Loans to Ireland Bill

Alasdair McDonnell Excerpts

Wednesday 15th December 2010 Commons Chamber

[Dr Alasdair McDonnell (Belfast South) (SDLP)]

I congratulate the Chancellor on the proposal, which I fully support. It is my understanding that this step is being taken because there was a potential domino effect, in that any damage in the Irish Republic could have led to further damage to British banks that operate there and to damage to the Northern Ireland economy, and that in turn would have had a very significant effect on the British economy and British interests. I therefore see this as a generous move, but also a move of enlightened self-interest.

The Irish economy is in its current situation because it had a banking crisis, not an economic crisis. The underlying economy is sound; the potential for growth exists, and that growth will come forward. The pharmaceuticals and other major industries in the south of Ireland are thriving. The economy is expected to stabilise this year and to begin to expand at between 2.5 and 3% in the period 2011-14. The package of measures that is in place is required in order to restore the public finances and banking liquidity by 2014. The Irish Government have rapidly moved to curtail expenditure dramatically and to raise revenue themselves. The adjustment is expected to bring the economy back into balance within four or five years.

Ireland is a small open economy in which long-term sustainable growth depends on healthy international trading, and the conditions for export-led growth are in place: good infrastructure, high-quality human capital, a favourable taxation environment and available credit for viable businesses. The national recovery plan has been put in place, and it is tough and will be difficult. Export-led growth will foster recovery in domestic trading sectors. The growth in GDP is expected to bring unemployment down fairly rapidly, and certainly well below 10% within two to three years. The balance of payments will return to surplus in 2011, so Ireland will be earning its way out of the difficulty that it is in within the next 12 months.

Some Members have referred to Ireland’s membership of the eurozone as a major difficulty, but I do not agree. It is a handicap, but it is not as massive a disadvantage as some claim. Ireland’s membership of the eurozone obliges it to adhere to stability and growth rules and to bring the general Government deficit to below 3%. The Irish Budget contained a very tough package. Initially, the 2010 Budget presumed an adjustment of about €7.5 billion over a four-year period. With hindsight, we know that the figure proved to be almost double that—some €15 billion—as we crept towards the year end. Two thirds of that is coming out of budgetary adjustment achieved through reduced expenditure, and a third out of taxation. However, by 2014, Irish expenditure will be back to 2007 levels. Total Government expenditure as a percentage of GDP will be reduced from 49% to 36% in the next three years.

[Mrs Main]

I heard what the hon. Gentleman said earlier in his speech about why we should support southern Ireland, but I am struggling somewhat with his non-condemnation of membership of the eurozone. The euro seems to be a large part of the problems, but he seems to have glossed over that fact.

[Dr McDonnell]

Some of us see the euro as a problem and some of us do not. Being in the euro has been an advantage to Ireland for many years. It has become a handicap at present because of the restrictions and constraints, but the eurozone works and has worked very well for many years. In the present crisis it has its handicaps and limitations. Some people are predicting that the eurozone will collapse shortly; I do not accept that, and that is not the view of everybody.

The point I am trying to make is that Ireland’s underlying economy is healthy. Its membership of and involvement in the eurozone is healthy, and in the long-term it will come round and sort itself out. Ireland has a financial crisis—a banking crisis—that was brought about largely by a property bubble and a lack of liquidity, rather than a flaw in the underlying economy. I want to assure people that the money will be paid, in my opinion and assessment, and that in due course—

[Mark Durkan]

I thank my hon. Friend for giving way. Lessons will have to be learned, not so much about the euro per se but about the performance of the European Central Bank. There is a serious question to be asked about its insistence on low interest rates for a sustained period. That helped to feed the property bubble in Ireland, despite the valiant efforts of the then Finance Minister to find other ways of getting out of the economy the money that was fuelling the property bubble, such as paying off the national debt, putting big money into the national pensions reserve fund and introducing special savings investment accounts.

[Dr McDonnell]

I thank my hon. Friend, who puts it better than I could have done.

I want to come on to why international intervention was needed. Ireland did its best at an internal level. It is a small country in a very tough global marketplace, and it did its best to resolve both the banking and the deficit situations internally. However, the interdependence of the modern world, Ireland’s membership of the eurozone and large market movements put some of the solutions beyond internal domestic management. Indeed, as we all know, both the European Union and the eurozone are themselves facing fundamental challenges in devising a fair and equitable response to the financial crisis in other countries.

However, although the domestic measures in Ireland did not prove sufficient, that does not mean they were not necessary. Ireland did its best to solve the situation internally, and only in the end, when nothing more could be done internally, did it resort to international help.

There are major north-south implications within the island of Ireland. All of us in the island of Ireland remain convinced that north-south co-operation is a central element of the push for economic recovery—not just within the Irish Republic but within the north. Indeed, the Prime Minister referred to such matters at Question Time. Despite the difficulties, the Irish Government have maintained some €110 million of investment in the north in various things, including major infrastructure projects of importance to both the north and the south. I am referring to roads and other aspects that are central. All that is important, and works. For the future prosperity of the island economy it is essential to build on the peace that we have achieved and to create the economic opportunities for a new generation.

I wish simply to restate a number of points about the UK’s interest. The UK is strong and robust, as we have discussed in relation to trade and all the rest. Ireland, a small country, accounts for 5% of Britain’s total exports. We are told that the UK exports more to Ireland than to Brazil, Russia, India and China put together. Allowing that to collapse would have an immediate impact on this country. The two economies are particularly linked in Northern Ireland, with two fifths of Northern Ireland’s economy dependent on the Irish Republic. Just as the two economies are linked, the two banking sectors are linked. As other hon. Members have said, the two main southern Irish banks are very active in the north, and to some extent in Britain; they also issue sterling banknotes, so that all has an implication for the whole banking sector. If this banking liquidity crisis had not been sorted out, we could have ended up with 25% or 30% unemployment, not just in southern Ireland, but in the north.

[Several hon. Members]

rose—