I have listened carefully to the Taoiseach's reply to Deputy Kenny and, when taken with his replies to questions on the economic situation in the past couple of weeks, I have come to the conclusion that the Taoiseach and the Government do not know what they are doing regarding the banks. The Government's handling of the economic situation is downright incompetent at this stage. Since the Taoiseach last answered Leaders' Questions in this House last Wednesday, there has been a succession of extraordinary developments in respect of the economy. The Minister for Finance told Deputy Joan Burton in the House last Thursday that the economy would shrink by 4% next year. In an interview with Ursula Halligan last Friday night, the Minister stated that the first the Government knew of the economic downturn was in July. However, people have been losing their jobs and businesses have been closing for the past year. Moreover, at the weekend commentators suggested that unemployment will rise above 300,000, or 10%, next year and that 14,000 householders are three months or more behind with their mortgage repayments at present.

Members have learned in the past couple of days that the Government intends to draw up an economic recovery plan. Two weeks ago, the Taoiseach told me in the House there was no need for such a plan, as the Government already had one, which was called the national development plan. I now hear that proposals are being developed, some of which ring familiar. They are close to what has been proposed by the Labour Party for a number of months and to what Deputy Burton and I were discussing at the Labour Party conference in Kilkenny two weeks ago. While plagiarism is a form of flattery, I wish to see the exact colour of the Government's proposals.

On Sunday night, a €10 billion package to recapitalise the banks was announced. The Taoiseach has told Members that this recapitalisation will not take place until January and that the Government is waiting for the bankers to come in with their proposals. Who is calling the shots? Is it the same bankers who landed the banking system in the problem that manifested itself in September and has continued thereafter, or is it the Government? I had thought that one of the outcomes of the guarantee scheme was to be that it would be the Government, through the Minister for Finance, that would tell the banks what was what and not the other way around.

The Taoiseach now has told Members that the recapitalisation of the banks must await some proposals from the same bankers who still are in place. They have changed nothing, it is business as usual and they will tell the Government what to do. Moreover, this will not take place until January. Will all the banks still be around next January? Can this wait until then? My understanding is that legislation will be required if the Government intends to use money from the National Pensions Reserve Fund. However, it is proposed that the Dáil will not reconvene in Leinster House until the end of January. Is the Taoiseach seriously suggesting that Members will close up shop on Thursday and that the issue of bank recapitalisation will not be addressed until the end of January? That is the effect of what he proposes to do, if he intends to use the National Pensions Reserve Fund.

The Taoiseach should answer a couple of simple questions. First, how much, in ballpark figures, of the proposed €10 billion will be drawn from the National Pensions Reserve Fund and how much from private funds? Has the Government identified the source of the private funding that will recapitalise the banks? Will the Government take equity in the banks or is an underwritten arrangement envisaged, as seemed to be implied in the statement? When will legislation to allow money from the National Pensions Reserve Fund to be used be brought before the House? The Taoiseach observed that the statement issued on Sunday night was to provide reassurance to the markets. Given the markets' response since Sunday night, does he seriously suggest this can wait until January or will some action be taken this side of Christmas that will stabilise our banking system and ensure that credit is released for businesses that are uncertain whether they still will be in business by the first week of January?

First, I will answer the Deputy on the economy. It is not true to say — nor did the Minister for Finance say despite the Deputy's attempts to portray him as so saying — that people were unaware of the overall state of the international economy until this June. The Minister was referring to the mid-term Exchequer returns. On the emergence of these returns, the Government took action to ensure that expenditure would come in on target this year, as it has in broad measure. The full year effect of the cuts that were outlined will mean a saving of €1 billion in 2009. While the Government brought forward its budget to close the gap again, there has been a deterioration in the public finance position since then. I stated that any programme of Government is subject to the health of the public finances. There always is such a paragraph that must inform any programme for Government as to how one can implement the priorities one identifies. That was simply the point I was making in this regard.

The Government's present position is that in the context of trying to give an impression of what the direction of the economy should be in the years ahead, it will set out a framework about economic renewal, which must involve social partnership participation. That is my response. We must involve social partners in ensuring the gap which has emerged on foot of reduced tax revenues of €8 billion this year will be addressed. If we are to set up a credible timeframe in which it can be addressed, when set against the expenditure items on our books, we must work out together, in a collaborative way, how to bring back health to the public finance position. I speak as someone who believes in social partnership. Others believe it should be done in some other fashion but this is how I believe it should be done. I am sticking by that methodology because I believe this is the way to do it. We will do this in the coming weeks and in the early part of next year with the social partners.

On the question of recapitalisation, the National Pensions Reserve Fund can participate through the significant cash reserves it has to hand. There is also the question of amending the fund in the context of not having a pre-1% payment into the fund next year on account of the financial situation and as we put the fund to work in the Irish economy with the real prospect of getting a return for our money. That is what we intend to do.

Deputy Gilmore asked about the nature of the recapitalisation. That may vary from institution to institution, but he can take it as read that the purpose of any recapitalisation in terms of participation by the State of taxpayers' money will be for the purpose of protecting the taxpayers' money. That, and ensuring that we have recourse to those funds in the future on a convertible basis or whatever. Those details will be worked out with each institution and it will be a matter that would have to be accepted by the regulator and by shareholders in that context.

We are taking this on a case-by-case basis. We are indicating what the total provision should be. It will total €10 billion. The extent of the State provision will depend on what comes forward and we will be making sure that the taxpayers' interests are protected. To elaborate any further at this stage, before the banks submit their proposals, would not protect the taxpayers' interest. That is the course of action we are taking on the question of the recapitalisation of the banks. It is the right approach to take.

With regard to the overall economic situation, we intend bringing forward a pathway on how we deal with the gap in the public finances over a credible timeframe with social partnership collaboration and participation. I make no apologies for that approach.

Following the Taoiseach's answer I am none the wiser about what the Government is going to do about recapitalising the banks. The answer is more or less a repetition of the statement on Sunday night.

I ask the Taoiseach to outline the timetable. He spoke about the banks coming back with their proposals in early January. Everybody is aware, at least in general terms, of the current state of individual banks.

The Taoiseach stated that he would be dealing with matters on a case-by-case basis. Is he saying that they will not be fully addressed until the end of January? Will it require legislation? Do I understand from the Taoiseach's reply that the amount which will be taken from the National Pensions Reserve Fund will be approximately €4 billion which, I understand, is what the cash reserves amount to? Can that be done without legislation? If there is to be legislation, when will it be published and considered by this House?

What is the form of the State involvement in this? A menu was set out in the statement on Sunday night which included the possibilities of share options but also referred to some form of underwriting. How will the State involvement be provided? Will it be provided in the same or a different way to all institutions?

Has the Taoiseach identified the source or sources of the private investment in the banks? What we have at present is a general statement of intent from the Government, but it is a case of live bank and get grass. We need to hear some specifics from the Government. I understand why the statement on Sunday night was made but it does not seem to have had the desired impact on the markets.

I disagree with Deputy Gilmore in respect of this. The question of the health of a bank is not dictated solely by its price in the equity markets. Every bank in the world has seen its share price reduce considerably, and it has been very considerable in Ireland. I accept that. That is because of some of the exposures that the market perceives.

However, that is not the point. The important issue concerns bank capital and to what extent is it capable of providing an adequate ratio in respect of future impaired loans that may arise. The market perception of a bank or financial institution is that it would like to see it operating above the regulatory standards. It is in that context — to deal with that market perception — that we have brought forward a general policy statement on recapitalisation.

We will deal with each recapitalisation when we see the proposals. Some banks have suggested they do not have any requirement for recapitalisation.

He might not do it at all.

I am not getting into the detail. Some banks have suggested for many months that they have no capital requirements.

Does anybody know?

Others suggest otherwise.

However, in recent weeks the Minister for Finance has met a number of banks and investment businesses regarding investment matters in Irish banks. All propositions were, of course, referred on to the institutions themselves. The Minister is also aware that some existing shareholders have expressed an interest in subscribing for new capital and the Government has indicated that in principle, existing shareholders will be expected to have the right to subscribe for new capital on the same terms as the Government. The question of how a recapitalisation will proceed will depend on the proposals that we obtain.

Is the market perception wrong?

The market perception changes from day to day. It is not the issue for us. The issue for us is the health and stability of our financial system, regardless of what the market says. Our job is to maintain the stability in the financial system, and that is our sole concern. I am not in the business of playing or working the markets. The markets will go up and down depending on how they see things from one day to the next, usually fed on rumour, perception and many other issues.

The banks are undercapitalised because of the market perception.

That is not my job. My job is to keep stability in the financial system. In that regard we are making a recapitalisation scheme available that will include existing shareholders, perhaps prospective private investors and the State.

The recapitalisation proposals will come from the boards of those banks. We are prepared to participate in a recapitalisation in the interests of keeping a stable financial system so that the real economy — trying to maintain jobs and investment — can function as a result of having a stable system. It is not for the purpose of dealing with the banks, as banks. It is because, in a modern economy like this one, we need to have access to sufficient lending and commercial credit as is required. We therefore need to ensure, as part of that response, there are properly capitalised institutions.

The market has a view on this but, in terms of regulatory positions — the regulatory issue, which is the legal issue — there is sufficient capital adequacy ratios in our covered institutions. That, in case it is lost somewhere, is an important point to make in the context of this discussion. We are prepared to participate on certain terms and conditions, which will be established by the Government when it sees specific proposals come forward by those banks which wish to have recapitalisation schemes dealt with.

The question of whether there is an underwriting process or preference or ordinary share capital will be decided when we get proposals in early January. With regard to the cash reserves held by the National Pensions Reserve Fund, there is cash under the NTMA general aegis that is available to us.

That man behind the Taoiseach.

In order to assess whether that will be the full subscription of the State participation we will have to wait and see the proposals by the banks. People cannot expect us to speculate on what the proposals will be but let us be clear that the statement we put forward has been accepted as the policy position of the Government. We await particular proposals and when they are made we will deal with them on the basis of protecting the taxpayer, not on what the markets speculate.

Close the door when the horse has bolted.