Speaking in the Dáil today after the total cost for the bank bailout scheme was revealed to be up to €49 billion Sinn Féin Finance spokesperson said this day will be remembered as Black Thursday.
Deputy Morgan said the reality is that Ireland is facing a Greek style crisis.
Deputy Morgan said:
“We have been told that the €34.3 billion figure is the ‘worst-case scenario’, but we must remember that all aspects of the Government’s banking strategy have been the worst case scenario up to now. When the Minister for Finance told us two years ago that the worst was over, the worst hadn’t even begun.
“When, according to the Finance Minister, the worst was over the cost of the overall bank bailout of nearly €50 billion hadn’t even surfaced. Indeed, when Brian Lenihan first proposed nationalising Anglo Irish Bank in January 2009, he estimated that it would cost €4.5billion. Government policy is like watching economics for slow learners. It takes them years to decide anything and when they do, it's the most costly and worst option.
“The impact that this bailout will have on the Irish deficit is enormous. Almost every cut that is being made is to fund the Government’s failed banking policy. Where will the growth come from to bridge the chasm between what the Government is spending on the banks and what they are taking in? The bill for this bailout will bankrupt the country. The reality is that Ireland is bust and faces a potential Greek-style crisis.
“No matter what language the Government tries to hide behind, the fact is that the taxpayer has to pay for the Anglo debacle – it is public funds being pumped into these banks and it is public services and welfare that is being ruthlessly cut to try and bridge the gap in the public finances. Our government's banking policy makes the mistakes in Iceland look tame.
“Today will for ever more be known to the Irish people as Black Thursday.” ENDS
Full text of Deputy Morgan’s speech follows:
Projecting the cost of the Anglo Irish bailout as €29.3 billion is completely sly when admitting in the same breath that the final cost will most likely rise to €34.3 billion, in the event of further losses.
We have been told that the €34.3 billion figure is the ‘worst-case scenario’, but we must remember that all aspects of the Government’s banking strategy have been the worst case scenario up to now. When the Minister for Finance told us two years ago that the worst was over, the worst hadn’t even begun.
When, according to the Finance Minister, the worst was over the cost of the overall bank bailout of nearly €50 billion hadn’t even surfaced. Indeed, when Brian Lenihan first proposed nationalising Anglo Irish Bank in January 2009, he estimated that it would cost €4.5billion. Government policy is like watching economics for slow learners. It takes them years to decide anything and when they do, it's the most costly and worst option.
Concerns about the Government’s ability to pay for the banking bailouts have pushed Irish State borrowing costs to record levels. Because of the financial impact of the guarantee, the borrowing, the recapitalisation of the banks – Ireland’s debt is now being serviced at a record Irish and EU high of 6.8%.
The prospect of the Government taking a majority shareholding and control of AIB is now inevitable and has been since the outset of this crisis. AIB should have been nationalised two years ago, as advocated by Sinn Féin. Swift and decisive action two years ago to make this move would have dealt with credit streams to SMEs and households, and it would have stabilised the banking sector.
The impact that this bailout will have on the Irish deficit is enormous. The Government’s goal to come back within the Stability and Growth Pact by 2014 has been blown out of the water. Today’s estimates will mean the Government has less money to spend and will have to introduce an even tougher Budget in December. Almost every cut that is being made is to fund the Government’s failed banking policy. Where will the growth come from to bridge the chasm between what the Government is spending on the banks and what they are taking in? The bill for this bailout will bankrupt the country. The reality is that Ireland is bust and faces a potential Greek-style crisis.
Bondholders lent private money to private banks, not to the State. They did not lend the money for infrastructural investment, they did not lend the money to create jobs- they lent their money for a high return. The Government warn that cutting Anglo’s bondholders would kill demand for Irish sovereign debt. The opposite is true as record-high sovereign spreads show. The open-ended exposure to private liabilities across the banking system drives up sovereign yields. While the State continues to promise it will fund Anglo’s bondholders, the prognosis for financial institutions and the State’s own sovereign debt remains uncertain
Why should we socialise the losses of the financial sector? Why should we inflict pain on our people for the failings of capitalism, liberal markets and unbelievably greedy bankers and speculators?
It is demanded of us that the economy be hamstrung by pay-cuts, jobs losses and privatisations AND that it service a now increased level of debt. Reducing incomes while increasing debts only raises the risk of default, hence yields continue to rise. A crucial, yet widely ignored point from Standard & Poors when downgrading Irish debt is that the austerity measures have depressed activity and tax revenues. This slash and burn approach does not work and only increases both the budget deficits and the interest rates on Government debt.
No matter what language the Government tries to hide behind, the fact is that the taxpayer has to pay for the Anglo debacle- it is public finds being pumped into these banks and it is public services and welfare that is being ruthlessly cut to try and bridge the gap in the public finances. Our government's banking policy makes the mistakes in Iceland look tame.
Feeding the opportunistic bank bondholders is killing economies in trouble. If an economy doesn’t grow but tries to pay back huge debts, it will turn into a debt-servicing agency, which hollows out the productive marrow of society. The Government has placed international bondholders above every man, woman and child in this state, on this, the worst day for our economy in history.
The reality is that the Irish Government’s credibility is being contaminated by the banks. Our banking system is in a crippled state and this is having a serious impact on our Irish sovereign debt. The markets want growth and anything that strangles growth scares them.
The State’s own sovereign debt has become tied to our banking institutions: the most recent increases in interest rates on Irish state bonds are directly linked to the uncertainty surrounding Anglo Irish and Ireland’s ability to pay for Anglo’s debts.
Ireland will fill economics books of the future with tales of pathetic -and corrupt- economic management. Those who run our country recklessly fuelled the boom with disastrous consequences and now, in the bust, they are making things considerably worse. The problem for us is that the very people who didn’t see the bust coming and cheer-led the country over a cliff are the same people in power now.
Sinn Féin’s reaction
In advance of the 2007 general election, Fianna Fáil told the electorate that the economy was fine- that it was built on solid foundations- when it was clear that this was not the case. Today Fianna Fáil, and especially the Taoiseach Brian Cowen, are lying to the public when they say that nobody was warning of the pending economic crisis- they do this to hide their own culpability in the financial and banking crisis we are facing presently.
Today the bill for the bank bailouts has escalated to €50 billion. This government has done more to ruin this state's future in one day than any other single body, institution or group has ever done. We are being deliberately sabotaged by a government that also has the neck to go out and defend, arrogantly, what it has wrought upon the people of this state for generations. This was a home grown crisis, fuelled by the culture of greed and corruption of successive Fianna Fáil governments, it was the dismantling of regulation by the Government coupled with their pro real-estate policy that brought this financial and banking crisis to fruition.
Today, Sinn Féin has tabled a motion of no confidence- no confidence in the very Minister entrusted with the financial security of this State, the Minister who has led Ireland on a trajectory of perpetual debt for generations to come and the person who will savage public services for the people of this State in December.
Sinn Fein TDs have placed a motion before this House which reads as follows:
“That Dáil Éireann,
expressing its serious concerns about revelations in RTE Freefall Documentary on Monday 6 September 2010 that Bank of Ireland Chairman Richard Burrows and Chief Executive Brian Goggin were informed by Anglo Irish Bank Chairman Seán Fitzpatrick and Chief Executive David Drumm that Anglo Irish Bank was insolvent and requested a takeover of the Bank;
Noting that immediately following this meeting Bank of Ireland management then contacted Allied Irish Bank and both banks immediately sought a meeting with the Minster for Finance Brian Lenihan;
Further noting that following these meetings the Minister introduced the Credit Institutions (Financial Support) Bill 2008 (the Bank Guarantee) on the 30 September 2008 claiming in the Dáil that the purpose of the Guarantee was to deal with liquidity or cash flow issues within the Irish Banking system;
Deplores the fact that the reality of the situation in Anglo Irish Bank was not revealed to the Dáil by the Minister before the passing of the Guarantee;
Noting that due to the financial impact of the guarantee and the subsequent borrowing and the recapitalization of the banks that the State's debt is now being serviced at a record Irish and EU high of 6.8%;
noting that the estimated cost of the Government’s banking policy has continued to spiral out of control;
Noting that new estimates for the capital and recapitalisation costs of Anglo Irish will reach €34.3 billion and that the total cost of the bank bailout will reach €49.3 billion
has no confidence in the Minister for Finance, Deputy Brian Lenihan.”
What would SF do?
There is need for an immediate exit strategy and the way to do this includes:
• The creation of a State bank by nationalising AIB & BOI
• To nationalise the positive assets, including the deposits and performing loans, of AIB and BOI & transfer into the new State Bank
• To allow the banking guarantee to lapse
• To allow the remaining assets of AIB, BOI and Irish Nationwide to be divided up between the bondholders of those institutions;
• To secure all deposits in the State bank, given that all activities at the bank are under sovereign guarantee
It is becoming increasingly clear that the Government will bankrupt the state if we continue to repay the bondholders. Bondholders must be cut loose. Allow the guarantee to lapse. The taxpayer has no obligation to repay both senior and subordinated bondholders at Anglo on the grounds that:
(a) The terms of these securities allow for the possibility of them not being paid back if the bank is insolvent (this is why banks get to count these securities as part of their regulatory capital).
(b) None of this debt matures until 2014 at the earliest
(c) These bonds will no longer be covered by a state guarantee.
All banks are to varying degrees zombified i.e. they are unable or unwilling to provide credit to the economy. We must, therefore, transfer the deposits into a new, single, State bank where their deposits would be safe and thus reopen credit streams.
Through public ownership the State will be in a position to directly control finance and ensure that credit is injected into the real economy. Scarce public funds should not be used to continue to bailout bondholders from their own reckless behaviour. It is time the Government accepted that the current strategy to restore our banking has failed.
Ireland and Europe operate under a financial system called capitalism. That system prescribes that if a business venture fails then the loss arising falls on the shoulders of the investors. These were private investors investing in private enterprises. Why are you changing the rules in this case when it benefits your cronies?
An exit strategy from the current debt crisis is imperative and a new system of public banking must be established.
A Plan for Deficit Reduction
An economic policy that is reduced to focussing solely on saving banks and reducing a deficit, without any attention to the growth side, is doomed to failure. The Government have commit to put in whatever capital is necessary for splitting Anglo in two and its subsequent recapitalisation, today’s figures peaking at a whopping €34.3billion, but the economy outside the banks is being grossly neglected.
The government claims that the overriding priority is reduce the public sector deficit to the Maastricht Treaty limit to 3% of GDP by 2013/14, and that massive cuts to spending will achieve that. Sinn Fein disagrees on all counts.
Our overwhelming priority is the economy, restoring growth, reversing the tide of business bankruptcies, getting people back into work and restoring funding to our schools, hospitals and investment in our infrastructure. These are the polices that will actually secure deficit reduction, as tax revenues rise and welfare outlays lowered as people are brought back into employment.
The deficit is a symptom of the crisis- not its cause. The deficit appeared precisely at the time of the recession. Before then the Exchequer annual returns were in modest surpluses. But government policy has exacerbated that deficit, producing the highest in the Euro Area at 14.3% of GDP. The underlying deficit, excluding the extra money that can always seem to be found for bank recapitalisations, is still an enormous 11.6% of GDP.
Government policy is a complete failure even in its own terms. No reputable international or domestic agency, IMF, OECD, EU or the ESRI believes the 2013/14 target will be met and most forecast the deficit will rise further in the short-term.
All these agencies concede that the prospects for reducing the deficit are dependent on the levels of growth achieved over the medium-term. This is the real determinant of the deficit. The bitter experience of the last two years is that cutting spending has weakened growth and therefore led to a wider deficit. A pro-growth strategy is required to revive economic activity and narrow the deficit over the medium-term. This would include investment in growth-enhancing education, R&D, infrastructure, health and childcare.
Brian Lenihan assured us at the time of the last Budget that €4bn of cuts would be the ‘last big push’ required to ensure stabilisation of the economy and government finances. Now it is claimed that further cuts of at least €3bn will be required, because the domestic crisis deepens. This is the madness of repeating a policy which has already failed.
The cuts have failed in their stated objective. The opposite course is actually required. Just as lower government spending sharpens the downturn, lowers tax revenues and increases welfare outlays, so increased government spending can do the opposite. That is the way to close the deficit-through government investment.
The continuing problems of the economy here are entirely home-grown.
The Government provides money to financial businesses in previously unimaginable quantities. But there is no control over the use of money, no safeguarding of the essential economic functions and no accountability for the damage that has been done.