them. This is the fifth occasion on which the Fianna Fáil Party and the Fine Gael-Labour Party coalition have sought to stabilise the banks and, unfortunately, it may not be the last.
There was a serious air of anticipation throughout the State last Thursday. People in their homes and businesses felt there was a serious opportunity for the burden to be taken off their shoulders and equally shared with senior bondholders. However, unfortunately, Thursday turned out to be a darkly anti-climactic day. There were no senior haircuts, no announcement on Anglo, no announcement from the ECB, no announcement on new legislation to potentially, in theory, hit senior debt and no announcement on the interest rate. It is a known fact in economic life that both bankruptcy and the postponement of it can generate massive costs. When applied to the euro crisis, this means there is a point at which delaying the restructuring of the debt will cost more than restructuring the debt at present.
Some big conclusions can stem from the announcement last week. The first is that Ireland looks like a dead cert to default at some point in the next few years. By nationalising the losses accumulated by the banks as a result of the ludicrous lending, the Government saddled the people with unpayable debt. That, in turn, has hobbled the economy, making it harder for us to generate growth without which we will never be able to get out of this situation. While there is a so-called haircut for private debt, the people are being forced into further depression. The more austerity measures we use, the higher we increase taxes and the more the economy contracts and shrinks, the less likely we will be able to pay off these debts. In other words, it is vicious circle of depression that is being offered by those on the benches opposite.
A system that requires us to repay fully all bank debt at high and increasing interest rates while also reducing Government spending is illogical. The negative impact of higher interest rates and lower Government spending will have a further procyclical effect on the economy. It is clear that the Irish sovereign nation cannot continue to bear the burden of the banking sector liabilities on its own, as the scale of the payback in itself means the breaking of the economy.
The IMF-EU response has been piecemeal and underwhelming thus far. Shared responsibility is required, and that is being generous to the banks. There is currently €21.5 billion in unsecured, unguaranteed bank debt. What is the Minister of State’s Government do with this unguaranteed debt? While part of the capital is being raised through debt reduction exercises with subordinated bondholders and other private sector strategies, the direct sovereign contribution is expected to be in the region of €17 billion. Accordingly, the net liquid financial position of the State is in decline. The National Pensions Reserve Fund will be eaten into once more with a reduction of €10 billion and the €7.2 billion balance will be added to the gross public debt since the cash reserves are borrowed money. There is also significant reduction in the wealth of the State. With the serious deleveraging of these banks, it is envisaged that, in addition, there will be €13.2 billion in capital losses.
We should consider the effects of this on the real economy. It is important that Deputies on the opposite benches who were canvassing at people’s doors 40 days ago will understand that there is a real economy in this scenario. There are real costs. Some €110 billion has been put into the banks by the Fianna Fáil, Fine Gael and Labour parties. That works out roughly at €30,000 debt per man, woman and child; even if the child was born yesterday, he or she will have a debt of €30,000. Responsibility for that debt lies with the individuals who implemented that decision and they are on the benches opposite.
This is the equivalent of 90% of the value of goods in this State. What does this mean in real terms? With €24 billion, it would be possible to have a pension fund par excellence for the people of Ireland; build 75 new 50-teacher schools and run them for 75 years; build 35 children’s hospitals; employ an additional 5,000 hospital consultants and pay them for 62 years; reduce the pupil-teacher ratio in the State to 1:10 and pay for that for 20 years; buy 8,500 years of private speech and language counselling and really help autistic and children with speech problems; introduce free pre-schooling for 32 years for all 110,000 children in the country; and make education completely free.
I wish to cite a brief example in my county - some Deputies opposite will be aware of this. We have a fine hospital in Meath called Navan hospital. There has been a hospital in Meath since 1750. This hospital survived the 1798 Rising, the Famine, the Tan War, the hungry 1950s and the recession of the 1980s, but there is a serious chance it will not survive the current and previous Administrations. Services have been ripped out of the hospital in recent years, significantly reducing its ability to care for its patients, but I have a solution that will solve the hospital’s problems. We need to change the name of the hospital from Our Lady’s Hospital, Navan, to “Our Lady’s Bank”. If we change its name to “Our Lady’s Bank” perhaps the Government would decide to put money into the hospital and look after the needs of the individuals there.
This speech was delivered to the Dáil on Wednesday, 6 April.