Thursday, 15 December 2011
Dáil Éireann Debate
The Bretton Woods Agreements (Amendment) Bill 2011, which was enacted earlier this year, provided for acceptance by the State of amendments to the IMF articles of agreement which were approved by the IMF board of governors in 2008. The current Bill is a continuation of this process, which relates to the ongoing reform of IMF governance. The Bill is needed to allow the State to accept a further amendment to the IMF articles of agreement which was approved by the board of governors in December 2010. The acceptance of the amendment by Ireland will contribute to the process of bringing it into force.
The amendment, which is known as the amendment on the reform of the executive board, was approved by the IMF board of governors as part of the 2010 governance reforms agreed by the IMF. These reforms are aimed at improving the fund’s legitimacy, credibility and effectiveness in the modern world. It is worth recalling that under the 2008 reforms, it was agreed to realign voting power in the IMF to reflect changes in the global economy and increase the voting power and participation of low-income countries.
Under the 2010 reforms, it was agreed to enhance the representation of developing countries and to modernise the arrangements for establishing the executive board of the IMF. The substance of the amendment is that, in future, the executive board of the IMF will be an all-elected body. At present, the articles provide that the five largest members are entitled to appoint directors to the board, and this provision is considered by many to be an anachronism in the modern world. The amendment will remove the category of appointed directors and thus facilitate restructuring of the board on a more representative basis.
As was the case with the 2008 reforms, the 2010 reforms adjust the IMF quota shares of members to better reflect their relative weights and roles in the global economy and to strengthen the position of emerging markets and developing countries. The quota of a country is a measure of its voting power and representation at the IMF, and is broadly based on its relative size in the world economy. It determines the member’s maximum financial commitment to the IMF and also has a bearing on its access to IMF financing and the terms of such financing, including the interest rate. However, current quotas have not kept up with changing economic realities, especially the increased economic weight of major emerging countries in the world economy. While the quota adjustments will benefit emerging market economies in the main, a number of advanced countries that have been significantly under-represented in the past, including Ireland, will also receive a quota increase. An increase in quota has the effect of lowering the borrowing cost of assistance from the fund. The increase in Ireland’s quota share, when it becomes effective, will result in a significant reduction in the interest rate payable on moneys borrowed by Ireland from the fund. Taking into account the 2008 quota change, which became effective in March 2011, and this quota change, it is currently estimated that on a weighted-average basis, a saving of about 100 basis points on the interest rate could be achieved. It should be noted, however, that these expected savings may change either upwards or downwards in light of future quota revisions.
The amendment on reform of the executive board is, by resolution of the IMF board of governors, required to have entered into force before the quota increases can become effective. This requires acceptance of the amendment by a voting threshold of three fifths of members, with 85% of total voting power. While it is not possible to be definitive about the timeline for the implementation of the 2010 quota changes, by resolution of the board, each member has committed to use its best efforts to complete the necessary steps for acceptance before the annual meetings in October 2012.
The Bill is essentially a technical Bill which provides for acceptance of the amendment, which is the seventh amendment to the IMF articles of agreement. The articles currently establish two categories of executive director: those who are appointed, and those who are elected. The amendment eliminates the category of appointed executive directors and requires that all executive directors be elected.
Section 1 of the Bill sets out the definitions of terms used in the Bill. Section 2 provides for approval of acceptance of the amendment of the IMF articles by the Government. Section 3 contains the provisions relating to the short title, construction and collective citation.
The amendment on the reform of the executive board is set out in the Schedule to the Bill and has 15 sections. The first section provides that the executive board shall consist of 20 executive directors, elected by the members, with the managing director as chairman. This replaces the provision whereby five of the executive directors are appointed by the five largest members and provides for an all-elected board. The second section provides that, for the purpose of each regular election of executive directors, the board of governors, by an 85% majority of the total voting power, may increase or decrease the number of executive directors. The effect of this provision is that the existing possibility of adjusting the size of the board will continue to apply to the restructured board. The third section provides that elections to the all-elected executive board will continue to be at intervals of two years and in accordance with regulations adopted by the board. The remaining sections, 4 to 15, delete or amend existing provisions that refer to the category of appointed executive directors and include transitional provisions to govern the period between the entry into force of the amendment and the first election following such entry into force. These sections do not provide for any changes to the existing provisions beyond those resulting from the elimination of the category of appointed executive directors.
As I said at the outset, the Bretton Woods Agreements (Amendment) (No. 2) Bill is a technical Bill designed to give effect to IMF reforms which were approved in 2010 by the IMF’s board of governors, including the then Irish Minister for Finance. These changes relate to the governance framework of the IMF and are part of the ongoing process of modernising the fund aimed at enhancing its legitimacy in today’s world. Ireland’s acceptance of this amendment will contribute to the ratification process to enable the amendment to come into effect, the target date being the next IMF annual meeting in October 2012. The implementation of the amendment when it becomes effective will trigger the related quota increases and lead to a significant reduction of the interest rate on our IMF borrowings as the interest rate is related to a member’s quota. It is thus in Ireland’s interest and in the interest of the IMF membership generally that this Bill be enacted.
Deputy Michael McGrath: I thank the Minister for introducing this Bill, which we will be supporting. As the Minister confirmed, it is a technical Bill that ratifies changes to the articles of agreement of the IMF, particularly relating to the appointment of the executive board. The Bill is Ireland’s part of the ratification process which will bring into effect the changes approved by the executive board of the IMF on 15 December 2010. It builds on a series of earlier reforms which date back to 2008. This is the second legislative measure in 2011 which, in effect, gives the Irish seal of approval to those reforms.
The key issue for us is what the implications are, if any, for Ireland. The Minister has outlined that the proposals we will hopefully approve today, taken in conjunction with the reforms enacted earlier this year, will yield a reduction on a weighted average basis of approximately 100 basis points to the interest rate Ireland is being charged by the IMF in respect of the funds being drawn down under the programme of assistance. There has already been a significant reduction so I suspect that most of the 100 basis points reduction is already factored in and has already taken place.
According to the National Treasury Management Agency’s, NTMA, technical note, when the programme was negotiated in December 2010 the NTMA estimated at that time that the interest rate being charged by the IMF was 5.7% per annum. However, in a reply to a recent parliamentary question, the Minister confirmed that the estimated euro equivalent rate on credit outstanding is 4.79%.
Deputy Michael McGrath: The present rate is about 4.8% so it will reduce to approximately 3.8%, which is a very welcome improvement in the interest rate being charged by the IMF. I am sure that saving has been factored into the numbers for 2012 and 2013. This will come into effect in October 2012 so the impact in that year will only be marginal as it will only apply to a quarter of the year. Nonetheless, it will be a significant improvement. As the Minister indicated, it does not form part of the €875 million saving predicted for 2012 which is substantially based on the European facility.
Deputy Michael McGrath: That is modest but it is welcome. It will be of greater benefit in 2013 when it will take full effect and brings the IMF interest rate down to a far more reasonable level. In that respect, the changes being made are welcome. Increasing Ireland’s quota will have the effect of reducing the interest rate being charged.
It would be remiss of us not to acknowledge the important role the IMF has played as a key partner for Ireland as the country goes through significant economic difficulties. When one considers the negotiation of the programme of assistance last November and the changes the Government has secured since then, it is clear the IMF has been an important ally of Ireland in seeking to bring about those changes. When the previous Government sought to have burden sharing with senior bondholders included in the deal last November it is known that the IMF was supportive of the Government’s position, but it was vetoed by the European Central Bank. When the current Government sought to achieve the same objective, the support of the IMF was again forthcoming. However, the result was not achieved, again because of the intransigence of the European Central Bank.
The IMF is making €22.5 billion available to Ireland, which is one third of the external funding being provided to Ireland under the EU-IMF programme of assistance. As the Taoiseach correctly pointed out in his letter to President Van Rompuy prior to last week’s important European Council summit meeting, the Irish people and the State have paid a very high price for recapitalising our banks. At a cost of €63 billion, it was done at a time when there was no European fund available for Ireland or, indeed, any other eurozone country for recapitalising their banks. Since the decision of the European Council summit last July, the European Financial Stability Facility, EFSF, can now potentially be used as a source of funding to recapitalise European banks. We support the efforts of the Government in seeking to have the recapitalisation costs incurred by Ireland, particularly the promissory notes structure, renegotiated in that context, given that there is now a fund for the recapitalisation of banks at far more reasonable interest rates. The banks in Ireland were recapitalised in the absence of that fund and against the backdrop of the insistence by the European Central Bank that no bank in the eurozone should be allowed to fail and that no burden sharing could be imposed on senior bondholders. The debate must be seen in that context.
Clearly the measures in the reform package that commenced in 2008, which were partially enacted by the House earlier this year and we are completing that process today, result in an increase in Ireland’s influence with the IMF. That is most welcome. The IMF has been an important partner for Ireland as we seek to implement successfully the programme of assistance negotiated with the EU and the IMF. The Bill is quite short. A small number of sections deal with technical issues. There is a reduction in the number of executive directors from 24 to 20, with a provision that all of them will now be elected. This replaces the situation whereby hitherto the five largest members got to appoint their own executive director. That is now discontinued. There is also a provision whereby, with an 85% majority of the total voting power, the governors may increase or decrease the number of executive directors. The elections to the board will be conducted at two yearly intervals.
These build on the earlier reforms which have been approved. It is appropriate that Ireland play its part in completing the ratification process efficiently and, hopefully, with the full support of all sides of the House. It should be acknowledged that the IMF has approved Ireland’s drawdown of a further €3.9 billion under the programme of assistance. This will bring the total for 2011 to approximately €13 billion of the total amount of approximately €22.5 billion being made available.
There have been developments, even in the past 24 hours, such as the fact that the Italian ten-year bond spreads have again breached the 7% mark. The ratings agencies are expected to make announcements over the next number of days which may well have an impact on the credit ratings of many European countries. Ernst & Young issued a report today predicting growth in the eurozone economy next year to be 0.1%. Clearly, the country and Government continues to face enormous challenges in achieving the fiscal targets for 2012.
The budget has been announced and will be put into effect. The targets are based on a growth level of 1.3% which may be over optimistic but only time will tell. We hope the targets can be achieved and, more importantly, that a level of confidence can come back into the economy which will filter down to consumers and businesses which are trying to bring the country out of very severe economic difficulties.
The reaction of the markets to last week’s summit has been underwhelming. The view of our party is well known on that issue. While the fiscal compact was agreed last week, the details of which have yet to be worked out, the issue has to be addressed. It will not address in any way the short-term funding difficulties of the eurozone economies such as Italy and Spain which will have significant refinancing challenges over the next number of weeks. Given the interest rates the markets are currently imposing on those countries, the funding cliff which is clearly evident will pose enormous difficulties for them and the entire eurozone.
I suspect we may well have another round of crisis summit meetings, building on the outcome of last week’s summit. It is to be hoped they will agree more short-term measures that can inject some confidence into the market and result in the role of the European Central Bank being clarified and improved in order that it can act as a normal central bank, become a lender of last resort and give the market some confidence that Europe can work its way out of these difficulties.
We are in support of the Bill. It is an important step forward in the reform of the IMF. It brings benefits for Ireland in terms of the increase in the Irish quota in the IMF which will directly result in a further reduction in the interest rate being charged on the loans made available to us. It is to be hoped if all of the other countries can ratify these measures the interest rate reduction will come into effect in October 2012 and will result in significant savings, particularly in 2013 and for the remainder of the programme.
Deputy Pádraig Mac Lochlainn: The brief proposal before us today is straightforward and Sinn Féin will not oppose it. However, when the Dáil last discussed the most recent round of IMF reforms in January of this year, Sinn Féin raised serious concerns about the continued domination of the IMF by the overdeveloped world. Wealthy countries represent 15% of the membership of the IMF. Even after the recent reforms we still control 60% of the voting rights.  If Germany or France proposed such a voting arrangement in the European Union, no party in this House would support it.
The IMF is in urgent need of real reform and central to it is giving the developing world an equal say in how it is run. There is an argument that those countries most affected by IMF policies should have a greater say in how it operates. There is also a need for the IMF to abandon the use of policy conditionality attached to its loans. Clearly there is a need for a lender of last resort on the international stage and the IMF is an appropriate body to fulfil this function.
However, it should lend money solely on the basis that it has a reasonable expectation of the money being repaid. It should not be in the business of imposing any particular economic philosophy or democratically-elected governments in return for loans. The impact of so-called structural adjustment programmes in Africa and Latin America in the 1980s and 1990s has been devastating. Country after country has seen poverty rates increase, expenditure on education and social services fall and democracy undermined. Meanwhile, international corporations and local elites profit off the back of widespread misery and social dislocation.
Mali is a case in point. It is one of the poorest countries in the world in that 90% of its population lives on less than $2 a day. The consequences of the IMF’s most recent involvement in it are stark. Utility prices rose dramatically following privatisation, cotton prices dropped heavily following trade liberalisation and development aid from the World Bank to the value of $72 million was blocked. All of this made the poor majority of the country even poorer. It is hardly a record to be proud of.
There is also a need for the IMF to seriously consider the amount of money it pays its senior management and staff. Dominique Strauss-Kahn received a salary $441,980 in 2010, more than the Presidents of France or the US receive. As if this were not enough, the former IMF chief also received an annual expense allowance of $79,120. To cap it off, his IMF income was tax-free. It is nice arrangement.
Considering the level of financial hardship imposed on ordinary people living in those countries who borrow from the IMF, these kind of excessive salaries, allowances and tax breaks are not only wrong, but undermine public confidence in the fund. As we know from our experience of IMF involvement in Irish affairs, the cost of borrowing money is crippling austerity and repeated bailouts for the banks. I take this opportunity to remind the House of the impact of the IMF austerity programme on ordinary citizens in this State.
It was not long ago that the parties now in government joined Sinn Féin in opposition to the actions of Fianna Fáil. There was a time when we were all in this together, standing up for the rights and welfare of ordinary citizens. The Fine Gael and Labour parties opposed the IMF-EU deal. Both parties campaigned aggressively during the general election campaign for a renegotiation of the agreement. They promised if elected to break with the failed policies of austerity and bank bailouts that were preceded by the previous Government. Yet, less than 12 months since the Fine Gael Party and the Labour Party took office the very same politicians who once opposed the actions of the IMF and Ireland have become its biggest cheerleaders.
If anyone is in any doubt, he or she should look at the issues that have dominated the Dáil this week. A Labour Party Minister for Social Protection cut 15 separate social welfare payments and funding for community employment schemes. A Labour Party Minister for Education and Skills cut funds for disadvantaged schools. A Fine Gael Minister for the Environment, Community and Local Government imposed a flat rate household charge and a punitive septic tank charge. A Fine Gael Minister for Finance increased VAT by 2% and a Labour Party Minister for Public Expenditure and Reform slashed 6,000 public sector jobs in a single year.
These are the policies once pursued by the previous Government but now enthusiastically promoted by Fine Gael and the Labour Party, all under the watchful eye of the troika. Behind the political rhetoric are the real human stories of hardship and misery. The hodgepodge arrangement the delegates at the summit came up with is no solution to the crisis in Europe and the Minister knows that.
No solution that condemns people in Ireland and other countries in Europe to a lost decade of austerity and limited economic growth will work. Even the proposition to involve the IMF in this arrangement is already facing criticism in Estonia and the Czech Republic from the German Central Bank, Canada and Japan. They are not comfortable with the so-called solution that has been cobbled together.
Above all, it is inaccurate. At a time when people are weary and in despair and businesses are seeking a ray of hope, they do not need that type of irresponsible rhetoric from the Minister in charge of the most important portfolio in Government excepting that of the Taoiseach. I urge the Minister to reflect on that.
Where is the solution for the banking crisis, debt crisis and investment crisis — the three profound elements to this crisis? In regard to the first element, we know that many of the banks in the core European states are in serious trouble. Yet there has been no comprehensive stress testing of those banks, without which we cannot know the extent of their capitalisation requirements. On the second issue, we have no sense of how we can deal with the sovereign debt crisis faced by this country, Greece and others in a fair way that allows growth to take place. Worst of all, perhaps, we have no grounds for hope in respect of the third element of the crisis, because there is no strategy in regard to investment. We are not deploying the immense capacity of the European Investment Bank, together with the member states, to put in place a programme of regeneration.
This proposed technical reform of the IMF and the various botched solutions on offer are being presented to the Irish people in the context of our future in Europe and with a warning that failure to fall into line will lead to Armageddon. It reminds one of the announcement of a movie sequel, “If you thought the last one was bad, wait until you see the next one”. That approach is simply irresponsible. I hope the Minister will focus henceforth on defending the interests of the Irish people, not by writing letters to Herman Van Rompuy but by raising these issues directly with our European colleagues in an effort to find a solution to this country’s difficulty and the difficulties of people throughout Europe. Our focus must be on a collective resolution to the economic crisis that is devastating the people of Ireland and of Europe, and it must be done in a sensible and measured fashion.
Deputy Richard Boyd Barrett: My contribution may be somewhat disjointed because I have been running around dealing with the consequences of IMF-inspired austerity in the form of the household charge. The bottom line — the point I wish to emphasise above all else — is that we must resist the IMF. This legislation must not be supported because it is a cosmetic attempt to make the IMF look like a benign entity rather than the vulture it really is, a vulture acting on behalf of the very corporate elites and financial speculators which wrecked the European economy and the Irish economy. The IMF represents the forces which did the same to other parts of the world in the past. Now it has moved on to the peripheral countries of Europe and will no doubt move on to the rest of the Continent in due course.
It does not at all surprise me that our Government should support the IMF and consent to do deals with it, which is essentially what the Minister’s argument seems to be. If we do a little deal by supporting these so-called reforms, we will in return be thrown a few crumbs from the table in the form of small interest rate reductions. I argue strongly that we should not be doing deals with the IMF. It is not helping us and we should not be begging for crumbs from its table. The devastation to our economy is a consequence of the constraints imposed on us by the IMF and the ECB, at the behest of the private financial system, that is, the bankers and bondholders. These entities are determined to protect the people who caused the economic crisis and to unload the cost of it onto our backs. They are forcing the so-called bailout programme down our throats in order to gain control of our economy and hereafter dictate the economic policy of this State.
The pattern of IMF intervention over the years has been appalling in the extreme. It is not an exaggeration to say it has wreaked devastation across the world in every location in which it has intervened. It is not unlike a drug pusher in this regard. Its approach is to offer loans to countries in crisis at exorbitant interest rates while imposing austerity to such a severe degree that the society is devastated and its people endure severe suffering. Ultimately, these countries are placed in a position where they cannot ever repay their loans and are therefore forced perpetually to seek new loans. It is a downward debt spiral where the only winners are the IMF and the financial interests it champions and represents, namely, the banks and bondholders.
The IMF did this in Africa in the 1980s, causing utter devastation to dozens of African countries. There is always a pattern to its policies, the same policies that are now being unleashed in this country. The intent is to protect the banks at all costs by ensuring they are repaid, privatising as many state assets as possible, ratcheting down public expenditure, lowering taxes on big business and on wealth, and introducing user charges for public services. The latter inevitably leads to a devastation of those services and excludes huge sections of the population from accessing them. This process of introducing user charges opens the way to the privatisation of public services, public enterprises and public assets, which is the real prize. The IMF sets out to grab resources, create labour market pools and feed assets back to the vultures in the western corporate and financial sector. After devastating Africa, the IMF repeated that achievement in Asia following the crisis there at the end of the 1990s. It then intervened in Brazil and elsewhere, imposing the same conditionalities in return for so-called bailouts and thus imposing the same extraordinary damage on those economies.
People need to understand that the proposed changes are utterly cosmetic and that the large economic powers will remain absolutely in control of the IMF. Oxfam has roundly condemned the proposals for so-called reform as absolutely inadequate and as leaving the poorest countries in the world, including those in sub-Saharan Africa — all of the countries which have been victims of the IMF — with virtually no representation of any significance within the organisation and no opportunity to influence its policies. All that is being done is to increase very slightly the voting strength of the so-called BRIC countries. It is indicative of the notion of democracy in institutions such as the IMF and also indicative of a capitalist notion of democracy generally. Democracy to most of us means everyone having an equal vote and an equal say. This is not how it works in the IMF. It works like the democracy of a private corporation whereby those with the most shares have the most say. It is not that every voter has an equal weight but rather those with the most money have the most voting power. This shift in the structure of the board simply recognises that Brazil, China, Russia, India and South Africa, are now major players in the global economy and emerging global powers. Their economic strength has to be reflected by them being brought into the club of dominant powers within the IMF, in order to then dictate and ram down the throats of everybody else in the world the economic policies which suit their interests and which subscribe to a particular ideological doctrine which I have described, one of privatisation, the slashing of public services, smashing up protections for workers and for the environment. This is the agenda. Even that cosmetic change, which is certainly not a move towards any notion of real democracy or international co-operation or solidarity, has been forced on them. The reason it has been forced on them was that in the aftermath of the Asian crisis, Asian countries and places like Brazil, which had been devastated by IMF policies, started to pull out of the IMF. They refused to give it money, to the point that the IMF had to start selling gold in order to replenish its funds and, interestingly, move into the bond market. This is where it gets really interesting. In 2008, Dominique Strauss-Kahn talked about the IMF diversifying into investment into corporate bonds and state bonds. We do not know who are the bondholders but one has to wonder if the IMF moved into bonds in 2008, whether the IMF bondholders are in the Irish banks, in Anglo, and whether they are the ones we are repaying. The judgment of people who know a lot about the IMF is not one that gives much reason for optimism.
For example, in October, the Brazilian President Dilma Rousseff, said that Brazil would put more money into the fund in exchange for more voting rights but then she went on to criticise IMF conditionality. She said: “We will never accept, as participants of the IMF, that certain conditions that were imposed on us be imposed on other countries.” He pointed to and understood the way the IMF works——
Joseph Stiglitz, the Nobel prize-winning economist who worked closely with the IMF for ten years until he became a whistleblower on the reality of the IMF, was damning in his description of the IMF. He said:
This is the view of an insider who knows and whose economic credentials are unquestioned. This is who we are huddling up to and for whom we are doing favours. This is the body we are helping to re-legitimise in order to get a few crumbs off its table. I warn the Minister however cute he may imagine he is being, in the nod and a wink politics of doing it a little favour and it will do us a favour in return, the IMF is playing him. It is playing him like it has played every other country in which it has ever intervened. As Joseph Stiglitz said, all it is interested in is giving the money back to the banks and the financial institutions and the speculators and it does not care about poverty, economic recovery or anything else. The IMF has admitted to these motives.
The issue of jobs is one of the most important issues facing this country. I ask what is the IMF attitude towards job creation. I refer to the IMF website where it is stated that the IMF admits that its support to countries is not structured with the centrality of jobs in mind. That is for sure. In fact, what the IMF demands of countries is the massacre of jobs in the public sector. The IMF programme has a policy to keep slashing jobs.
On the question of who benefits, I will draw the attention of the Minister to recent replies to parliamentary questions. They provide some indication of who benefits from the massacre of jobs in the public sector. I have not received all the replies from Departments as most of them are stonewalling me about supplying detailed answers. The replies provide all the narrative of attacking the public sector which is being reinforced by the IMF. It is the policy to make savings by axing public sector jobs. An audit of this practice is required across the board. One small State agency under the Minister’s auspices, the National Sports Council, has eight agency staff employed through employment agencies, Orange, Hays and Calix. Six of those staff cost €264,000 a year. If those were directly employed, those staff would cost €203,000, a difference of €51,000. This is the cost of outsourcing to a private agency, Orange. This difference of €51,000 is profit for those employment agencies paid for from public moneys. Another worker could be employed for that amount or a saving could be made. The Hays agency earned €76,000 for the provision of one staff member and if that individual were to be employed directly it would cost the State €51,000. Calix provides one employee at a cost of €83,000 and if employed directly this employee would cost the State €51,000. If this is repeated across the public sector, local authorities and State agencies, it amounts to a loss to the Exchequer, apart from anything else, of millions and millions of euro. It could be tens of millions of euro or possibly hundreds of millions of euro.
My own local authority, Dún Laoghaire-Rathdown, has a budget of €220 million and €140 million was spent on outsourcing to private contractors. I could not get any answers as to how much was being paid to private contractors and whether it was value for money. The private contractors, the consultants, benefit. This is what the IMF forces on us. We are told to do away with decent and secure jobs, well-paid jobs and jobs that are good value for money for the public and to replace them with agency staff who have fewer rights but the private operator makes a nice fat profit.
The other thing about the IMF that should worry us is just how bad it is at predicting the impact of its own economic and structural adjustments — the so-called programmes. It admits on its website that it fails to predict growth in economies, confirming that its “GDP growth forecasts showed a tendency to systematically exceed outcomes.”“This phenomenon”, it noted, “was particularly prevalent in countries with an IMF-supported program.” It is important to note this failure when considering our prospects as we reel under the impact of IMF austerity, cutbacks, privatisations and the sale of State assets. If there is any justification for these measures, it must be that somehow — magically — they will produce economic growth. The IMF admits, however, that it has been proven wrong in all countries where it has imposed its programmes telling them they may feel a little pain for a while but will eventually recover. Its programmes have not produced growth and employment but the opposite, namely, stagnation and recession. The banks and corporations which were moving in on the state assets and natural resources of the countries in question got their money, however. That is the real agenda of the IMF.
While the Minister may not be remotely interested in my next point, it may be of some interest to members of the public. The reason the IMF was under pressure to make changes and the reason organisations such as Oxfam commented on the role of the institution was that by the end of the 1990s people had grown sick and tired of what it was doing to the world. This led to massive protests in Seattle, Genoa, Prague and elsewhere which became known as the anti-globalisation movement. The protests rounded on the IMF and World Bank for the way they had ravaged countries with their neoliberal wrecking doctrine which had caused massive poverty, major increases in child mortality, the destruction of infrastructure and the rape of the assets and natural resources of developing countries. Such was the scale of the anti-globalisation movement, which reached its high point when millions of people — peasant groups, community groups, trade unions and others — took to the streets of cities around the world to say the IMF had wrecked their societies, caused immense poverty and accelerated growth in the gap between rich and poor, that the institution found itself in serious trouble and its future in question. As a result, it was forced to start to make what appeared to be concessions but which were simply efforts to bolster the real character of the institution. As we know, the true nature of the IMF and World Bank is to act as the bootboys of global capitalism. They are modelled on a corporate structure in which those who have money call the shots. We should not be taken in for a moment by the suggestion that we will somehow gain something out of the IMF-ECB programme. By saddling us with the debts of bondholders, the IMF and ECB will cripple growth and the economy. The programme will be used as an excuse to ram down our throats the neoliberal dogma that has wrecked Africa and Asia and done extreme damage to Latin America.
When the Government develops its policy of essentially sucking up to the ECB, IMF and other institutions I wonder if it has any sense of history or knows anything about what the IMF has done elsewhere in the world. Does it listen to experts such as Joseph Stiglitz or Paul Krugman? Who does it listen to and from whom does it take advice on how to deal with these matters? I was given a little insight in this regard yesterday in a response to a parliamentary question I had submitted to the Department of Finance. This shocking information I received may or may not be in the public domain. The reply stated that in 2010 the National Treasury Management Agency paid out €6.2 million to the Rothschild Group for advice on how to deal with the banking crisis. While the payment was made under the Fianna Fáil-Green Party Government, I ask the Minister if he will indicate whether the Department continues to take advice from this company and if the Government was taking advice from it at the time of the bank guarantee. Notwithstanding how the Minister may answer those questions, the Department was taking advice from the Rothschild Group at the end of 2010 when we were deciding whether to sign up to the EU-IMF programme.
Rothschild is a bond trading company which represents the global super-rich, the multimillionaires and multibillionaires who hold our bonds. Let us get this straight. The Department, under the Minister’s predecessor, paid €6.2 million to ask the representatives of the bondholders if we should repay their clients. Not surprisingly, the Rothschild Group advised that the bondholders should be repaid. The decision to follow its advice has sunk the country. While the Minister has become more muted on this issue, at the time he was critical of the decision to repay the bondholders, describing it as morally wrong and economically unsustainable to ransom the country to protect the interests of bankers and bondholders. He made a statement to this effect in February of this year. Given that bondholders would benefit from the advice that we should sacrifice the economy and impose brutal austerity on citizens, one would expect Rothschild to offer it free of charge. Instead, it charged us €6.2 million for doing so, which is amazing. Talk about golden circles; not only do such circles operate at the crony level of this country but we are now linked into the golden circles of the IMF, the Rothschild Group and bondholders, with the ECB dictating policy. It beggars belief that this company is advising us.
Rather than trying to prop up a vulture institution such as the IMF or give it any legitimacy, we should tell it and the bondholders to get lost. We should address our problems rather than become the victims of what are essentially drug pushers who are pressing us to take on the debt and austerity that will cripple our society and economy. This is what the IMF has done everywhere else.
I make the following point due to sheer frustration. At a recent meeting of the Joint Committee on Finance, Public Expenditure and Reform I asked members of the Fiscal Advisory Council, which monitors the Government’s macroeconomic policy, about the council’s growth projections. Irish growth projections have been already been downgraded and, as I noted, the IMF admits it always gets its projections wrong. Various reports, experts, media articles and so on which projected a return to growth in 2012 or 2013 have subsequently been revised as the authors realised closer to the relevant time that we would not achieve growth. In light of the downgrading of Ireland’s projected rate of growth for next year, I pointed out to the Fiscal Advisory Council that its charts showing an upward curve from 2013 onwards indicate that it predicts austerity will produce growth from 2013 onwards.
They have also admitted that their initial growth projection for 2012 was wrong. They are continuing to say there will be increased growth in 2013 and 2014. I asked them to outline the evidence that those growth projections are accurate in any way. They could not answer. Their projections are collations of the growth projections of the IMF, the Central Bank and the ECB etc. Where is the evidence for what they are all projecting? In some cases, they are projecting on the basis of each other’s projections. When an organisation learns of the IMF’s projection, it amends its own growth projection by a couple of points. When I sought hard evidence and mentioned the concrete evidence before us that austerity is crippling the economy and strangling growth, I was eventually told that historical models form the basis for the growth projections. That is alarming.
What historical models are being used? Is consideration being given to the history of the IMF everywhere it has gone? I suggest we would be better off to look at the historical model of what happened in the 1920s and 1930s, when there was a crisis of the same sort. The same policies of austerity were imposed and the result was the Great Depression. That is where we are heading now. The IMF is leading us down the track towards a depression. We should tell it to get stuffed.
Deputy John Paul Phelan: I am glad to have an opportunity to speak in support of the introduction of the Bretton Woods Agreements (Amendment) (No. 2) Bill 2011. I would like to make a few points in response to Deputy Boyd Barrett, who spoke as usual with great passion. I disagreed with virtually everything he said. He made the point that no concrete evidence was produced when he asked people about our growth projection figures for 2013 and beyond. Perhaps his mind is so clouded with conspiracy theories that he fails to realise one cannot have concrete evidence of predictions for growth two or three years into the future. Concrete evidence does not exist in those circumstances. A prediction is a prediction. Economists are often wrong. In this country, economists in the Department of Finance and elsewhere have been wrong over the years. Similarly, economists in the IMF and in other countries in Europe and across the world have been wrong.
Deputy John Paul Phelan: Such projections are made on the basis of an analysis of the figures as things stand and a prediction of how things might progress into the future. One cannot have concrete evidence in support of that. I do not understand why the Deputy spoke so passionately about this legislation. Although it is modest in its content, it is quite progressive. It will bring an end to the system whereby the largest IMF member states are allowed to appoint members to the board of the IMF. Instead, all future members of the board will be elected. I would have thought the Deputy would be in favour of that. It is certainly positive from an Irish point of view.
Deputy John Paul Phelan: It also increases our quota within the IMF from 0.528% to0.724%. Some 53% of our borrowings from the IMF will now attract the lower rate of interest. That is positive for Irish citizens and taxpayers. The 2008 quota reform had a smaller effect. It increased our quota from 0.392% to 0.528% and just 19.3% of our borrowings from the IMF attracted the lower interest rate.
I am always struck by those Members and people outside the House who decry the role of the IMF in this country. I would certainly prefer it if the IMF was not here and the Government’s objective is to ensure it is out of here as soon as possible. Like Deputy Boyd Barrett, I support the public sector. The reality is that if the IMF was not here now, the public sector would be decimated because we would have to correct our budget deficit in one go. The €3.8 billion adjustment that the Ministers, Deputies Noonan and Howlin, had to make last week through cuts and tax increases would be an €18 billion adjustment in the absence of the IMF, and it would have to be made in one go.
Deputy John Paul Phelan: We have no source of funding other than the IMF and the ECB. They are protecting our public sector and our economy. We have to ensure they are out of here as soon as possible. Deputy Boyd Barrett gave examples of countries where, according to him, the IMF has played a less than positive role. For this country, the most immediate example of a country that received IMF assistance is Britain. The IMF spent two years in Britain in the early 1970s. The British economy grew and went from strength to strength after the IMF left. I accept that Deputy Boyd Barrett might have understandable misgivings about later decisions that were made, in the 1980s. The early 1970s was a desperate time in Britain, which is our closest neighbour. The experience in Britain is the best example to use when we speak about the removal of the IMF from our economy, which we hope will happen over the next few years. The intervention of the IMF worked successfully there. I hope it will work successfully here too.
Other issues were raised by other Members. Deputy Mac Lochlainn spoke about the Government’s promises. He said that prior to the last election, there was solidarity among all parties other then those in government at the time. He said the current Government promised to renegotiate the IMF deal. Not only did we make such a promise, but we have secured the renegotiation of the IMF deal. As a result, the lowest paid workers in the economy have benefited from the restoration of the minimum wage to the level it was before it was cut by Fianna Fáil and the Green Party, in agreement with the IMF, before this year’s general election. It was restored by this Government. We also managed to negotiate a significant reduction in the interest rates we will have to pay in the future. Patently, it is a lie to say in this Chamber that the Government has not renegotiated the deal. It might not be the type of renegotiation that Deputy Mac Lochlainn and others might have wished for, but it has happened nonetheless. There is room for further renegotiation in the future.
Deputy Mac Lochlainn made a blanket statement to the effect that Fine Gael and the Labour Party promised not to pay bank debt if they were elected. No such promise was made. In advance of the general election, members of my party said that extra taxpayers’ money should not be invested in the bank formerly known as Anglo Irish Bank. We have not put any extra taxpayers’ money into that bank since the election. Contrary to what Deputy Boyd Barrett said, the current Government has secured a reduction of almost €7 billion in payments to bondholders in Anglo Irish Bank. That has been done by means of agreed haircuts, to use that awful term, since Deputy Noonan became Minister for Finance. Contrary to the view that bondholders are being repaid in full, with agreement, I assure the House that Anglo Irish Bank bondholders have not been repaid in full by this Government.
Deputy John Paul Phelan: I do not agree with the idea that the IMF is essentially here to attack the public sector. If it did not have a presence in this country, we would be paying extortionate amounts to borrow money on the markets. The reality is that if we were not receiving the support of the IMF, the public sector would be decimated. Perhaps Deputy Boyd Barrett can outline his understanding of the nature of banks and financial institutions. I do not think they consist solely of those who run them — chairman and board members, etc. Banks essentially comprise the deposit holders who put money into them, either individually or as part of businesses. It makes no sense to create the notion that if we unilaterally burn bondholders across the board it will have no effect. Numerous media reports in recent months, indeed in recent days, point out that the burning of bondholders would have a very significant effect on credit unions in this country because they are significant investors in banks. The financial institutions of Ireland and the world are intertwined in a very complicated and messy way. It is not as simple as saying that any unilateral decision by the Government would not have a direct effect, in this case on ordinary credit union members throughout the country. For the most part, these are working people who are just trying to put some euro by or get a small loan when they need to get some work done on their house, for their family or in their business.
Deputy John Paul Phelan: I fully welcome the introduction of this Bill as a very positive step towards improving the structures of the International Monetary Fund. I remember in secondary school — which was not all that long ago — reading about the Bretton Woods agreement. Thanks to the Oireachtas Library and Information Service I have had the chance to read some more about the agreement in recent days in preparation for speaking in the Chamber.
The Bretton Woods agreement was established at the end of the Second World War, following a conference in New Hampshire in the United States at which 44 allied countries came together to examine the crisis that emerged in Europe prior to that war and at what emerged in the United States in the context of the Great Depression. They wanted to look at the difficulties that arose during that conflict and to try to plan an economic future for the world in the post-war situation.
At the time it was decided that all international currencies would be more or less linked to the dollar which, in turn, would be linked to the gold standard. That situation survived until 1971 or 1972, when the link between the gold standard and the dollar was broken. The Bretton Woods agreement also established the International Monetary Fund and the World Bank, the latter focusing primarily on investing in underdeveloped countries throughout the world while the function of the IMF was to ensure the operation of the global economy into the future. By and large, that criterion, the challenge established at the end of the Second World War, has been fulfilled.
This Bill goes some of the way towards ensuring that the IMF is more representative of the world as it now stands, and of the new strengths of economies and societies across that world. It also ensures a fully democratic election of the people who run the IMF into the future. I do not understand how anybody could do other than support that.
Deputy Sean Fleming: I welcome the opportunity to speak on this legislation, the Bretton Woods Agreements (Amendment) (No. 2) Bill 2011. This amending legislation specifically eliminates the category of appointed executive directors and requires them to be elected. This measure forms part of the ongoing governance reforms at the International Monetary Fund, which we welcome. It is an improvement, a point well made by previous speakers.
People have an idea what the IMF is about. I wish to mention some particular points about its operation and our role. We are part of the IMF. Some people believe it is some kind of enemy, just as some people in this House believe the EU is the enemy on the mainland while Ireland is out in the mid-Atlantic. We are part of the EU. These people are not just semi-detached Members, they are completely detached from some of the financial realities.
Our subscription and voting power in the IMF are a central component of that organisation’s financial resources. Each member country — we are one such — is assigned a quota based broadly on its relative position in the world economy. A member country’s quota determines its maximum financial contribution and its voting power and has a bearing on its access to IMF financing. Normally, a member state can borrow up to 200% of its quota annually, and up to 600% cumulatively. Higher amounts can be borrowed in exceptional circumstances. Deputy Phelan mentioned that when a country borrows within its agreed limits it receives a preferable rate but if it borrows above that rate it will get a different interest rate, also preferable relative to what is available on the international market but not as good as the first kind. Some people might disagree with that description.
As to access to financing, the amount a member can obtain from the IMF is based on its quota. For example, under the stand-by and extended arrangements a member can borrow up to 600% cumulatively, over a period. There is a fancy term for this —“special drawing rights”. It is a little like the green pound that used to exist in the EU. It took me a long time to get my head around that one. There was the green pound and there was the euro. Who had the green pound? I never saw one. It was a fictional mathematical construct, if I may so describe it. It was not actually a currency but a figure on which people based transactions. A special drawing right is a little bit like that. These rights are allocated to member countries by the IMF. A country’s IMF quota, the maximum amount of financial resources it is obligated to contribute to the fund, determines its allocation or allotment of special drawing rights. I reiterate, special drawing rights are not a currency but represent a claim to a currency held by a IMF member countries for which they may be exchanged. They can be exchanged in the main currencies: euro, Japanese yen, UK pounds, US dollars, and their value is determined by a basket of these currencies. We are in the territory of a nebulous concept. However, countries can translate this back into their home currencies even if those were not the starting currency. That is the bottom line.
I wish to mention some points about the IMF. First, people must recognise it is the lender of last resort to countries in financial trouble. The chief responsibility is to ensure stability of the international monetary system. This began with the gold standard after the world war. The dollar then took over as the base currency in the world. If we do not have an international monetary system we cannot buy and sell abroad, or complete transactions. Ireland would be one of the countries that would have the most difficulty if there were ever a problem in that regard because ours is one of the most open economies. That has major advantages and disadvantages. If there is a downturn worldwide we suffer but there is also maximum advantage in that if there is a bit of a pick-up, because we are so open, as a small country we can hop in very quickly and benefit from being an open economy.
International Monetary Fund financing provides member countries with the breathing space and room they need to correct problems in their balance of payments. Often there is criticism of the IMF, as we heard a short time ago. I will touch on some aspects that were mentioned in the Chamber. It is fair to state that the basic problem with the IMF model was that the latest financial crisis had its origin in the private sector. Basically, the IMF is there to bail out countries but much of the problem worldwide was due, in part, to governments overspending. I am one of those who believe that deficits in Europe and the United States are contributory causes to some of the overall instability. China and other nations had to issue warnings. We are all living beyond our means. In western democracies we expect others to continue to provide loans then we complain when there is a drying up of liquidity. The point is, if one is living within one’s means one does not need to borrow. There is a very simple way not to become involved in this problem — live within one’s means and operate a balanced budget. That point keeps getting lost in this debate. Banks and private investors lent too much money under too little supervision to fast-growing developing countries, including to Ireland. They pulled the money when the liquidity squeeze happened. it is important to recognise that.
I do not know how Ireland was ranked after the Second World War. Now, however, I am sure there are corporations throughout the world besides the big multinationals we all know, the pharmaceutical and IT companies, oil exploration and construction businesses, that could be ranked in this way. Ireland would be a very small player. Even some of the biggest countries in Europe would not match in size and scale the turnover of some of the biggest corporations in the world. Their role in the world economy is far greater than the role of the overwhelming majority of governments. The IMF has not yet come to terms with that. The next review of its activities will have to deal with the issue of international business separate from government business. I understand how 60 years ago when the IMF was established government business was the world’s main activity and there was not as much international trade as there is now. For example, last week’s budget had to make an adjustment of €3.8 billion. Recently, I read Ryanair actually has the same amount in bank deposits. While I am not suggesting there is a link between the two, it shows how large the scale of activity of some private companies can be. Ryanair, while one of Ireland’s larger companies, it is not up there with the Dells and Microsofts which could buy and sell Ireland before breakfast if they wanted to.
The difficulties with Lehman Brothers and others were brought about partly by the private sector, not wholly by governmental decisions. The IMF has no mechanism to deal with these types of issues. I am probably in a minority in the House when I say I prefer the American to the European system. When an American financial institution goes bankrupt, it is let go bust just like Lehman Brothers. Europe has a different approach which has more to do with the social democracy view people have and how they are afraid of the consequences. We had Anglo Irish Bank which was bankrupt but Europe would not let it go bust. Europe needs to cross the Rubicon and allow companies go bust. It is a sign of weakness of the EU that it cannot face up to these situations the way the Americans did. Life goes on and, believe it or not, people forget about these events in a few years.
The other night on radio I made it clear I do not like all these EU summits with Heads of State because there is too much politics and ego. Several of the current European leaders have large egos and like to see themselves strutting around the place. I have said before that I would prefer if these matters were solved by the finance Ministers. Taking the egos, the big politics and prime ministers out of the equation will mean far more progress could be made. At every summit, all one sees are politicians putting a political solution to what is inherently a financial problem. While any deal must be presented to member state parliaments and be saleable to their people, it must be started by and worked on by the Ministers with responsibility for financial measures. I suspect they would get to the brass tacks of the problem much quicker than their prime ministers.
Some claim the IMF destroyed Ireland. It must be recognised it is only providing one quarter of the programme funding. The rest is provided by the National Pensions Reserve Fund, the European Central Bank and the European Union. People love to have someone to blame and it is understandable if its suits some to blame the IMF for our economic problems.
I would like if Deputy Boyd Barrett followed his thinking through with his claim the IMF has no role in employment creation. Is he asking the IMF to run the country for us? My approach is to request a loan from the IMF, pay it back in time and let the IMF butt out. Instead, the socialist Deputy spent half an hour in a tirade giving out about the IMF and then complained it is not creating employment or stimulating economic growth. Does he want the IMF to supplant the democratically elected Government? We may need some financial assistance by way of borrowing but we do not need any IMF assistance in running the country or deciding our priorities of expenditure in employment creation, health and education. I am surprised Deputy Boyd Barrett went down that particular route. While the IMF may have much evolving to do with its approach to private sector industry, as I outlined earlier, its main role is to protect countries in financial trouble and ensure the stability of the international monetary system.
I thank the Minister for Finance for facilitating meetings between Opposition spokespersons and the troika members when in Dublin in July and October. While probably not a popular thing to say, A. J. Chopra is one of the most reasonable men I ever met. When he arrived in October, he said the budgetary adjustment must be €3.8 billion but it was up to the democratically elected Government to make the decisions as to how it would reach those targets. Some Ministers recognise they have the scope to make decisions once it is within the financial basket allowed. Weaker Ministers, however, blame all their decisions on the EU-IMF deal we signed. Regardless of whether an EU or IMF official had to come to Ireland, for our own good we needed to stop spending €15 billion more than we were taking in taxation. It reminds me of those towns and villages which say they must do up their streets and buildings to make them look nice for the tourists. We should be making it nice for ourselves in the first place. Likewise, we should be correcting our own finances for our own good, not for the EU-ECB-IMF.
As an accountant I tend to have a black-and-white view of issues, leaving aside the politics and concentrating on their financial brass tacks. It may come as a surprise to some but I recall telling several journalists I always believed the IMF would be in Ireland during the course of last year. In fact, before it arrived in November 2010 and when Ireland was trying to raise funds on the markets, I warned senior colleagues at a parliamentary meeting that Ireland was swimming in waters infested by financial sharks trying to destroy us. All they wanted was to make a quick buck on Ireland and did not care what yield they charged once they could make that killing. I recommended Ireland should get out of those waters and find a safe port of call, namely the EU and the IMF.
It was in that context that I said that at a parliamentary party meeting. In September last year, I had a detailed conversation with my deceased colleague, Brian Lenihan, who was Minister for Finance at the time, about the IMF coming into the Ireland in the near future. He could not confirm that would happen but it was always a possibility. He had been in contact with the IMF over the summer and the fund was satisfied Ireland was making the necessary adjustments at that stage. My message to him and to several other Ministers at the time was that we should not build the IMF up as the big bad wolf because it might be our saviour. Language like that was being used to put that image in the minds of the people.
That is why I do not follow the fixation most people have with Ireland returning to the bond market. I said at the time that the IMF had to be involved in a financing arrangement. The fund provides a loan, the same as the international financial sharks wanted to do at an exorbitant rate, that we repay and it does not run the country. We are better off dealing with the ECB, EU and eurozone and the international organisations of which we are a member. I would be happier if Ireland and other countries had their finances on an even keel long term instead of having to listen every morning to what is happening to Portuguese, Italian or French bond yields. The bond ratings of European countries will be revised downward by the rating agencies because we crossed the Rubicon when some Greek debt was written off. The US had its rating downgraded recently and there is no reason to believe this will not happen in Europe. Let us not get too excited about this. Once we have a proper system in place at EU-IMF level and we get our deficit under control, thereby reducing the amount we have to borrow, Ireland will work well.
Deputy Bernard J. Durkan: I am glad to have an opportunity to contribute to the debate. I compliment Deputy Fleming on his remark that the appearance of the IMF does not mean an evil doer has appeared whose determination is to undermine the economy. The IMF is an entity that has come at our hour of need to offer assistance and it is not a free benefactor. Financial assistance is not offered to any country without a price tag. I compliment the Minister for Finance and the Government on their success to date in achieving a number of amendments that resulted in a considerable reduction in the debt facing the country.
Deputy Fleming referred to the atmosphere that prevailed a year or more ago. The problem was that the country had been fed a diet of reassurance during the previous three years. From 2007 onwards, we were told morning, noon and night that the economy would experience a soft landing and everybody would be okay. These commentators were wrong and there was a crash landing. On top of that, there was an urgent necessity to seek a means whereby we could work our way out of it.
Over the past number of months, a succession of Members has told the House we should get more money from the banks and spend more while not paying the banks back and burning the bondholders. What a sequence of events to resolve an economic crisis. Over the past few days, a succession of Members has told the people not to pay a local tax, for example. They said they will resist it and they will advise others to resist it and they will not pay. Do they not realise our debt is a massive problem, which must be repaid? If we do not do so, we will be ridiculed and isolated by those who have the ability to assist us.
It is a long time since I was involved in a small business. I cannot understand why it has become accepted practice in the House and among experts outside the House to proclaim the notion that we should burn bondholders even though we want money off them next year and we should then burn them next year even though we will not have enough money for the year after to run our own affairs. I have never experienced anything like this in my life and I do not know where this has come from. However, it has become an accepted political ideology. Deputy Fleming blamed socialists but this is not a socialist notion. There are plenty of socialists and Members with a social conscience on this side of the House who are equally conscious of the needs of people as those who proclaim to have the answer to all their problems. It is not an ideology of the left or right; it is an ideology of irresponsibility. They are feeding the fears of people and telling them that if they follow their recipe, they will end up in a better position. However, we will end up in a worse position as a country and as an economy. The late Minister for Finance, Brian Lenihan, made difficult decisions. What a pity his party had not made them eight or ten years previously. Fortunately, the people decided that the incoming Government would have to do the same thing.
I refer to Ireland’s position in comparison to other member states in the emerging European scene. We have a useful role to play, as we can be seen as the country that achieved spectacular success over a short period, provided we meet our targets. The only problem in comparison to the recession in the 1980s is that property prices are still inflated. Those who were Members in the 1980s will recall that anybody who had a job could borrow to buy a home but that does not apply anymore because property prices are still too inflated and out of the reach of ordinary people. People are applying for and being refused mortgages. Many people write and e-mail us to tell us how well paid we are and how much more should be taken off us.
I could not afford the mortgages that most of my constituents have been given. Given that their properties are in negative equity, I cannot understand how in the current climate we can deal with this issue unless there is a dramatic reduction in the value of residential property. The economy was based on a standard equivalent to the discovery of an unlimited supply of oil except the currency was cement and concrete. At that time, some Deputies criticised this and said no houses should be built on the land that has been zoned for housing. Everybody forgot that the houses could not be built unless the land had been zoned in the first place.
The IMF has been reasonably fair to us and it is up to us to make the programme work. If we cannot do so, then we must admit that we are not capable of being at the table. This is about our economic space and whether we can stand up and be counted in the global economy is a matter for ourselves. We can burn all the bondholders we want, we can refuse to pay all the taxes we want and we can encourage others not to pay the taxes that are being levied.
We compare that with all other economies throughout Europe and ask ourselves are we really serious in what we are about. The answer is this. If we continue the way we did in the last 15 years or so, we will go nowhere fast. The first thing we must do is recognise the full extent of our problems, deal with them as best we can and try to work our way out of them.
The Acting Chairman will remember people saying in recent months that we must get the same deal the Greeks got. Do we remember that? What did they get? It is a serious problem. The same applies to every other country, both inside and outside the European Union. If we do not stand up and accept our responsibilities, or if we run away, there are consequences.
There is another part of this in terms of running away. We are in a very hostile and volatile economic and speculative situation in terms of money markets worldwide. The modern technology that has been developed and is now available throughout the world is a huge asset to those who want to speculate. If there had been modern technology during the depression of the 1930s, people would have been able to act much more quickly, but it is now in place. In the time since the Acting Chairman took the Chair, billions have been moved by market speculators all over the world. It is a sobering thought, but it is happening all the time. The only hope we have is to be within a regime that carries some weight and clout. That includes the EMU and all that goes with it.
Another question has been speculated about for the past year or two, namely, “What should I invest my money in?” Obviously, speculators are asking the same thing and deciding accordingly. We have not fully thought this out. A scenario put forward by many is to go back to our own punt and be masters in our own house or find some means of getting on board the pound sterling. We are forgetting reality. The fact is the world has changed in terms of monetary order, regulation and speculation. A rapid speed has taken over. The one point we must recognise is that whatever breakdown takes place, although we sincerely hope it does not, we must hope the euro prevails. The euro is the single biggest currency block we have known in our time. It is still a strong currency. For those who speculate otherwise, it is merely an attempt to undermine it. However, if it is undermined by those who want to do that, the consequences for all, including those who undermine it, will be great. That will be felt in due course. We do not live in a bubble. As John Donne put it, we are not an island anymore. We are part and parcel of the global economy. When we are in that arena, we have to soldier up, put our shoulder to the wheel, take our responsibilities seriously, act responsibly and be seen to do so. All that together will create at least some indication that we intend to go about our business in a proper fashion.
I raised an issue some years ago in the House when it became evident that the Bretton Woods agreement would be called into focus once again. The issue concerns the degree of speculation and hoarding and the flight of capital from one jurisdiction to another. The British and German governments a few years ago attempted to gain access to deposit accounts and account numbers in another country outside the EU but sufficiently close to it to have common arrangements. I know they achieved a certain degree of success. The reason they went after those accounts is that they were worried about the level of hiding of capital that had flown from some jurisdictions to others, which, of course, cannot be allowed as it would have serious negative consequences for all. This amendment means that among our Government and across the EU there is a recognition that times have changed and the degree of commitment and liability by various member states throughout the EU, and the degree to which they can impact on the IMF, has changed dramatically. Ours is a case in point.
The potential for invisible savings to accrue to a member state, as is the case here, is immeasurable. It is of huge importance and an issue on which we want to compliment the Government and the Minister. I wish them well in their future endeavours in this regard.
There was a slogan some years ago which went “They never said it would be easy”— the Acting Chairman should recognise it coming from his constituency. For those who pretend it is likely to become easy in the next three or four years, not only are they codding themselves but they are trying to cod the rest of us as well. I have no doubt but that prudent management and careful economic planning, as already embarked upon by the Government, will result ultimately in the benefits to this country and its people that will be in line with projections. That is something to which we should all aspire.
Deputy Mattie McGrath: I am glad to speak on the Bill and the amendments put down by the Minister in regard to the Bretton Woods agreement. It is a difficult issue to speak on as it is not well known to the public, having been set up in 1944 and named after the place where the agreement was agreed and signed. It has more relevance today than we would like to believe, however, and is a serious issue in terms of the IMF and so on.
A previous speaker, Deputy Sean Fleming, was very hard on some of the views of the Technical Group. I do not know why, but he is right to say what he wants to say. He pointed out that it was not an evil. I do not think anybody described the IMF’s arrival in Ireland as evil. Deputy Fleming went on to say at great length that he had raised this at the Fianna Fáil parliamentary party at the time. Although I was excluded from it at that stage, I certainly did not hear anyone discussing it while I was there. It does not tally well with the statements that were made by two Ministers of the day, now retired, former Deputies Noel Dempsey and Dermot Ahern. When they were asked on a public platform about the IMF, they looked as if it was Santa Claus who was coming — they were in total disbelief. I do not know if it was different at parliamentary party meetings, but that is what the Deputy stated so I take him at his word because he is not a man who ever tells fibs. He is a serious politician and fairly responsible around financial issues as well, because he is qualified in that area also.
Deputy Durkan referred to the socialists in Fine Gael. I am glad to hear there are socialists in Fine Gael. The Acting Chairman shares a constituency with me, and we are all socialists in a way, but I do not know where they were when——
Deputy Mattie McGrath: It is relevant to our constituency as well. Did we not have a jibe from Deputy Durkan about sharing a tough constituency? Every constituency is tough but I wonder where the socialists were when the budget was being formed. I do not see many of them here today either.
We are in serious economic times. I can proudly say I voted against the EU-IMF agreement, not because I did not want them in here, as I honestly believe they should have been in here a year before they came — I fully agree with that — but because I disagree with their terms, their interference and the cover they provided for the last Government.
Now the mantra has been adopted by this Government on every issue, whether it is a rise of tuppence on a gallon of petrol or a rise in the price of cigarettes. The Government did not blame the IMF for the rise in the price of cigarettes, but my colleague coming in now, Deputy Finian McGrath, who voted for it too, likes cigarettes. The Government blames the IMF and the EU for everything it does. The public is sick and tired of this mantra because these bodies have nothing to do with it. There is an agreement on loans we got from the IMF and EU and I was appalled at the interest rates imposed not so much by the IMF, but by the EU. The package is certainly expensive.
Within the Department, the Government and the Minister, Deputy Noonan, can do what they like. There is plenty of scope for being fair and reasonable and spreading the load, and the load must be spread. For some reason or other, which I do not know and which I cannot crack, and it was the same with the previous Government, there is an unwillingness — I am not shouting for a wealth tax — to spread the load among those who can afford it. Child benefit is a case in point. We are being told this mantra year in, year out that the Government cannot means test it — the officials are too busy and it would take too long. The previous speaker spoke also about how we should be able to deal with issues now with modern technology. It beggars belief that millionaires will state publicly in the media that they do not need the children’s allowance, yet they get it. There is an unwillingness to tackle such benefits, which are totally unfair and should be means tested so that only those who need it get it.
It is a pity the IMF did not have more say in some issues in the budget two years ago when the previous Government brought in the pension levy which affected the lowest paid. The levy has had a fairly serious effect. The Acting Chairman, Deputy Tom Hayes, will be aware, as I am, that in my county the council officials — low-paid ordinary workmen on the ground and male and female clerical workers — paid the pension levy. What happened was that late one night before Christmas, a note or memo was passed to the late Deputy Brian Lenihan, for whom I have great regard, and the Government went back on imposing the pension levy on the fat cats. It is a pity the IMF did not insist on it remaining. It is a pity the IMF was not more forensic in dealing with where the waste and the unfairness really lie. I note this amending legislation will ensure there will be more elected persons on the board of the IMF because there are too many bureaucrats — Mr. A. J. Chopra was mentioned — making decisions.
There are also too many bureaucrats making decisions in this country. There has been a succession of weak Ministers and weak taoisigh who not only allowed them but rewarded, appointed and promoted them, and brought in more of them. Unfortunately, the Government has taken on the mantra of bringing in special advisers and breaking its own guidelines. Apart from breaking the guidelines, it sends a rotten message to the public. The public is taking serious doses of austerity, yet the Government seems to think that, within the number of streets where Government buildings are located, it can have a different law and do what it likes. That sends out the wrong message. The Minister, Deputy Noonan, knows that as well as I do. He was not happy about approving some of them, but it happened with the Taoiseach, the Minister, Deputy Burton, and many others. The other day the Taoiseach lectured Deputy Adams that he had bad advisers but, as I said to him, the Deputy does not have the same pot available to the Taoiseach to appoint special advisers. I refer to unelected faceless bureaucrats who are good for spin and more spin. It is such spin the Government does not know where to stop. It is in a continuous spin. The Government could fall off it some day, and that is what will happen because the public are sick and tired of it.
They are also sick and tired of being lectured about austerity. Deputy Durkan tells us about the socialists in the Fine Gael Party, but I do not know where they are. Was it Brendan Grace who sung of “scuts in Fianna Fáil”?
Deputy Mattie McGrath: I thank my learned colleague who is very experienced, as we saw on a television programme, and quite excellent. I will promote his CD for Christmas if I can. Certainly, we all should phone a friend and try to move them on.
Deputy Durkan also stated that one learns something every day. We certainly do, and it has been a steep learning curve since the IMF came in. I believe it should have been in at least a year before it arrived.
Regarding what Deputy Durkan stated, there were budgets over the past four years when I was sitting here as a backbencher. The first two were fairly generous, but all the time the Members sitting opposite got up and complained it was not enough. They said we did not give enough of an increase — we did not give enough of this or enough of that. Collectively, Deputies on all sides of this House are responsible, as are the previous ones, many of whom are gone off into the sunset with their big pensions. I might say a word about that too, if I am allowed, with the indulgence of my colleague and good friend in the Chair.
The Opposition looked for more all the time and that is what happened. It was auction politics. Someone referred to the use of easy-auction politics and someone else referred yesterday to the car tax being removed in 1977. Fianna Fáil removed it but Fine Gael was going to halve it, and I was only a buachaill óg. I was out putting up posters. We were delighted. I only had a Honda 50 on which the tax was low anyway. A Honda 50 gets you around. I never thought I would get as far as I am now, but it could go back very fast too and it could be that I will never again be here. While I am here, I will say what I want to say.
Auction politics were very serious, and it continued repeatedly. The Minister for Economic Planning and Development, Mr. Martin O’Donoghue, and others built castles in the sky and everything else, but we never thought of the rainy day. We forgot about the rainy day, certainly in the past seven or eight years. Many people out there did not, though, and they are the ones I meet now — Deputy Durkan referred to them also — who have a few bob. They do not have a great deal, enough to bury themselves and be comfortable if something happens to them or they become ill because one cannot get into hospital unless one has some money. They want to know if their money is safe in the post office, the bank or wherever. I cannot advise them because we are at the behest of the predatory sharks of the money markets.
As for our own banks, we never hear of bank robberies now because all the robberies are going on inside in the banks. They robbed the people blue. I spoke to a lady only half an hour ago. She is a business person, along with her husband, and was on her way to the bank this morning with a €500 cheque in an envelope to drop into the quick lodge. She got a fairly nasty telephone call on the way, from a person doing his or her job, stating that she was €200 overdrawn since midnight owing to whatever cheques had not gone through. Imagine it. These are the banks that we insisted lend €3 billion each last year and the year before they had half the €3 billion each. We call them the two pillar banks. I do not know what I would call them. They are not pillar banks anyway, and they have not a shred of decency among them. I refer not to the ordinary staff, but to the boys in control.
That is the kind of harassment that is going on of those who are trying to make a living, trying to stay in business and trying to keep afloat. As the Minister will be aware, that is the kind of intimidation that is going on.
Deputy Mattie McGrath: I thought the Acting Chairman was really being hard on me. I thought he was learning from the Ceann Comhairle, who I should not mention when he is not here. I wished the Ceann Comhairle a happy Christmas this morning anyway.
I have lost my train of thought. I was speaking about the banks, and the treatment they are giving ordinary householders and small business. Big businesses, as we saw, owe them €20 million, €30 million and €40 million and the banks cannot touch them, but if one goes €200 in the red, the banks will bounce one’s cheques, charge referral fees and everything else. What is happening is a disgrace. The IMF does not have anything to do with that, but it has given us the loan. We put the people’s money into the banks and the banks are not playing fair. It is unbelievable. The Minister, Deputy Noonan, heard — I spoke privately to him last week — about what another banking institution, Bank of Ireland Finance, did to a family in Tipperary. I described it as worse than the Black and Tans, and it is. They are terrorising the people. A meeting was held in Abbeyleix last Monday night attended by 300 people, all of whom have horror stories about their treatment by financial institutions. It is simply disgraceful and should not be tolerated. This problem occurred under the last Government and is occurring under the watch of the current Minister for Finance, Deputy Noonan. While I know he is doing his best and cannot click his fingers to solve the problem over night, it is nothing short of outrageous.
We are bailing out gangster banks. I call them that because that is what they are. I have been dealing with them since 1982, when I set up my own business, and I know what they are like. Thank God, I am on the right side of them. If I were not, they would have no mercy. They are not assisting with any stimulation of the economy. They are really clamping down on people and killing off initiative.
A friend of mine, a small businessman from Clonmel, on having been visited by the Revenue Commissioners, which was demanding money with menaces, ended his own life — God help us — and left his family with the tragic consequences. The county coroner in Tipperary, known by the Acting Chairman, Deputy Tom Hayes, stated publicly at the inquest into the death that what occurred was State terrorism. These are not my words but the coroner’s. We have large numbers of shares in Allied Irish Banks and some in Bank of Ireland so the banks should be acting decently.
It is not the ordinary men and women behind the counter or the front desk who are at fault but the whizz kids. In fairness, there were bank managers who tried to hold the line and stop people from being given too much money, 100% loans, cars and holidays but they were laughed at and moved sideways to accommodate the whizz kids. The more the latter gave out, the more commission they got. Where are they now? They are hiding like cowards from the people. With their fat profits, they have moved to different locations in the country and do not have to deal with the misery they created.
It is not the ordinary man and woman behind the counter or the front desk who are at fault but the whizz kids. In fairness, there were bank managers who tried to hold the line and stop people from being given too much money, 100% loans, cars and holidays but they were laughed at and moved sideways to accommodate the whizz kids. The more the latter gave out, the more commission they got. Where are they now? They are hiding like cowards from the people. With their fat profits, they have moved to different locations in the country and do not have to deal with the misery they created.
We have a lot to do. I am probably straying a little from the Bretton Woods agreement but my remarks are all relevant to IMF funding of this country. The IMF should have been here long before it came. It did not come on time. Nobody is running away from this problem and we must all deal with it daily. Every family, both here and abroad, must do so, yet we are trying to tax them time and again.
Other speakers stated we should not be advocating the non-payment of charges. I never did that in my life but I am now. When I see a measure that is totally unfair and discriminates against rural dwellers, I will put up my hand and object. Of course I will because all law must be fair.
I agree with the amendments requiring that one be elected. Too many unelected people are making decisions that affect our lives. They are telling us what we can and cannot do. Hey presto, a fines Bill is to be introduced shortly. It is promised legislation and I must ask the Ceann Comhairle about it tomorrow if I get a chance. The fines Bill will allow the State to take fines from one’s wages or social welfare payments.
Deputy Mattie McGrath: Yes, but this is all part of the Bill. There are many Bills we do not like but we must pay the charges. Where are we going to stop? If we do not stop, there will be anarchy in this country. The laws are in existence to protect the vultures. Those who borrowed recklessly and owe millions to the banks cannot be touched. Seánie got a telephone call from the gardaí asking him to come down to see them, whereas if one of us were involved, they would send out a paddy-wagon and bring us in. What is wrong? Why the silk gloves? There is a cartel that extends right to the top.
The Government sent its man to Europe and has got him over the ditch now. He was on the ditch for a while but the Government pushed him over; he has gone in. I refer to Mr. Cardiff. Will we call that the Cardiff agreement? Irrespective of what we call it, it is despicable. If the Minister, Taoiseach and Tánaiste had spent more time in recent weeks visiting other European countries to achieve some kind of half-decent deal last weekend, with a view to not falling out with our nearest neighbour, Britain, it would have been beneficial. While I appreciate that they were on the telephone talking to the relevant UK authorities, I contend that we need our nearest neighbour as our trading partner. Trade with the United Kingdom is considerable and must be maintained.
If there had been more readiness, research and side meetings with a view to achieving a proper agreement last week, and if the Taoiseach and the Minister of State, Deputy Creighton, had worn the green jersey rather than lobbying European colleagues to ensure Mr. Cardiff would get over the line, it would have been better. I accept that the Government wanted to get rid of him because he knew too much about what went on. He was at the very heart of proceedings on the night of the bank guarantee and now the Government has got rid of him. What credibility have we in Europe, in the name of God? What credibility do we have, having done so much canvassing and lobbying to get Mr. Cardiff into his new job? Will the IMF ever leave us if it sees the kind of reckless behaviour that resulted in the incorrect invoicing or the failure to account for €3.6 billion?
Deputy Mattie McGrath: I mentioned that. I am referring to what occurred over the past ten years, during which time Mr. Cardiff was in office. If he is so inept at his job here, why do we now shove him out to Europe? The Government canvassed the various parties and groupings in the European Parliament — I cannot think of their names — and changed the mind of Mr. Seán Kelly, MEP, and others.
I have identified the culture of greed over ten years, the pain, the position on two former taoisigh and the various agreements. I stated some nights ago I am against the Croke Park agreement because it is untenable and unviable. It will not last because it results in increments totalling a couple of hundred million euro not for the ordinary person on the ground or staff in the offices, but for the staff on top. They got away without paying the pension levy. I could not understand why the IMF did not go through such issues forensically and target the waste. The waste is continuing. The Taoiseach may have stated on television he will do away with the Seanad. He had red ears yesterday evening at the parliamentary party meeting and he had red ears from the Labour Party. There was a dawn meeting, a dawn raid, at 7 a.m. this morning and the Taoiseach was hoping many Members would not be up after the party last night. He is only talking——
Deputy Mattie McGrath: I am not misleading the House. The Deputies are entitled to a party but the Government is inflicting misery on the people, who will be waiting for them in the long grass. They are waiting already.
Deputy Mattie McGrath: Excuse me. I do not know what kind of Tadhg Deputy Buttimer is. He is the best heckler in this House and he is trying to take over from Deputy Durkan. He can hide behind his notes now. I do not have to have notes but I am not going to be heckled and blackguarded——
Deputy Paschal Donohoe: If the slightest credence had been associated with a single word he said, his comments might have provoked me. What I just heard was an act of comedy rather than a contribution on the challenges the country is facing. Deputy McGrath was voting with Fianna Fáil and was party to the decisions that led to the ruin of the country, yet he is now taking the opportunity to lecture the rest of us. Consider the idea of anarchy breaking out. What I find so interesting about the Deputy’s contribution is that he condemned the failure to obey the law on the part of some people but said he will not obey it himself.
Deputy Paschal Donohoe: I am sorry I provoked the Deputy in the way I have. I can hear some kind of tone from him but am not quite sure where he is going with it all. The basic point is that he criticised some people for not obeying the law and then said he will not obey it himself.
Deputy Paschal Donohoe: Everybody has a point of view on the law and a view on whether it is fair, but once a law is passed, we should obey it. It is telling that the Deputy will condemn others for disobeying the law but he will brazenly take credit for acting likewise.
Deputy Paschal Donohoe: He predicted that we will face anarchy and the breakdown of law. Did he also say there will be rivers of blood? Does he really believe blood will be running in the streets of our country? Is that the kind of contribution he wants to make?
Deputy Paschal Donohoe: The final comment he makes in the Dáil at a time when 440,000 people are out of work is to predict blood running down our streets. We are facing the gravest global economic crisis since the 1930s but the best Deputy Mattie McGrath can offer the country is blood flowing down our streets.
Deputy Paschal Donohoe: I apologise if I provoked Deputy Mattie McGrath but I will make my argument regardless of how often he tries to interrupt me. I clearly heard somebody exhort people to break the law and predict that blood would run down the streets of this country. As somebody who is clearly aware of the challenges we face, I believe we have to offer more than that to people who are hurting badly. The Deputy is entitled to disagree with the Bill or the Government’s policies but he should offer more in terms of the prospects that await the country.
We are facing the stark reality that our country is an unwilling party to an external aid programme for which the rest of the world does not want to pay. We are caught in the middle of ferocious tension between countries which do not want to participate in these arrangements and countries which do not want to pay for them. This creates a grave challenge for countries like Ireland and the consequences could become apparent early in the new year. As an example of this tension, the rate of interest we are offered under this Bill is lower than the rate available to the countries which fund our programme of borrowing. Several of the larger countries that fund the programme are not able to borrow or are paying higher interest rates than the rates we pay on the money they lend to us. What we have in common with these countries is our inability to borrow from financial markets at an affordable rate.
We need to exit the programme at the earliest opportunity. I understand that the European Commission recommended Ireland return to the financial markets quickly but that would be a foolhardy move in the current environment. However, despite the terrible mistakes that the financial markets have made, it is infinitely preferable to borrow from them than to be in this programme. Every two weeks our balance sheet is scrutinised by somebody else. That is the ultimate example of the loss of our economic sovereignty.
Our current challenge is to make the arrangements more sustainable. The original interest rates charged for our funding were prohibitive but substantial progress has since been made. We must address the question of how our banks are funded. Drawing down money on a short-term basis created instability in the banking system because banks had to renew their funding arrangements every week or month. Thanks to the agreement reached over the weekend, our banks will now be able to access money based on commitment periods of between two and three years. This will be valuable for our banking system.
Issues also arise with some of banking debt, such as the Anglo Irish Bank promissory notes. I differ from many of the Members opposite regarding the way in which our total debt should be managed. I do not believe we should seek to write down or default on sovereign debt because even the short-term consequences could be catastrophic. I do not agree with the claim that our difficulties were caused by the near collapse of our banking system. The cost of bailing out our banking system is only a portion of the national debt. The remainder arises from the huge difference between what we took in taxes and what we were spending. We are trying to deal with the terrible mistakes made by previous Governments. However, we must review the rate of interest charged on the promissory notes for Anglo Irish Bank’s debts. The manner in which the rate of interest was negotiated and structured to protect that bank has caused major difficulties for the State and the country. The only way we can address this issue, however, is by means of multilateral negotiations.
We must work with the people who are providing this money. We have to fund a budget of €17 billion every year and our core banks need €110 billion in liquidity funding. Rather than contemplate reneging on a portion of Anglo Irish Bank’s debts, we must continue to negotiate an agreement that would reduce the rate of interest. Such a strategy will bring us significantly closer to exiting the programme.
Deputy Jerry Buttimer: The Minister for Finance described this as a technical Bill but it is important none the less. Irrespective of whether we agree on what Europe should be doing, we should not engage in the type of rhetoric we heard from Deputy Mattie McGrath this afternoon. Speaking about blood being spilled on the streets does not do anything for democracy or stability and it certainly does not help our image at home or abroad. It is important for the sake of the economic fortunes of citizens across the EU that Europe remains open for business. Last week’s agreement will require political leadership, courage and honesty. We must move away from the self-serving opportunism of political parties in their own lands.
We are, as Deputy Donohoe said, involved with the EU, IMF and ECB. We need to work with the troika, because if we did not have the troika, where would we be today? That is a question that is not asked very often. We could not go out into the international markets and we could not borrow money. I am wary of any mad rush to return to the markets unless we have the required foundation, structure and stability. It would be catastrophic for us to go back to the markets only to discover that we were not ready and should not have been open for business at all.
We have a public service that requires Exchequer funding to pay for those who work and the services that are provided to our people. The two key words are “public” and “service”. If we did not have the availability of the loan fund that we have now, that would be severely undermined. There is an implication, which we will hear from the other side, regarding the agreement that was signed initially and that has been continued, albeit in a different form, by the current Government. The Members opposite, many of whom I respect and admire, should not come into this House and tell the stories of friends, families and fellow citizens who are paying an inordinate price for the recklessness of a decade and a half of misgovernance, bad regulation and poorly run banks. That is the unfortunate thing. I really feel sorry for the people who have no jobs, who are in negative equity, or who are struggling; these include many of my own friends and family members. Let us put that in the context of where we are today.
The Minister used the word “stability” in his speech this morning. It is important that we, as a Government and as a member of the wider European Union, bring stability to the European economy, to our own banking system and to our people. If we cast our minds back to 12 months ago or 24 months ago, we can see the stability this Government has brought to the affairs of our nation and to our people.
I challenge the Members opposite to put aside their attempts to gain cheap political points by saying in the media that they will go to jail for not paying a tax, and look at the implications of what they are saying. The easy thing to do is to go on the airwaves and say, “I will not pay the €100 tax”, but we cannot do that. With election to this House comes responsibility. That means we must lead by example, and if we disagree with legislation, we must use the method we have available to us, which is to vote against it or table amendments to it. Let us put the wider interests of our nation and our people first rather than these cheap, self-serving vote-getting exercises in which we all engage from time to time. This is far too serious. I do not have the answers about where we are going, but neither does anyone else. We all have a viewpoint and a thesis that we think is the best, and that is fine. We are entitled to our opinions. However, our country requires us to show leadership, and it also requires President Sarkozy, Chancellor Merkel and Prime Minister Cameron to show leadership.
Let us go back to when the Bretton Woods agreement was originally signed and consider the original European Union concept. Are we saying today, in a 27-member Union, that we can stray away from this? Is that what we are really saying — that our political differences are so wide that we cannot agree, and that we cannot put aside internal political advancement for the sake of a better Union for all our citizens, no matter how imperfect? Look at how things have gone in America. On “CBS Evening News” last night there was a report on Slab City in California, where people are living in trailer parks out in the middle of the desert, trying to rear their families. Coming back to home, we must ask ourselves: without Europe, where would we be as a nation? We are a peripheral island country that requires strong trading partners. Yes, we need links with Britain, Asia and America, but mostly we need links with the European Union.
Let us put aside the pantomime season and be realistic, despite our political differences. I do not mind political differences, but our common aim must be to do what is best for our country and for our people. We should not be going out onto the plinth and allowing ourselves to be hostages to the media for a cheap soundbite. It behoves all of us — Government and Opposition — to remember this.
The Minister used the word “reform” in his speech, and he was right. Political reform in Europe is necessary and that is why it is important that we are playing a central role within Europe. I commend the Taoiseach, the Minister of State, Deputy Creighton, and the Minister for Foreign Affairs and Trade, Deputy Gilmore, on the role they have played in Europe in the past couple of months. Stability, a Common Market, and unity are what this Bill is about, and what Europe should be about. Deputy Donohoe talked about the law being passed. We have an obligation to obey the law. We cannot just break the law, and we cannot just walk away from our responsibilities. Those who attempt to do that are not serving Europe or Ireland well.
The other important point from the Minister’s speech was about the reduction in interest on our loans from the IMF, which is important. We are seeking to return to the markets, although we require assistance now. The global economy is in a state of peril, which has implications for us. There is an analogy to be made with the board of governors. We must adhere to regulations. The Members opposite wear seatbelts in cars, as we do over here. They do not break the speed limit or drink and drive. Equally, when it comes to our affairs in Europe, we should adhere to regulations. I welcome the Minister’s comments. We have an obligation to pay our debts. There is a good debate going on about the issue of sovereign debt and other debt, but as a nation, we should pay our sovereign debt. In saying that, I must say that the initial interest payment was too high, and I commend the Taoiseach and the Minister for Finance on reducing that through negotiation with the troika.
There is no easy way out of where we are today. We need to get back to a position in which we can return to the markets, but we also need to find commonality with Europe so that we can return to trading and show the rest of the world, as we have been doing, that we are open for business and that we are a good nation in which to trade and work.
Deputy Clare Daly: I cannot think of any greater cheap vote-getting exercise by a political party than contesting an election by saying it will not bring in a flat household charge and then, when it is elected, doing the complete opposite. This is, of course, the record of Fine Gael.
The Bill before us is relatively straightforward. Its purpose is to ratify changes to the IMF articles of agreement. However, we must first step back and examine the role of the IMF. It is clear that the IMF is not a neutral international economic advisory committee. The allocation of quotas and voting rights in the IMF, far from being about democracy, are structured in a manner to preserve a totally unjust economic system and to prevent any attempt by the majority of the world’s population to share in the wealth they create and to end poverty and hunger.
I was astounded by the remarks of one of the Fine Gael Deputies — I believe it was Deputy John Paul Phelan. He said that this legislation is about bringing fully democratic elections into the IMF. In his opinion, the role of the IMF was to secure the safe operation of the world economy and it had basically done a good job. I do not know what planet this man is living on but he clearly has no relationship with planet Earth as it is at present. The IMF is a totally undemocratic institution, designed in 1944 to enable the imperialist powers to maintain their control of the world’s resources. In the agreement there is an inbuilt domination by the US, Japan and the EU which is utterly disproportionate to their share of the world’s population.
The proposed changes do not in any way loosen the stranglehold of those main economic powers. While China and India have more than 40% of the world’s population between them, they have 6.01% of the voting rights in the IMF. Under this proposal China will take a great leap forward and go from 3.66% to 3.81% of the IMF voting rights, even though it has a population of 1,500 million people. A group of 24 sub-Saharan African countries with a population of 225 million is represented on the IMF executive board by Rwanda, which has a total of 1.39% of IMF voting rights. How any Deputy could claim that this is a democratic institution is beyond me.
The Bretton Woods institutions, the World Bank and the IMF are designed in a deliberate manner to ensure that the US retains control. A look at the figures proves that. The US effectively rules the IMF on behalf of the advanced capitalist countries. No country other than the United States has more than 15% of the voting rights. It will be 16.76% after these proposed changes. What that means is that the US has a blocking minority vote against any changes which require 85% of the votes. It can effectively block anything. This is a terrible embarrassment for the Labour Party in particular. It clearly supports the IMF and the troika and would have us believe that the IMF is an objective, technical economic advisory body. Its attitude is that if we just listen to the IMF, take the hits and make all the sacrifices, we will be on the yellow brick road to economic recovery. That is total nonsense.
The Labour Party would point to the fact that the missions of the IMF are defined in statutes. These include very lofty ideals such as: to facilitate the expansion and balanced growth of international trade and to contribute thereby to the promotion and maintenance of high levels of employment and real income; the development of the productive resources of all members as primary objectives of economic policy; members may exercise such controls as are necessary to regulate international capital movements. That is stated in the articles and statutes of the IMF. It sounds great, but what is its record in reality? The policies of the IMF contradict its statutes.
The IMF has supported neo-liberal policies, including the complete liberalisation of capital flows, which are precisely the mechanisms that fuelled the financial speculation that was one of the key reasons for the world economic crisis for which we are now paying the price. The Bretton Woods institutions have had oversight of the international financial system since 1944, during which time we have witnessed financial fraud, embezzlement and wholesale tax evasion, all of which have spiralled. Under the watch of the IMF and World Bank so-called offshore banking systems, which are really tax havens such as the Irish Financial Services Centre, IFSC, and so forth, have enabled capital flight, transfer pricing and massive tax evasion. The Tax Justice Network International report of last November estimates that total tax evasion now stands at $3,100 billion dollars, the equivalent of over 5% of the world’s GDP. This revenue and due taxes that are being withheld could transform the health, education and welfare services of the industrialised and the less developed countries. The losers are working people and their dependants in the industrialised economies and the poor in the least developed countries.
We must examine the record of so-called success with regard to the economic guidance of the IMF. I will not even give a Socialist Party analysis but refer to what some people in the heart of the beast say about it. The US Congress Meltzer Commission report of 2000 states the following:
Does this sound familiar? Of course it does. This is the same type of regime and policies that have been imposed on people in Ireland. The international economic crisis that began in the summer of 2008 demolished all the neo-liberal dogmas and exposed all their lies and deceptions. It totally discredited neo-liberal regulation measures and structural adjustment programmes. In addition, the economic predictions of the IMF have been incredibly unreliable.
The IMF is not a white knight coming to the rescue of the Irish economy or any other economies. This organisation has defended and advanced the neo-liberal agenda even though it has been discredited and the toxic policies it promotes are the ones for which ordinary people are now paying the price. It is particularly galling for citizens of this State to see a Labour Party in Government stand over such measures.
The IMF and the World Bank on a global scale are largely responsible for the food crisis during 2007 and 2008 which increased the number of people suffering from hunger by 140 million. The IMF and the World Bank produced the structural adjustment programmes which recommended that governments in Africa, Asia and Latin America should stop maintaining the grain silos that had been used to feed the domestic market during periods of food shortage or steep price increases. The IMF insisted that these countries, to secure loan finance, had to abolish food subsidies and cut public credit agencies giving subsistence to farmers, thus driving them into the hands of private lenders charging penal rates of interest. IMF policies coerced tropical countries to stop producing food to eat and instead promoted cash crops such as coffee, tea, flowers, peanuts and so forth for export, to ensure payment of loans to foreign banks, while opening their borders to food imports produced with major public subsidies in the advanced capitalist countries.
It demands that less developed countries open up their economies to the investment products and services of multinational corporations of the advanced capitalist countries. It does that to enable multinationals to produce what they like, where they like, under whatever conditions they like and at wages they decide with practically no taxation and 100% profit repatriation. The 30 years of these neoliberal policies were examined by the UNCTAD report in 2006 and declared a total failure.
These policies have caused enormous hardship, suffering and deaths in the least developed countries. Large numbers of subsistence farmers in India have taken their own lives in the course of the past decade because of the debts they had to take on as a result of the imposition of IMF policies. Far from alleviating poverty and promoting growth in this country or any other, the IMF and World Bank policies have led to massive increases in the public debt of the least developed countries, locking them into dependency on foreign banks, dollars and euro.
The G20 countries agreed, in the face of the crisis in 2009, to quadruple IMF funding to $1 trillion. Debtor countries can borrow $1 trillion from the IMF not to develop their economies and raise living standards, but to hand the money back to parasitic banks and pay exorbitant interest rates. The IMF is really saying that the solution to the debt crisis is more debt. That is all it is offering these countries.
The Minister, Deputy Noonan, and the Tánaiste and Minister for Foreign Affairs and Trade, who believe that the IMF programme and debt payment demands are manageable while at the same time lamenting the necessary sacrifices, are not learning the lessons of modern history. Debts that cannot be paid will not be paid and foisting austerity on people will not alleviate the situation.
People can waffle on all they like about the millennium development goals and so on. They are totally irrelevant against the backdrop of hundreds of millions of people dying painful deaths from hunger. The IMF and World Bank encouraged debt. It is odious, immoral and a major obstacle to fulfilling people’s basic needs on a global scale, including the right to food.
No tinkering with IMF voting rights will benefit working people in this country or the world’s poor. These discredited institutions will have to be abolished and replaced by really democratic institutions which a truly democratic economy would use to develop the world’s resources in order to enable all people to develop their talents to their fullest potential.
Deputy Arthur Spring: It is very fitting that the previous speaker mentioned so many sub-Saharan countries. Ireland is now beholden to the IMF, which shows us where it is in the scale of freedom and sovereignty. The people of Zimbabwe under Mugabe’s rule were praying for an institution such as the IMF to come in and help them because some people were starving billionaires.
It is with great disgust that I acknowledge the IMF is in this country and it will be a great day when we remove it. However, in light of the position we are in, I am glad it is able to assist us. We have developed a form of friendship, if one can call it that, with the IMF that will be an ally to us, along with the ECB. There is an understanding that austerity does not create prosperity. It has acknowledged that there must be some form of write-down and quantitative easing, something I believe in.
One has to look at the IMF in the context of our country being part of the ECB arrangement. A lot of rhetoric comes from the other side of the House about passing on ECB interest rate reductions. It is a complex matter. For example, Ulster Bank operates in Ireland but 3% of its capital is funded from the ECB funding. When people talk about passing on interest rate cuts to the generation of stressed mortgage holders, of which I am one, it is not a simple matter. A reduction of 0.25% cannot be passed on because in some cases as little as 3% of overall funding is involved.
The IMF was set up after the Second World War. It did a lot of good and kept a stable world economy. The Bretton Woods agreement fell apart in 1971 as a result of the credit bubble. It culminated in the current banking disaster. In the end there was one third the amount of gold bullion actually needed held in Fort Knox which was inextricably linked to the US dollar, the base currency of the world at the time.
If there is anything to be learned from the current disaster it is that the IMF and institutions like it need to put regulations in place to stop hyperinflation, credit default swaps and markets protecting themselves. The behaviour of the Tories over the past number of weeks is not encouraging. They are happy to have an entirely free market in London when we have seen what the transfer of capital without regulation means to countries such as Ireland.
The ECB will have to listen to the IMF a little bit more. It is not good enough that Chancellor Angela Merkel and President Nicolas Sarkozy are meeting and determining the fate of our currency. The IMF can have a role to play within European institutions. It is disingenuous to say it should not exist.
I am a member of the OSCE parliamentary assembly and this morning we met a small delegation. It was the only independent body able to independently assess the elections in Russia as being inaccurate and improper. If the IMF looked at departments of finance with the same level of scrutiny, we would be in a much better state than we are in currently. It is an international monetary fund and we operate in international markets.
This Bill is simply for housekeeping purposes. It will be a great day for the country when the IMF is no longer seated in this House and we are no longer accountable to it. I commend the current Government on the efforts it is making. We are in a black hole and it will take a long time to get out of it. There are bank guarantees in place which should not be. They were in place prior to the IMF agreement. We have to use the same ladder to get out of the hole with which we went into it.
We will all work as much as we can, roll up our sleeves and try to dig the country out of the hole but it will not be easy. Unfortunately, more austerity is coming. I raised the issue of quantitative easing with the Minister at a committee meeting. Prosperity will not be achieved through austerity but by having more money in the economy.
Deputy Thomas Pringle: I will respond to some of the Deputies on the other side of the House who said we in opposition should be wearing the green jersey and backing the decisions the Government is making, particularly in terms of the budget and continued austerity it is imposing on the people. It is perfectly legitimate for us not to agree with what the Government is doing, put forward alternative proposals and not support the cuts it is implementing. That is in no way going against the Irish people. Rather, it is arguing on their behalf.
There are alternatives. The Government and we as a people have choices. The Government has chosen to implement its budget. It could have made different choices, which is a perfectly legitimate argument. I do not agree with any member of the Government saying we should get on board with the programme and go along with the cuts and austerity being imposed because they are the only game in town and good for the Irish people. We are absolutely entitled to our view that the wrong programme and the wrong agenda are being pursued.
The legislation before us implements adjustments provided for by the review of the IMF management and voting weight structures, including an increase in the voting power of Ireland to something over 0.5%. This will have hardly any impact on our potential influence in the policy direction of the IMF. It bears repeating that the latter has not covered itself in glory over the years. It has been a tool of Western capital, forcing many poor countries to implement policies that decimated their economies and set their development back by decades. It initially did so in support of the United States in its Cold War against communism and, in recent years, in support of the neoliberal policy of globalisation. In pursuit of these neoliberal policies, the IMF has been heavily criticised for prolonging and deepening the Asian crisis in the 1990s. It forced fiscal reduction, increased taxation and widespread privatisation on Asian economies when what was needed was increased Government investment and stimulus which would have helped them to grow out of the difficulties they were experiencing.
The similarities to our current situation are obvious. According to its own fact sheet, the IMF’s role is to maintain stability and prevent crises in the international monetary system and to review country policies and national, regional, and global economic and financial developments. It is worth examining how it has applied its preventative role to Ireland. The IMF was full of praise for our economic model throughout the Celtic tiger bubble. Like the Financial Regulator, Central Bank and the other cheerleaders of the boom, it at no time shouted “Stop” or even “Slow down”.
In its country reports in the lead up to the crash, it remained full of praise for the model we were pursuing. For example, it stated on 14 September 2007, “The banking system is well-capitalized, profitable, and liquid, and nonperforming loans are low”. The executive directors commended Ireland’s continued impressive economic performance, characterised by one of the highest growth rates of GNP per capita among advanced countries and one of the lowest unemployment rates. The report went on to state:
In 2010, the IMF became one of the major partners in the troika. This was hard to stomach in light of its continued glowing reports even as the crisis deepened. Now we are asked to take direction from one of the cheerleaders of the boom-bust cycle. The IMF has praised the Government for the steps it has taken in forcing austerity on our people and ensuring the gamblers and speculators of the crash are protected, regardless of the costs to society, while cautioning that we should be careful of the impact the cuts will have on the disadvantaged. That must ring very hollow to the disabled, unemployed and low paid who are carrying the can for the developers, bankers and politicians who brought the country to ruin.
The changes covered by this legislation will remove the automatic right of countries to appoint directors, and all directors will have to be elected. This is no big deal. The voting weights are already heavily in favour of the United States and other Western capitalist economies. The board and decision-making structure of the IMF will continue to be controlled by the same countries that have driven the agenda for the past 60 years. We need only look at the record of the IMF in Asia, Argentina, South Africa and so many other places around the world to see how little that policy will change.
Deputy Finian McGrath: I welcome the opportunity to contribute to the debate on this legislation. It is part of the broader debate on the role of the IMF, the urgent need for radical and progressive reforms and the future of this country. Although it is a technical proposal, its implications for Ireland deserve careful consideration. I would urge balanced and honest debate at all times on these international economic matters and their effects on this State. Our people are tired of game playing. All they seek is sensible solutions to get us all out of this economic mess. It is time for leadership and straight talk from all politicians. I say this as an Independent Deputy and a person who is open to any sensible proposals for relieving the crisis.
The purpose of the legislation is to implement an amendment to the articles of agreement of the IMF, which was approved by the board of governors in December 2010. The articles currently establish two categories of executive directors, namely, those who are appointed and those who are elected. The amendment eliminates the first category and requires that all executive directors be elected. This forms part of ongoing governance reforms at the IMF. It is important that we have accountability and a democratic character in all institutions.
In regard to the broader debate, we must take on board the views of the general public. A recent survey showed that almost 50% of respondents agree that Ireland should continue to comply with the terms and conditions of the EU-IMF programme. This finding comes exactly a year after the previous Government announced the €85 billion bailout. Asked if the Government should continue to comply with the terms and conditions of the bailout, 48% of respondents agreed, one in three disagreed while 22% had no opinion. These figures speak for themselves. Some 22% of people have an open mind and want to see a realistic solution being proposed. Asked if the Government had reneged on its election promises to demand a better deal for Ireland, 39% disagreed and 36% agreed while 25% had no opinion. It is touch and go as regards 25% of the population. This survey reveals a significant and continuing shift in public opinion as the paralysing fear which gripped people at the beginning of the crisis is replaced by considered criticisms informed by greater knowledge as to what has been perpetrated on us. It also provides an opportunity for an objective study of the issues and the role of the IMF.
The Bill provides that: “(b) Subject to (c) below, the Executive Board shall consist of twenty Executive Directors elected by the members, with the Managing Director as chairman.” This replaces the provision whereby five of the executive directors could be appointed by the five largest members and it provides for an all-elected board. It is crucial that these are elected positions to allow for a democratic body. I have concerns about the democratic issue but I think we are moving in a sensible and logical direction.
The debt issue has been the elephant in the room and is of concern to all political parties and to the Technical Group. Many of us are concerned that this debt issue is preventing us from fixing the major problems. I urge the Minister and the Government to keep pushing with regard to this issue. Parties in the House are in agreement in this regard and I also include the views of Government backbenchers. The situation is holding back the country from sorting out our own national finances. This issue of the banking debt will drag our country down. It is not acceptable to penalise the poor, those in disadvantaged schools or those with disabilities. It is also bad economics because it will cost more in the end if these issues are not dealt with. I warn the Minister that balance must be employed to deal with the issues so that job creation is the policy as well as austerity measures. I accept that we must deal with our national debt and the public finances but as part of the resolution strategies we must develop a jobs strategy in order to lift the economy and get people off welfare.
The role of the IMF is to look after the banks and the financial institutions and our job as politicians is to look after the citizens in our own country. Members of the Oireachtas should not be afraid to examine and question everything that comes out of Europe and the powers of certain sections of the European Union. We must examine objectively our relationship with the European Union. We joined the EEC in 1973. The Common Agricultural Policy gave Irish farmers €44 billion between 1973 and 2008 and €1.8 billion a year since then, making a total of €50 billion to date. Up to 2013, Ireland will receive a further €18 billion from the structural, regional and cohesion funds. The payments into the EU budgets must be subtracted from this sum which is a total of approximately €25 billion since 1973. This is a net gain in the region of €43 billion. At the time of the so-called bailout by the troika this time last year, eurozone banks held €214 billion in Irish debt. German banks alone accounted for €103 billion of that total. The purpose of the bailout and the entire policy of saturating failed Irish banks with public money is to ensure these debts are repaid. Otherwise the eurozone’s banking system will be plunged into crisis. We must face up to these issues.
It is impossible to state precisely how much the Irish bailout of the eurozone is costing us taxpayers. We do not know how much NAMA will finally cost nor what the State’s stake in the banks might ultimately be worth. One slice of the cost is the money gone into Anglo Irish Bank. This is definitely dead money. It is a massive blood transfusion into a corpse. It amounts to €30 billion up front and at least €17 billion in punitive interest payments to the European Central Bank. This amounts to €47 billion, €4 billion more than all the money we have received from the EU through CAP and other funds since 1973. I am open to correction on some of the figures I have presented.
These figures are directly comparable, one being a transfer from relatively wealthy European and German taxpayers to the citizens of an economically hard-pressed Ireland, while the other is a transfer from the citizens of an economically hard-pressed Ireland to the relatively wealthy European and in particular German taxpayers. Germany had trouble in the bond markets recently in a sign that the eurozone crisis has spread to the very heart of the European Union. The country, whose credit-worthiness has until now been viewed as top class, can only sell two thirds of its ten-year bonds at auction, a development which has sent shock waves through the markets as investors wonder whether the fittest economy in Europe can remain immune to contagion from the eurozone.
In recent weeks, borrowing costs have moved steadily upwards in the case of France, Belgium, Austria and the Netherlands, countries holding the highest ratings. The climb in borrowing costs across the board is a sign that investors and banks are dropping their holdings of European debt, no longer confident in the ability of the euro to survive in its present form.
Japan’s biggest mutual fund has sold off its portfolio of Italian Government bonds but there are reports that the French bank, BNP Paribas and the German bank, Commerzbank, are selling European sovereign debt at a loss. We must deal with these issues in our discussion of the Bill.
The effect of this provision is that elections to all elected executive boards will continue to be at intervals of two years and in accordance with the regulations adopted by the board. Sections 4 to 15, inclusive, delete or amend the existing provisions which refer to the category of appointed executive directors and include transitional provisions to govern the period between the entry into force of an amendment and the first election following such entry into force. These sections do not provide for any changes to the existing provisions beyond those resulting from the elimination of the category of appointed executive directors. We should closely examine these matters in the debate on austerity and taxation.
The Ministers for Finance and Jobs, Enterprise and Innovation must take a more proactive approach to job creation. I wonder if the Government is alert to ideas being proposed by people in broader society, for example, in the agrifood sector, and on the Opposition benches, including Deputies from the Technical Group. It is astonishing that no one has taken up the ball and run with a proposal which has the potential to create 5,000 jobs through the revival of the sugar beet industry. The agrifood industry is up for the proposal, as is the wider agricultural sector. The figure of 5,000 jobs has not been suggested by the Technical Group or any left-wing body but by the Irish sugar beet bio-refinery group, which has carried out a feasibility study of reviving the sugar beet industry. The PricewaterhouseCoopers-backed study calls for the establishment of a bio-refinery plant somewhere in the country which would produce sugar and ethanol from beet and grain. The plant, which could be publicly or privately run, would cost an estimated €350 million to construct. It is envisaged that 30% of the finance required would come from equity investment, with the remainder being made up by 15 year bank loans. According to the study, the plant would be profitable within its first year of operation. This is a serious plan.
Deputy Finian McGrath: I welcome that. The revival of the sugar beet industry has been gaining traction in recent years, primarily because the European Commission will end its quota system at the end of 2015.
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