Speaking on the report of the Banking Inquiry
I welcome the report of the Joint Committee of Inquiry into the Banking Crisis.
I want to thank the chairman, Deputy Ciarán Lynch, and the members of the Committee for their hard work and dedication over the last year.
The report adds significantly to our understanding of the causes and consequences of the greatest economic catastrophe to hit this country.
A very important element was that this inquiry, unlike previous ones, met with witnesses in public.
The people responsible for the destruction of the economy and near-ruin of our State were brought into the glare of public scrutiny to answer questions the people wanted asked.
In that respect, I believe the Committee has underlined the ability of the Oireachtas to carry out such inquiries, albeit not with the full range of powers we might like.
The IMF described the Irish banking crisis as “the costliest crisis in advanced economies since at least the Great Depression”.
It resulted in an upfront €64 billion bill to the taxpayer to recapitalise the banks – although this Government will ensure we get at least half of this back.
It saw the economy collapse, with more than 300,000 people losing their jobs and unemployment soaring above 15%.
And it brought the public finances to the point of bankruptcy.
The deficit reached an incredible level of over 32% of GDP in 2010.
And public debt increased four-fold to over 120% of national income.
The result was the troika arriving into town on Fianna Fail’s watch.
All of this was a far cry from“the cheapest guarantee in the world so far”, as described by the then finance minister in 2008.
In fairness to the late Brian Lenihan, he was left grappling with a crisis that his colleagues in Fianna Fail had stoked for several years.
But the reality, nonetheless, was catastrophe.
That’s what the Labour-Fine Gael government were elected to tackle.
The report describes in great detail the role of the many actors in this tragedy:
· the banks who, abandoning any semblance of prudence, lent recklessly to the property sector, feeding a property bubble of historic proportions;
· overseen by external auditors who adopted a see no evil, speak no evil approach;
· A regulator and Central Bank with sufficient powers to intervene but who chose a light touch approach to regulation, which in effect amounted to no regulation at all.
And overseeing all of this was the Fianna Fail-led Government, which – ignoring all the advice available to it – pursued policies that made the crisis many times worse.
Property tax incentives fed and nurtured the bubble – the kind of tax breaks which I spoke out against time and again in this House.
The report notes the lost opportunity to mitigate the property bubble from 2003, when the Government failed to reduce or abolish property tax incentives as originally planned.
Although the then Minister for Finance set up a review of these schemes in 2004, by 2006 most were still in place and deadlines were still being extended.
Against the clear advice of officials, successive Fianna Fáil-led governments doubled up on pro-cyclical policies and hollowed out the tax base, masking an enormous structural deficit in the public finances.
Over the ten budgets between 1999 and 2008, the contrast between the proposals in the June fiscal framework and the size of the tax and spending measures in the subsequent Budget, reveals the recklessness of their policies.
In only one year – 2003 – was the size of the subsequent Budget day measures less than recommended.
And in that case, the difference was marginal.
In 2001 and again in 2007, on the eve of disaster, the gap is particularly shocking, with the size of Budget measures almost double what was recommended.
I note that in 2011 Micheal Martin apologised for the many disastrous mistakes Fianna Fail made in government.
I think the publication of this report, and the debate here today, would be a timely occasion for Mr Martin and his colleagues to repeat that apology now, rather than conveniently develop amnesia about it.
Fianna Fail will say, of course, that it was chiefly a global crisis that caused our collapse.
But what is particularly striking in the report is the dominance of domestic actors in propagating the crisis.
Yes, international actors played a role.
The weakness of external surveillance from international organisations such as the OECD and the IMF is notable.
But in cases where clear warnings were given, such as the European Commission ruling on fiscal policy in 2001, they were ignored.
This was very much a crisis made in Ireland.
It played out against a background of internal economic crisis which probably brought it to a head, but to quote the Regling and Watson Report, the Irish banking crisis “was in crucial ways ‘home-made’”.
The role of international institutions came to the fore in dealing with the consequence of the crisis and in some cases, regrettably, in increasing the costs to the Irish people.
The report is clear in the view that the opposition of the ECB to imposing losses on senior bond holders “contributed to the inappropriate placing of significant banking debts on the Irish citizen”.
However, the report also notes that, in terms of mitigating the costs to the Irish people by burning the bond holders, that bird had flown by the time the troika arrived.
The most opportune time to burn the bond holders was two years earlier in the months before the disastrous bank guarantee.
While we may have saved some billions by burning the remaining senior bond holders in 2010 and 2011, we would have saved tens of billions if the Fianna Fáil-led government hadn’t guaranteed them in the first place and paid most of them before the troika arrived.
It is in describing both the lead-up to and the night of that infamous decision that this report adds most value.
The Labour Party stood alone in this House in opposing the guarantee because we believed it posed a real risk to the solvency of the State.
Sadly, that proved to be the case.
And in this report, the sheer recklessness of that decision – and the utter dysfunction of the Government that took it – is clear to see.
Labour and Fine Gael in Government have worked hard to undo the damage.
We have driven a strong recovery in terms of both economic and employment growth.
We have torn up Fianna Fail’s toxic Anglo prom notes, lowered the interest rates on our bailout loans, and saved the State tens of billions of euro in the process.
We are returning the public finances to health and lowering our debt on a steady basis.
In the last two Budgets, we have been able to begin the process of gradually raising living standards, by reducing USC for low and middle income workers, raising Child Benefit, increasing the State pension, and investing significantly in schools, healthcare and other essential public services.
But let’s be clear: getting to this point has required extraordinary sacrifice from our people.
Sacrifices that should never have been required if the various actors had been doing their jobs correctly, and if the then Government hadn’t taken its eye off the ball with such disastrous consequences.
In making a permanent record of it, the Committee has done this State a great service and they are to be commended for it.