Finance Bill 2011

Speech by Dan Neville TD on Finance Bill – Job Creation Initiative ail Eireann

I welcome the opportunity to contribute to this debate. This is an important initiative, promised by the Government parties when campaigning in the general election. Job creation is one of the key issues to which the people want to the Government to respond.

There is nothing so devastating as being unemployed and not having an opportunity to obtain employment. Nothing attacks one’s self esteem so much. The sense of hopelessness that results from it has a very deep effect on one’s psyche. I can speak from experience. When I was elected to the Oireachtas I came off the live register, having had a senior position in a company until two years previously. While I did some consultancy work, for much of that time I signed on at my local Garda station every Monday and travelled every Friday to get unemployed benefit to feed my wife and four young children. There is nothing as devastating as to be in a situation like that.

The late 1980s were a hopeless time, especially for people who had been professionally involved in a company. There were no employment opportunities for someone who had spent 18 years in a management capacity. Employers are, rightly, careful to match the employee to the job. I fully understand that people who are overqualified for positions are not employed because of the difficulties that can arise from frustration and lack of job satisfaction in such a situation. I believe I was the only new Oireachtas Member in 1989 to come off the live register when elected. At the time, I was an employer’s nominee on the Employment Appeals Tribunal and I was paid for that one week in six. I also got some management consultancy for six weeks at one stage and for a couple of months at another. For much of the time I was unemployed and I can relate to that situation.

There is a human aspect to the initiatives being taken. We often miss the human aspect of political decisions. We sell them as political initiatives, and rightly so. We must also remember the human factor in all decisions that we politicians make. This is true for the work of all Departments. It is particularly true of the work of the Department of Justice and Equality. I have had much contact with prisoners because of the level of mental ill-health among the prison community. At a previous time there was a high level of suicide in prisons. Thankfully, this is no longer the case. I have spoken to prisoners and to ex-prisoners. I visited Mountjoy Prison on many occasions with the former governor, Mr. John Lonergan. We can say prisoners should be put away and locked up forever, but there is a human and family aspect to every prisoner.

We promised a jobs initiative. The credibility of our profession rests on our meaning what we say when we make a promise. If we cannot fulfil a promise we must explain why as clearly and as often as possible rather than allowing the matter to drift and speculation to develop. One may not be able to fulfil everything one promised in opposition when one is in Government. When one is in opposition one does not have the resources fully to assess the implications of what might be a very good proposal. I came across many examples of this in the work I did on mental health while in opposition. For generations, the mental health services were insignificant in the political process. Things are improving but at a very slow rate.

There is a common call that Ireland should default on our IMF-EU agreement. People are talking about this as a solution. This is especially so since the Professor Morgan Kelly intervention and his prediction that our national debt could reach €270 billion. I recently read a very well researched article by Louise McBride in the Sunday Independent . Ms McBride analysed the effect a default would have on the social fabric of the State and how it would affect people. Default may be an economic solution but what are its social implications? It would destroy our international reputation and there would be serious implications for life opportunities and the standing of our citizens. We may decide to leave the eurozone, but if we default we are likely to be thrown out of the eurozone and would revert to our own currency. The value of that Irish currency would likely collapse, causing a currency crisis. This happened in Argentina. Before Argentina defaulted on its foreign debt in 2001, the Argentine peso was on a par with the US dollar. After the default it lost 70% of its value.

Mr. Kevin O’Doherty, the director of the regulatory consultants, Compliance Ireland, has claimed a default would probably wipe out the value of savings and could also make it impossible for people to get their hands on those savings. He stated:

If Ireland defaulted on its foreign debt and reintroduced the punt, the money in most bank accounts would be in punts rather than euro. Because of the economic situation the country would be in, the value of the punt would plummet. The value of your savings would go down as the currency depreciated. If you have your life savings squirrelled away in the credit union, you’d find the value of those savings diminished as the price of foreign goods and services becomes more expensive.

I am quoting the experts in this area because I am not an expert and I believe both sides of the argument should be presented. Mr. Cian Twomey, a lecturer in financial economics at NUI Galway, said the value of people’s savings would be at least halved if Ireland defaulted and left the eurozone, and claimed “Our savings would be worth between 50 and 70% less in punts than they would have been worth in euro”.

People might also find themselves locked out of their savings accounts. When Argentina defaulted in 2001, the Argentine Government froze deposits to prevent savers converting their deposits into a more valuable foreign currency. It also restricted the amount of money Argentinians could withdraw from their accounts to about 250 pesos a week, worth about €135, in the wake of the default. Not long afterwards, it was a common sight for Argentinians to search for ATMs that were not empty. People could lose their savings if their bank or credit union went bust.

The Irish Government currently guarantees savings of up to €100,000 and in excess of that figure in some circumstances. In this regard, Mr. Cian Twomey stated:

If Ireland defaults, how would the Government continue to guarantee deposits? The Government can only continue to guarantee deposits if it can continue to borrow.

If Ireland defaults on its IMF-EU loans, the chances of finding anyone to lend us money at non-prohibitive interest rates are slim. More than €100 billion worth of savings were withdrawn from Irish banks last year amid fears caused by our banking crisis. If Ireland defaults and the Government clamps down on savings, as the Argentinians did, billions of euro could leave the country and people would take desperate measures. In this regard, Mr. Kevin O’Doherty stated: “People with a bit of money would fly off to France and other European countries and open a euro bank account”.

With regard to mortgages, if a person has a cheap tracker mortgage, some believe he or she might have to kiss goodbye to it if Ireland leaves the eurozone. According to Mr. O’Doherty:

The interest rates on your mortgage would be set to the Irish punt. That means your ECB tracker would disappear.

The tracker mortgage is a contract which the person has with his or her bank, so whether the person would lose it if Ireland left the eurozone remains to be seen. However, in circumstances where the interest rates on mortgages were tied to the Irish punt after an Irish exit of the eurozone, interest rates would soar.

Less than 20 years ago, a currency crisis hit Ireland. The Irish punt was devalued by 10% and Irish interest rates reached unprecedented levels. Mortgage interest rates in Ireland climbed as high as 16% in 1993. What would be the level of interest rates if we were to devalue by 50% to 70% against the euro? Those who had taken out a loan from a European bank would also be in deep trouble. An Irish citizen would find it much harder to pay back a mortgage in euro if he or she is being paid in punts, as the punt would very rapidly be worth much less than the euro.

What would be the situation if Ireland followed in the footsteps of other countries that have defaulted? When Argentina defaulted, it expropriated pension funds, transforming them into government-backed loans to service debt. The price of foreign goods has exploded in countries that have found themselves embroiled in currency crises. In Argentina, inflation hit 30% just a few months after the default. The same would probably happen here. Domestic prices, such as for newspapers or milk, would remain the same because they would be based on the punt, as devalued. However, as Mr. Kevin O’Doherty has stated, the price of products made outside of Ireland would become much more unaffordable, including foreign holidays, cars and half of what consumers purchase in the supermarket given that 50% of what we purchase in the supermarket is sourced from abroad. To pick out a positive in all of this, tourists would be one of the few to benefit from a currency crisis as their foreign dollars or euro would be twice or triple the value of the Irish punt.

With regard to what might happen in regard to social welfare, I will give the view of the Department of Finance, although some might worry about taking its view on board. It stated that if Ireland defaults on its EU-IMF loan, it would no longer have the financial support it needs to plug the massive budget deficit. The Government would have to unleash spending cuts of €18 billion to fund itself. To achieve that, the Cabinet could slash by about a third child benefit, dole payments, State pensions and public sector wages for our doctors, nurses, local authority workers and those working in other sectors. That is what default means.

Ireland’s international reputation might never recover. Multinationals could pull out of Ireland, leading to major job losses. Foreign companies eyeing up Ireland as a possible base could pull back from their plans. Mr. Cian Twomey of NUI Galway stated: “If Ireland suddenly defaulted, it would damage future investment in the country and dissuade people from doing business with us”. Paying by credit card could be impossible if Ireland defaults. Following default in Argentina, stores would not accept credit cards and millions of Argentinians were forced to barter for food and petrol that year because they were not allowed to spend the money in their bank accounts. The very least we can expect is a thriving black economy. By 2005, only four years after Argentina defaulted, it was believed about half of its population worked in the black economy, which lead to a big drop in the Argentinian Government’s tax revenue. For Ireland, this would mean less money for public services and, in essence, we would become a Third World country.

Perhaps these economists are the prophets of doom but when we had prophets of doom warning us about what was happening, a certain Taoiseach made a statement that upset us all, which I will not quote here because it is too sensitive to do so.