If it were not for the historical and potential future losses for Irish taxpayers from the Government's banking policy, Ireland's public finance problems would be judged as being difficult but manageable. There would have been no need for an EU/IMF bailout.
Fine Gael believes that the bank restructuring portion of the bailout deal will not work, and that a substantial and fundamental renegotiation of the deal must be conducted by the incoming Government. There is at present no sign that confidence in the banking system is being restored, principally because the new initiatives are a continuation of the failed banking policy of the present Government.
At the core of the loss of domestic and international confidence in Ireland's economy has been the Government's reckless commitment of over €100bn of State resources to bank bailouts (€60bn in recapitalisation; at least €40bn in asset purchases by Nama). This is three times the national debt before the crisis.
The Government's mantra that bailing out reckless banks was necessary to protect Ireland's credit rating has proved a catastrophic misjudgement. It has been the decision to write blank cheques to the banks like Anglo Irish that has destroyed our credit rating, and taking onto the State's shoulders the responsibility of recovering the banks' debts, either through Nama or by nationalising the entire banking system as proposed by Labour, were not the solutions.
Fine Gael would have handled things very differently. Almost two years ago, we set out an alternative banking policy that would have used the period of stability provided by the Guarantee to restructure the banks and, where appropriate, impose losses on the banks' investors and bondholders.
Right from the start, Fine Gael was the first party to recognise that Anglo Irish Bank needed to be wound down. Fine Gael was the first party to argue that it was unfair for the Irish people to shoulder all of the losses of our banks, and that it was right that investors who had lent recklessly to the banks should also share in the pain.
The present Government policy will push Irish Government debt towards unsustainable levels and hinder economic recovery, threatening the stability of the entire euro area. That is partly why the IMF-EU deal has not restored confidence among financial markets in Ireland.
A Fine Gael Government will not make Irish taxpayers borrow at penal interest rates to pay for a fire-sale of Irish bank assets. We will seek a mandate from the Irish people to renegotiate a more credible, fairer package that is better for Ireland and Europe. There are a number of options for this renegotiation.
The terms of reference of the European Financial Stability Fund (EFSF) and/or European Financial Stability Mechanism (EFSM) could be renegotiated to allow the funds to take equity stakes in systemically important European banks, such as AIB and Bank of Ireland. If other European countries have set their face against a default by Irish banks on reckless loans from banks regulated in their own jurisdictions, then they should be willing to contribute directly to the recapitalisation of Irish banks.
Another option is that Ireland could buy "insurance" from the EU against the risk (small as it is) that losses in Irish banks will be significantly greater than currently projected by our regulatory authorities, a policy advocated by Central Bank Governor Patrick Honohan.
Both of these options would cap the Irish State's exposure to further losses or so-called "tail risks" in our banking system, helping to restore the State's credit worthiness.
An alternative is that that Europe quickly puts in place agreed, harmonised procedures to restructure the debts of banks that have become insolvent. Irish and other European taxpayers can no longer be expected to carry the can for reckless lending between Irish and other European banks. It is a basic rule of capitalism that if you lend recklessly, you must take the consequences.
Fears about the implications of bank debt restructuring for European financial instability are probably over-cooked. A large proportion of unsecured Irish bank debts have already been sold on -- at significant haircuts -- to private clients and hedge funds in London and elsewhere, who hope the Irish State can be pressed into honouring these bank debts in full.
Irish banks do indeed need to shrink their balance sheets to reduce their dependence on volatile non-deposit funding sources. But rather than selling assets at fire-sale prices with the losses paid for by Irish taxpayers, the European Central Bank could instead agree to fund -- on a long-term basis -- the transfer at par value of relatively-secure Irish bank loan books -- such as tracker mortgages -- into a Special Purpose Vehicle, subject to guarantees against default losses from the Irish State.
This would shrink the Irish banks to a size where they can fund most of their remaining loan books through domestic deposits, helping to address market concerns about their long-term liquidity position.
These options are not just a matter of technical negotiations between Irish and other EU officials, or even for EU Finance Ministers. They require political commitment at the highest EU levels to resolve the crisis that is now engulfing Europe.
They require a new sense of solidarity underpinned by a new policy framework. They require a new Irish Government that is not seeking to vindicate the failed policies of the past.
Ireland wants to pay its way in the world but we need assistance from our European colleagues to do so.
We want to restore confidence in our banks.
We want to restore confidence in our county. We want to encourage growth and jobs. We want Ireland's economy to thrive again so that all our citizens will be back at work enjoying a fulfilling life. We want, again, to be proud to be Irish -- proud to be Irish in Europe.
Michael Noonan TD is the Fine Gael spokesperson on Finance