Loans to Ireland Bill

Debate between Anne Main and Alasdair McDonnell

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—