Thursday, 8 March 2012
Seanad Éireann Debate
Acting Chairman (Senator Paschal Mooney): This is the first occasion on which the Minister for Finance has joined us since his sad bereavement. I convey to him the deepest sympathy of the House on his loss.
Minister for Finance (Deputy Michael Noonan): Before I outline the purpose and content of the Bill, I thank the Senators for agreeing to discuss and consider all Stages of the Euro Area Loan Facility (Amendment) Bill 2012 today at short notice. Although it is a fairly technical Bill, it is critical to the public finances and our economy. Enactment of the Bill is required to allow Ireland to ratify the changes to the Greek loan facility. The changes agreed, reviewed by the Government and the other euro area member states, are essential to ensuring financial stability within the euro area.
The crisis in Greece has been ongoing since 2009. Senators will be aware that Greece entered its first programme of financial support in May 2010 following an intergovernmental agreement to provide bilateral loans totalling €80 billion to Greece from the euro area member states, together with the IMF assistance of €30 billion, over a three-year period to mid-2013. In late 2010, Ireland entered its own programme of assistance and consequently stepped out of the Greek loan facility. However, as one of the original signatories to the Greek loan facility, Ireland is required to give its consent in order to implement any amendment to that facility.
In June 2011, the Heads of State and Government agreed to revise the Greek loan facility. The changes agreed were to extend the grace period between draw-down and commencement of repayment from three to four and a half years, to increase the maturity period for loans from five to ten years, and to reduce the margin applying to loans to Greece under the Greek loan facility by 100 basis points.
This amendment to the loan facility agreement with Greece was signed by the Commission on behalf of the euro area member states on 14 June 2011, subject to ratification by all euro area member states. Ireland ratified the first amendment through the European Financial Stability and Euro Area Loan Facility (Amendment) Act 2011. On 23 September 2011, we notified the relevant authorities of our formal confirmation of our commitment to this amendment. However, these amendments have proved insufficient; hence, there is now a need for further amendments. On 20 February 2012, the euro group Finance Ministers approved the new programme of assistance for Greece which includes approval of the second amendment to the Greek loan facility. This amendment includes three elements: a further increase of the grace period, of up to ten years, for paying back the loan principal; a further lengthening of the loan maturity to a minimum of 15 years; and a further reduction in the margin to 150 basis points to apply from the three-month interest period that ended on 15 June 2011. The Bill provides for the ratification of these amendments.
The completion of the amendment, by way of signature by the European Commission on behalf of member states and by Greece, was not in place until 27 February 2012. This Bill is thus being presented at the earliest possible date following this completion.
All signatories to the Greek loan facility agreement have been asked to provide their acceptance to the second amendment to the chairman of the euro working group no later than 13 March 2012. This is to ensure that the next phase of the Greek loan facility can proceed as planned for that date. It has therefore been necessary to bring forward this Bill as a matter of urgency to ensure Ireland can confirm acceptance by that date. I have also brought forward an earlier signature motion for the President to sign the Bill.
The aforementioned changes to the Greek loan facility are proposed at a time when there have been many other changes to the Greek programme, most notably the €130 billion in additional funding that has been provided in conjunction with changed private sector involvement, PSI. As I have mentioned, the Bill provides for amendments to the Euro Area Loan Facility Act 2010, as amended by the European Financial Stability Facility and Euro Area Loan Facility (Amendment) Act 2011. The amendment Bill has four sections with the amendment of March 2012 to the loan facility agreement set out in the Schedule. The first section of the Bill provides the definitions to the legislation. Section 2 provides for the second amendment of February 2012 to be included in the references to the Euro Area Loan Facility Act 2010, as amended by the European Financial Stability Facility and Euro Area Loan Facility (Amendment) Act 2011. Section 3 provides for the second amendment to the loan facility agreement to be inserted as Schedule 3 to European Financial Stability Facility and Euro Area Loan Facility (Amendment) Act 2011. Section 4 sets out the Short Title to the Act. Annexe 1 contains the form of legal opinion. Annexe 2 contains the amended scheduled principal repayments. Annexe 3 contains the list of contacts. The Schedule contains the amendment of February 2012 to the loan facility agreement. This amendment includes the three elements I have already outlined, namely, a longer grace period a lengthening of the loan maturity, and a further reduction in the margin.
Ireland provided €345.7 million for Greece under the Greek loan facility before entering our EU-IMF programme, when we stepped out of the facility. Quarterly interest payments are being made by Greece on this. The reduction in the interest rate chargeable on the loan under the second amendmentwill reduce the interest we receive each year by €5.2 million, or roughly one third at current rates of interest. We expect that this will be offset by the provision for the distribution of profits from the ECB’s secondary market programme for Greek bonds. A further result of this amendment is that the grace period before Greece begins to repay the principal of this loan will be extended from four and a half years to ten years. The maturity of the loan will be extended from seven and a half years to 15 years.
It is important to show solidarity with Greece. However, we should also recognise the reality that there is a significant contrast between our condition and that of Greece. The underlying strength of our economy and thus our capacity to recover, is well recognised. This of course depends on the right mix of policies at home and internationally. Latest estimates show that economic growth resumed last year and the growth outlook for this year remains positive. Our export sector is robust, with the well known companies of the multinational element performing well together with a less heralded strengthening in the indigenous sector. Foreign direct investment is recovering, pointing to the continued presence of many of the established strengths of our economy, including a well educated workforce, favourable demographics, an open and flexible economy and a pro-enterprise environment. Moreover, the labour market is showing welcome signs of stabilisation. It is particularly encouraging that CSO figures show an increase of 10,000 in the number in employment in fourth quarter of last year on a seasonally adjusted basis, the first such increase in four years. In addition, our record on programme implementation to date has been second to none — something the troika team frequently acknowledges. We are meeting all of our targets. This performance is bringing benefits in terms of a falling bond yield and the recent successful re-engagement with the markets by the NTMA.
As our programme is working it is only right that we should show solidarity and unity with Greece and the broader euro area. I therefore look forward to a constructive discussion of this Bill. The Bill aims to facilitate the stability of the European Union and to safeguard the euro area as a whole. Ireland must play its part and stand in solidarity with its fellow euro area member states. This will be in both our own interest and that of the euro area and the EU as a whole. Therefore, I urge Senators to support the changes to the Greek loan facility. I commend the Bill to the House.
Senator Darragh O’Brien: I welcome the Minister to the House. This is a technical Bill, which the Fianna Fáil Party will support. The Seanad deals swiftly with EU related legislation, similar to the way we dealt with the Bretton Woods Agreements (Amendment) Bill 2011. It is important that this Bill is dealt with swiftly. When the group leaders discussed this Bill last week we agreed on the importance of sending out a clear message. The Minister has outlined clearly that Ireland is meeting the stringent targets set under the memorandum of understanding and the revised memorandum of understanding to which the new Government has signed up. We all recognise how difficult it is for our citizens to adhere to the changes in our economic climate and in the standard of living. It is very tough, but regardless of political party affiliations or none, we want to see light at the end of the tunnel. We want Ireland to do well and we want people to have opportunities. We want people who are out of work to be given the opportunity to work.
I have a number of questions which the Minister may be able to answer. It is important that we show solidarity with Greece. We should show solidarity with our European neighbours. The upcoming referendum on the EU fiscal compact is very important and I state unequivocally that Fianna Fáil will be strongly supporting a “Yes” vote in the referendum and will campaign for it also. I wish to convey my concern and that of my colleagues that the waters might be muddied, by linking the treaty to the write down of debt. I do not think the treaty should be discussed in conjunction with future write downs in debt or deals on the promissory notes. It should be clear that we debate what the EU fiscal compact is, what it does, and what it does not do. The Minister for Finance must send a clear message that the referendum is about the EU fiscal compact and not about our promissory notes. Has the Minister an update on how the negotiations are going? The Government seems to be confident that some deal will be done, which is welcome, but we must see the outcome.
The Minister highlighted the positives of the economy. For the 2,500 staff in AIB, today was a very difficult day. In his update on the programme for Government, the implementation of the new structure for Irish banking is mentioned. At the time, I was quite critical of the two pillar banks approach. In light of the discussion on the European banking situation, how can we ensure that we do not create a situation where we have a very strong AIB and Bank of Ireland that are larger than the Irish economy? Difficulties arose due to the size of Anglo Irish Bank and the other Irish banks because they were of absolute systemic importance to the economy. It was a mistake not to let EBS stand on its own two feet and allow US investment in EBS, in order that it would be another banking force, a fourth banking force, if we take Ulster Bank into account. While we recognise that we are in a very different situation from Greece, as we have diversified into other markets over the decades, the financial services sector in Ireland has taken a hammering. We have seen that with Aviva, Bank of Ireland and AIB. What is the position with the EBS and its staff? I also want to ask about credit in the commercial sector, an issue that will not go away.
Colleagues across the House have been critical of our two main banks and how they suport businesses. I do not mean to hijack the Minister about it but my party will support the Bill and I hope it will be quickly passed today. Can the Minister update the House on the Government’s stance and how it will ensure that AIB and Bank of Ireland meet its targets? We are all aware that some of the new business was based on roll-over commercial loans but written down as new business and overdrafts have been turned into term loans.
We all hope the economy will grow this year and that there will be further growth in the economy. Sustained growth cannot happen without our banks providing financial support to the indigenous business people who will create and sustain jobs. Our multinationals have access to finance but our small business sector does not.
I welcome the announcement of a partial loan guarantee scheme. It will not go far enough but one cannot fix everything overnight. The reality is that our two banks are not lending and stop people applying, as Senator Whelan mentioned yesterday. It is true. They are telling people not to bother submitting their applications for loans so they cannot go to the Credit Review Office, its chief Mr. Trethowan, or the internal appeals office in the banks. This issue is the elephant in the room. We are doing right by Greece today but this is a technical Bill and there is a broader issue at stake.
There will be growth in the economy of less than 1% this year but at least it is going in the right direction. We will not see the economy growing without business and the indigenous business sector being supported in this country.
I reiterate that my party supports the Bill and will swiftly pass it through all Stages today. I wish the Minister the best in his ongoing negotiations with the troika on our loan facility and promissory notes. I have another issue to raise but I will leave it until another day.
Senator Michael D’Arcy: The big issue for people to realise is the legality of funding and how it works for countries in a bailout programme, including ourselves. Ireland paid €357 million to Greece prior to our entering our own programme. I do not have a lot to say and will not repeat what the Minister said earlier. The Bill shows the difference. It struck me that when we entered our programme we were satisfied we would meet our targets and we are doing that. At every occasion we were at pains to state that Ireland is doing what it needs to do and we are not the Greeks. I hope I do not sound condescending. That is why the private sector is involved today, and over the next few days. They will ensure that we have an agreed programme for a reduction in national debt and that it is done in a staged and agreed manner.
It is important to show where the €80 billion for the Greek economy comes from and it is stated in the Schedule if people care to look. It is important and the details are all there, including the dates for when the moneys must be repaid. The legislation shows the solidarity that exists between our partners in the European Union and the other people that will fund the Greek nation. I do not want to diminish the pain that the Greek people are experiencing. To date salaries for Greek public sector employees have decreased by about 50%. Salaries have been decreased at a time when taxes have been increased so their take home pay will be reduced by even more. That will not be easy to bear for the hundreds of thousands of employees of the Greek state along with the structural deficits that the Greek nation has operated over the past number of decades.
We cannot forget that it is people that are affected when we talk figures. Far too often, some people in the body politic say the bondholders will get their money back and the easy stuff is being thrown out. The reality is, as shown by the negotiations taking place today, it is not the bondholders that benefit because they are surrendering between 50% and 60% of what they should be repaid. I have not a lot more to say on the issue and I will not do like Senator Darragh O’Brien by giving a broad financial speech. It is important to get the Bill moving and, as the Minister said, I hope it is concluded by the middle of March in order for the funds to flow.
Yesterday there was support in the House for the Minister’s efforts on the promissory notes and I hope that reassures him and Governor Honohan. I welcome the 10,000 jobs the Minister mentioned It is a sign that we are turning the corner and we did so because we have an export to GDP ratio of 100%. My misgiving about the Bill is that Greece is down at 25% and I cannot see how it can recover from the kind of measures before the House today. As has been referred to, we will see a Greek repayment of €52.9 billion, scheduled for between 2020 and 2026 as outlined in the annexe to the Bill. However, it is a small country that has a low ratio of exports to GDP. How do we get more Greek wine on our shelves and persuade people from northern Europe to holiday there?
The policy instrument that Greece needs is an exchange rate but that is a step too far. Greece is locked into the fixed exchange rate regime of the euro even though it has faults. We are not helping Greece today. I accept that the Minister wishes to show solidarity with it but does solidarity depend on a fixed exchange rate? I argue that it does not. Some EU countries, such as Sweden and the UK, do not use the euro. There is a Swedish delegation visiting us at present. Relations between the two parts of Ireland have never been better thanks to the efforts of the Government and its predecessor and different exchange rates operate in both jurisdictions. We have hung ourselves up on the euro and missed out on the misery that adherence to a rigid exchange rate regime brought to Greece, in particular. The revival of the Greek economy — I share that goal with the Minister — is not served by imposing a huge repayments burden and not addressing the euro’s design faults that have been referred to in the House. The absence of an exit mechanism and for fiscal transfers are not enough to make up for differences in competitiveness, a one size fits all interest policy, and a lack of protection for small countries. The latter happened to Ireland because a tsunami of credit came from Germany and France that destroyed our banking system and undermined the public finances.
Devaluation changes one price. We have had some success with an internal devaluation to change all prices because of our large export sector which the Minister referred to. The same cannot happen in Greece because of its small export sector. We do not have a single labour market. The theory is that Greek people should migrate to Germany and Irish people should migrate to Germany but we are more likely to leave the EU altogether. Irish people are queuing outside the Australian, Canadian and United States embassies. They are not queueing outside EU embassies.
After this crisis we must address the huge design faults in the euro that people like Milton Friedman drew attention to when the euro was put together. There is a certain irony that the gentleman who signed the first annexe was a legal adviser in the areas of justice, transparency and human rights. Many Greek people would feel their human rights have been infringed for the euro currency’s goal. It was said of a former Chancellor of the Exchequer in the past that he crucified the UK economy on the cross of gold. Frankfurt must be asked how far a single currency can be pushed with such design faults while imposing misery on Greece with Portugal and Spain to follow. This has to be introduced into the wider debate.
I thank the Minister for Finance for his contribution. However, there must be alternatives to every economic policy. The current euro one has been pursued relentlessly by the European Central Bank, ECB, and Germany without regard to what is happening to the peripheral countries. Accordingly, a contrary view must be stated and noted on occasion.
Like other Members, I have no difficulty with this technical Bill. We should all express our heartfelt sorrow to the Greek people as we are only well aware of the pain they are going through. However, it is a wider issue.
Reading the excellent documentation on this legislation furnished to us by the Oireachtas Library and wider commentary, there is no doubt this bailout package is a bitter pill for the Greek people. I note much of the commentary is quite derogatory of the Greeks, littered with statements such as the Greeks cannot be trusted, they have been fooling us for years, they are spending other people’s money funding an unsustainable economy and have a significant black market. The bailout package does not even give them control over the funds. Instead, as they will be placed in a separate account, they will not even get to touch them.
As the Minister said, Ireland is not Greece. Our political leaders understandably point out that Ireland has a vibrant export-led economy very unlike the Greek economy. However, it remains that both our wider difficulties relate to the eurozone. The most recent EUROSTAT figures and statements by the EU Commissioner, Olli Rehn, make it clear that Europe is in recession. There is a link between that recession and our failure to deal with the euro crisis. Not to put too fine a point on it but Europe has failed miserably to support the euro. There have been repeated failures and, on every single occasion, Europe has been brought kicking and screaming to the table. I am reminded of similar political failures going back several years to the collapse of the former Yugoslavia. I do not need to remind Senators about the atrocities that took place in Srebrenica and elsewhere. There can be a high cost to failure.
The IMF has recently put it up to EU leaders that its contribution to the Greek bailout package will depend on European leaders putting up a decent firewall. The IMF will only decide its contribution after the second week of March at the next EU summit. This crisis is far from over.
As I stated, there is a certain amount of moralising about the Greek position. Other people’s failings seem not to get mentioned such as the French penchant for protecting its own industries or the Italian micro-economy that is largely untaxed. The bottom line is Ireland should be less willing to distance itself from Greece. Ireland, Greece, Spain and Portugal are peripheral nations in Europe. In the 1980s and 1990s, that element enabled us to build a useful alliance with these countries around the restructuring of EU funds away from the Common Agricultural Policy and towards Structural Funds and the Social Development Fund. We benefited significantly from that change in policy. We should consider a new sort of entente with our peripheral neighbours for a more formal strategic alliance to re-establish some balance between the interests of the periphery and the centre. After all, one of the premises of the EU is balanced regional growth.
Will this bailout be enough? From what I have read, the chances are it probably will not be. The chances in fact are that Greece will be voluntarily forced out of the EU. The reality remains, however, that this is the best package. To be honest, Ireland is hoping to benefit from this Greek tragedy. We cannot refer to it specifically due to media commentary in recent days but it is an opportunity for us to renegotiate our own position.
I will conclude by citing the Zarnowitz rule, which Senator Barrett knows, that deep recessions are typically followed by steep recoveries. On International Women’s Day, we should conclude this debate with that thought.
The Minister referred to European solidarity, rescue funds and the Greek economy. However, not enough emphasis was put on the plight of the Greek people who have had crippling austerity measures imposed on them. Neither did we hear that by the end of 2011, 21% of Greek people were out of work, of which 50% of them are young people. Homelessness has increased by 25% and poverty by 28%. One in five Greek people living in poverty can only afford meals with meat every second day. The Athens suicide hotline reports the number of calls it receives doubled to 5,000 in 2011. All this is as a result of austerity, cutbacks and economic contraction.
Now we are asked to support this second bailout which will cause further hardship for ordinary Greek people and impose further influence and vetoes over their democratic processes. The first bailout was not successful by any means. Greece still remains locked out of the bond markets and its government debt continues to spiral out of control. According to many of the social and economic indicators, the first bailout did not work. This new deal will force Greece to slash its minimum wage, sell off state assets and put generations in hock to foreign moneylenders. This is not right. The Greeks and the wider eurozone needs a change in direction with a new approach to investment in economic growth, a proper cleansing of the European banking system and real debt write-downs across the European Union. Investment in job creation is urgently required especially in those countries that are on the periphery. This can be achieved by combining the resources of member states such as in our case using the €5.4 billion in the discretionary portfolio of the National Pensions Reserve Fund with an enlarged investment from the European Investment Bank. The existing funds of that bank should be supplemented by a once-off investment in members states on a proportional basis. Rather than doing this through fiscal transfers between states, this could be done in the form of sound investments with sound returns. As Einstein said, we cannot continue to doing the same thing expecting different results. He also said: “Any intelligent fool can make things bigger, more complex and more violent. It takes a touch of genius and a lot of courage to move in the opposite direction.”
Greece and Ireland need to have a portion of their debts written down. In Ireland’s case, this could be done by writing down debts that were originally banking debts while continuing to honour sovereign debt. That continuity is the critical point. In the first instance, this would require lifting the obligation on the State and the taxpayer imposed by Anglo Irish Bank’s promissory notes. This could be achieved with the agreement of the European Central Bank, ECB, and reduce our debt to GDP ratio by as much as 20%.
Sinn Féin will oppose the Bill. Contrary to the Minister’s comments, it is not in the spirit of solidarity. Rather, it is about punishing and, to some extent, scapegoating people. It will inflict untold further pain on the Greek people without enacting real reforms at the wider level or cleansing the banking system. Until we have such reforms and start questioning the role of banks in the eurozone crisis, Sinn Féin will oppose the Bill.
Senator Paschal Mooney: I welcome the Minister. The detail of this amended Bill is interesting, in that the language could be transposed to the Irish situation in terms of a debt reduction or a rescheduling of the bank loans. I have every confidence that the Minister and the Government are working might and main to ensure that Ireland’s unsustainable long-term debt will be addressed.
We must show solidarity with the Greek people. We are in no position to lecture anyone. There is great empathy with the suffering of the Greek people, as many of our people are suffering as well. Thankfully, our suffering is not as bad. My main concern and that of many people is that the Greek debt might not be sustainable, regardless of how often it is rescheduled or the maturities are extended. Will Greece be able to get out of the debts that have been imposed on it? Sadly, the evidence to date suggests that it will not, even with the best will in the world.
As the Minister well knows, governments can propose austerity measures, but their implementation and the basic restructuring of the Greek economy, in particular its fiscal policies, remain to be seen. There does not seem to be the same level of solidarity among civil society in Greece as there is in this country. This is despite the efforts of a number of fringe elements from across our society who have attempted and continue to attempt to whip the people into a frenzy. As Dr. Colm McCarthy put it succinctly a couple of years ago, anger is not a policy. The majority of Irish people understand that the Government must work rationally and gradually towards extricating us from our difficulties.
I agree with Senator Barrett in that the basic problem is that the euro is a flawed concept. At the time, it was clear that the currency was being introduced as a political decision minus any of the dimensions that one would attach to a fiscal union. These issues must be addressed. I share the opinion of some economists to the effect that Germany will need to accept that issuing euro bonds is one way to extricate countries, particularly those on the periphery, from this mountain of debt. Effectively, this will mean printing money. People can call it quantitative easing or anything they like. It is ironic that the Central Bank printed the €31 billion for the so-called promissory notes. Germany is the key but, judging from what one reads, Angela Merkel is focusing on domestic political priorities at the expense of peripheral countries such as Ireland. Perhaps this is a political reality with which the Government must live, but I hope that pressure will continue to be brought to bear.
Irish debt is unsustainable, irrespective of what colour one places on it. An attempt must be made to reduce it. Peripheral countries such as Ireland have been made to pay for the reckless nature of the German banks primarily — they gave free money away — and for a general environment of light touch regulation since the euro’s introduction that has landed us in this situation.
A book entitled, This Time is Different: Eight Centuries of Financial Folly, was published last year by two academics involved in the financial services sector. They traced the economic cycles of boom and bust, recession and recovery over eight centuries. The good news is that recession was followed by recovery in each economic cycle, albeit the recovery was long and painful.
Senator Paul Bradford: I welcome the Minister and his delivery of Second Stage of this short but important legislation. As he correctly stated, it is important that we show solidarity with Greece. We must also show solidarity with the euro, which is the currency of Ireland, Greece and many other EU countries.
We could debate Greece, Ireland and our relationship at some length, but we do not have the time. As several Senators stated, it is important to highlight without any kind of negative connotation the fact that there is a difference between Greece and Ireland. The current phase of economic recovery in Ireland following 12 months of cautious management is progressive and charts a new way forward to help people return to work. Any facility, be it this one or another, that allows the Greek people to move in the same direction must be welcomed.
We must maintain the aspiration for a politically and, in so far as is possible, economically united Europe in which countries help one another. There have been many glib comments about the Greek situation, burning bondholders and being macho. We heard the same comments in respect of Argentina approximately ten years ago. One of my Oireachtas colleagues, Deputy Creed, happened to be in Argentina at the time. Speaking with him about it is interesting. He will remind one of being on the streets of Buenos Aires when middle class people were selling their furniture on the street outside their front doors. That is what all of this talk of burning bondholders, ignoring debts and being macho and brave meant for Argentina. It could mean the same for Greece and would mean the same for Ireland. The commonsensical economics and politics that Ireland now enjoys are necessary.
A programme was put in place for Greece and is being adjusted. We must support it and encourage the Greek Government and people to turn their economic affairs around. After Ireland’s decade-long mismanagement, we cannot lecture any country on how to do its business, but the taxation and revenue collection systems in Greece need to be addressed.
A sense of solidarity is required. Senator Mooney referred to Chancellor Merkel and the possibility of German politics intervening. We must take into account the fact that there are German and French elections on the horizon. The message from the Seanad is that we support the Bill and that we want Greece to survive and remain within the euro. The euro is not just a concept, but a currency that we use every day of the week. It needs to be strong and its member states must return to economic sanity.
I welcome the Bill and thank the Minister for his comments. Obviously, I wish him well in his quiet but effective ongoing work in tackling Ireland’s financial obligations on the international stage. Results will be achieved. It is not a matter for megaphone diplomacy but for quiet work and I do not doubt that the Minister will succeed.
Minister for Finance (Deputy Michael Noonan): I thank all the Senators who participated in this important debate. The Bill is technical and looks complex on first reading. However, the bottom line is simple enough. If Ireland and the other partner countries in Europe fail to legislate to amend the Greek programme to allow a second bailout, the €130 billion that Greece needs during March to avoid default cannot be paid. Senator Reilly is very compassionate about Greece and obviously understands the Greek situation — rising poverty, 50% unemployment among young people and a very high incidence of suicide. We know that Greece is in a bad state, but the solution is not to refuse to give it €130 billion which it absolutely needs. If she wants to show compassion for Greece, she should vote them the money in order that the schools and hospitals do not shut and the social welfare programmes are not turned off in the middle of the month.
Senator Bradford described what happened in Argentina, which was as a result of a default. There are witness accounts from Argentina of savings being wiped out completely, people selling their personal possessions on the street and the poor searching the dustbins to try to feed their families over almost a year. There was a similar default in Russia. Elderly people died in the first winter after the default in Russia because they could not heat their homes and could not buy food. The only way to manage such a situation is to make the adjustments gradually. The European partners have provided money to Greece to allow it to make the necessary adjustments over time. If the adjustment needs to be made suddenly overnight or in a month, chaos results. Of course, this €130 billion is being provided for Greece under conditions. One might object to those conditions if one were a Greek citizen. It is €130 billion coming in addition to the €110 billion it got in the first programme. That gives it time to adjust and it is adjusting. There is considerable criticism of Greece but when one considers the fundamentals of what it has done, it has taken action and has made progress, and I hope it continues to make progress. I am not sure where it might end up, but the essential thing for Greece is to give it time and provide it with the money to allow it to run its services.
Senator Darragh O’Brien had some extraneous questions. AIB is managed by AIB management with David Duffy as the new CEO. The target figure is 2,500, split between early retirements and voluntary redundancies. Some 1,000 — mainly management grades — will be by way of early retirement. The 1,500 will be on a voluntary basis and it is hard to know where they will be, but they will probably be more junior people. The bank expects those redundancies to be voluntary and it is offering three weeks plus two weeks statutory payment per year of service, which seems to be a reasonable package. I wish it every success. It is part of the downsizing of AIB, which became too big and was involved in projects throughout the world that were of no benefit to the Irish economy. As it reduces its loan to deposit ratios and lends less internationally, it needs fewer staff. It is a normal enough process and I hope it will be completed successfully and without too much aggravation. I appreciate the unions’ help and co-operation on this. However, it is a matter for the bank management and obviously we are monitoring it to see what is happening.
Senator Michael D’Arcy spoke about the Greek situation in general and expressed his strong views. Senator Barrett expressed doubts about whether it would be effective at the end of the day. There is a big international debate in both Europe and the United States on how best to deal with the recession. As it is a presidential election year in the United States, the issue is up in lights as part of the debate. On the one hand, the Democratic Presidency and the people surrounding the president favour demand stimulus through quantitative easing and investment in capital projects — that is the Democratic tradition going back to the New Deal — while, on the other, the Republicans do not believe in it at all and believe it would cause inflation and make the situation worse. They have a different take on what should be done. The lines are drawn fairly clearly along ideological lines. However, Keynes has gone out of fashion in Europe and austerity programmes are dominant in Europe now. However, there is a real debate and one can argue on either side of it, with considerable economic theory to support one’s arguments and we will see how it works out. It would be helpful to have more demand stimulus in Europe. Obviously the European Central Bank does not have the legal authority to get involved in quantitative easing, but under the new director, Mr. Draghi, more imaginative approaches seem to be taken and there are elements of demand stimulus now in Europe also.
Some Senators raised the issue of euro bonds. While, when viewed on a week-to-week basis, one might think that little is happening, in the past 12 months a series of initiatives have been taken in Europe. Taken together, it is quite an interesting restructuring of the policy instruments available to defend the currency. It will not end when the fiscal compact treaty comes into effect. This is a process that is ongoing and at some stage in the future I believe there will be euro bonds. I believe it is something that will develop as the currency develops across Europe. We are part of it and we need to do our best in negotiating our own positions. Certainly, there is a policy development that has been developing strongly for the past 12 months or so. I do not expect it all to end next week — the policy development will continue. This was an interesting debate and I do not disagree with much of what the Senators said.
The PSI in Greece should come to a conclusion this evening. It has been made very clear from the communiqués from the Heads of State and Government that this is specific for Greece and it is not permissible in any other euro country. It is Greece and that is the end of that.
Our position is that our debt is sustainable, which is confirmed by the markets which are marking down our bond rates now. Yesterday they were below 7% for nine-year bonds — I believe it was approximately 6.9%. While we would not go back to the markets at that rate, we are moving in the right direction. The interest rate charged on the secondary market is a reasonable measure of how the markets view the sustainability of our position and we are measuring up in that respect.
I again thank all Senators who participated and for their co-operation. We have deadlines to meet and it is very important that the authorities in Greece can draw on the money that is now being made available.
An Cathaoirleach: As fewer than five Members have risen, I declare the question carried. In accordance with Standing Orders, the names of the Senators dissenting will be recorded in the Official Journal of the Proceedings of the Seanad.
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