PROCEEDS OF AIB SALE COULD TACKLE INFRASTRUCTURAL BOTTLENECKS

Seán Sherlock TD
10 May 2017

There is no attempt by the Labour Party to prevent the normalisation of the banking sector, as the Minister of State alleged. There is certainly no attempt to conflate two separate and discrete policy areas, namely, banking policy and capital investment constraints. The debt to GDP ratio is at a sustainable level and the general Government debt has fallen by €18 billion in the past three years. Debt stock is now €1 billion lower than it was at the end of 2015 and this is the third successive year of decline. Gross Government debt declined from a peak of approximately €218 billion in the third quarter of 2013 to €200 billion in the fourth quarter of 2016. The debt to GDP ratio, which peaked in 2012 at almost 120%, is forecast to fall below 73% by the end of this year and to reach 62.8% by 2021. We may even reach a ratio of 60% by 2021.

From a macroeconomic point of view, the Minister seeks to sell 25% of an asset ultimately to achieve a debt to GDP target of 45% by the mid-2020s when the current target under the Stability and Growth Pact is 60%.

What is flawed is the idea of accelerating unnecessarily the repayment of debt when the country is crying out for infrastructural investment. Using the proceeds of the sale of any portion of AIB for capital spending could boost the amount available for investment by approximately €3 billion. The Minister of State referred to Keynes. Keynes would have something to say about the establishment of a rainy day fund. He might say that, instead of having just €2.5 billion to invest in schools, transport and homes, the Government would have more than €8.5 billion in the coming years without any negative risk to our economy.

There are infrastructural bottlenecks. We do not have a proper motorway linking Cork to Limerick to Galway to Sligo to Donegal, or the Atlantic corridor as we call it. If the Action Plan for Jobs, which is a Government policy, is to mean anything in terms of creating the target of 350,000 jobs outside of Dublin, we will need that investment in infrastructure. What we are subjected to now – it has been a function of the House for many years – is areas competing against one another for investment at regional and county levels. We believe that such vital infrastructure should and could become a reality if the necessary capital was available to meet requirements.

Ireland is on track to meet its medium-term budgetary objective. Government policy seems to be geared towards a counter-cyclical buffer with the debt target of 45%. There is no external pressure to reach that target. There is no abiding international pressure on currency markets to do so by dint of our membership of the euro. The Taoiseach stated: “The Government is fortunately not under any particular pressure to sell, so the market conditions will impact on when the Minister decides to make his recommendation to Government to sell.” In the Minister of State’s speech – I reach to get the copy of it that I had in front of me, but I no longer have it – he stated that no final decision to proceed had been made.

We contend that the Stability and Growth Pact is key to the arguments that we are making. Its constraints place too much of a restriction on Ireland at a time when we need infrastructural investment. According to the programme for Government, nothing will be sold before the end of 2018. There is a great deal of time between now and then in which we can negotiate politically at EU level – this will take EU leadership – to release the constraints of the Stability and Growth Pact. If we are to sell any stake in any of the banks in order to proceed to “normalisation” or roll back the State’s investment in banking, there is space before the end of 2018 to negotiate for better terms and conditions under the Stability and Growth Pact so as to allow us to invest more in infrastructure and remove our constraints.

Key systemic risks have reduced, unemployment has fallen and ECB funding of the banking system has decreased from a peak of €156 billion to €5 billion. NAMA bonds have decreased from €30.2 billion to €500 million and Government-guaranteed liabilities have fallen from €375 billion at the time of the guarantee to €1 billion. A Programme for a Partnership Government contains a key commitment not to sell more than 25% before the end of 2018 and that “the State will use its bank shareholding in the best interests of the Irish people”.

There is no conflation between banking policy and the constraints posed by the Stability and Growth Pact. The pact is a political and economic constraint to further economic growth, and growth is predicated on infrastructural investment. Now is the time for EU leaders, including this Taoiseach and the incoming one, whoever that may be, to make the political case for a relaxation of the rules so as to ensure that whatever dividends are ultimately yielded are used for productive purposes and investment in infrastructure.

Even if we accepted the premise of the Minister of State’s argument and ceteris paribus, or all things being equal, he has still not made a compelling argument for the sale from a macroeconomic point of view except that, if I understood him correctly, the State should not be vested in the banking system and it should be a function purely of the market. However, the State has always been a major investor – in fact, the largest investor – in job creation, be that through Enterprise Ireland, the IDA or direct subvention of the very businesses that depend on the banking sector to thrive.
The motion before the House is to ensure that we can relax the rules of the Stability and Growth Pact and use dividends from the banking sector productively by reinvesting in our economy and society.

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