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Dáil Éireann debate -
Wednesday, 12 Jan 2011

Vol. 726 No. 1

Other Questions

Fiscal Policy

Bernard J. Durkan

Question:

68 Deputy Bernard J. Durkan asked the Minister for Finance the full extent to which he, the Governor of the Central Bank and the Regulator are in ongoing dialogue with the EU Commission, the International Monetary Fund and the European Central Bank in the matter of the achievement of the various targets set by him and agreed with these institutions in the context of the EU stabilisation bailout arrangements entered into and provided for in Budget 2011; if attention is being drawn by any of the parties to aspects of the proposals that may have fallen short of the set targets; if any proposals have been made or actions taken with whatever regularity in the period since the budget date; if any further corrections are contemplated over the next six months in this regard; and if he will make a statement on the matter. [1362/11]

As is normal in these circumstances, officials of my Department are in ongoing contact with their counterparts in the EU Commission, the IMF and the ECB with regard to implementation of the joint programme of financial assistance agreed for Ireland. I understand that frequent contact is also taking place between the staff of the Central Bank, the Financial Regulator's office and the external funding agents.

The policy conditionality associated with the EU-IMF programme for Ireland is set out in the memorandum of economic and financial policies and in the memorandum of understanding on specific economic policy conditionality. These documents, together with the technical memorandum of understanding, which are collectively referred to as the MoU, have been laid before the Houses of the Oireachtas.

As regards the fiscal consolidation aspects of the agreement, as the Deputy will be aware, the release of the first instalments of financial assistance is conditional on the successful adoption of budget 2011. In this regard, the Social Welfare Act 2010 is in force and the finance Bill 2011 is due to be published on 20 January 2011. As part of the quantitative performance criteria of the technical memorandum of understanding, a target for the end-2010 Exchequer primary balance — the Exchequer balance excluding debt interest payments — of minus €15.3 billion was set. Excluding debt interest payments of just under €4.1 billion, the Exchequer primary balance in 2010 was minus €14.65 billion, meaning the target was met. This data was relayed to the IMF, European Commission and European Central Bank on Wednesday, 5 January. I can also confirm that the data provision obligations on my Department, the NTMA and the Central Bank are being pursued in line with annex 1 of the memorandum of understanding. The technical memorandum of understanding also set targets for cumulative end-quarterly Exchequer primary balances in 2011. There has so far been no reason to change these targets.

In the financial sector, the Deputy will be aware that the memorandum of understanding sets out a deadline of end-December 2010 for agreement with the Irish authorities and the ECB, European Commission and the IMF on agreed loan to deposit ratios for each of the banks. However, following further discussions with the ECB, EU and IMF, it has been agreed that it would be more appropriate to decide on the loan to deposit ratios for 2013 when the information from the prudential capital assessment review and the prudential liquidity assessment plan is available. This does not in any way diminish the commitment to appropriate restructuring of the banks in the relevant period.

Since the House last met, the lead negotiator on behalf of the International Monetary Fund, Mr. Chopra, and the Governor of the Central Bank, Professor Honohan, have both stated publicly that it is open to a new Government, following an election, to renegotiate with the lending agencies in respect of the terms of an agreement. Is this also the Minister's position?

In light of the point raised by Deputy Noonan about the Croke Park deal, which was negotiated last April and came into effect last June, what savings have accrued to the economy to date from the deal?

I agree with the views expressed by the Governor of the Central Bank in this matter in their entirety. What the Governor said was that it is available to any future Government, as it is to this Government, to renegotiate the fiscal and compositional elements of the EU-IMF agreement. He did not say that the rate of interest or the total quantity of the adjustment can be renegotiated. What he indicated and what has been clear from the inception of the agreement is that the relevant balance of tax and expenditure and relative weight to be attached to different expenditures can be adjusted, albeit only in a fiscally credible way. That is the position and it is the constraint that will apply to any Government.

The rate of interest and the total amount that must be secured over the programme period of three years are fixed by the agreement. I agree it is somewhat confusing that the programme period is three years because the plan period is four years and the Stability and Growth Pact period is five years. As far as the programme period is concerned, the total amount that must be secured within the period and the interest rates are fixed, while the other matters are up for discussion.

On the Croke Park deal, I do not have information on the matter raised but I have dealt with it in answer to Deputy Noonan.

Given that we are in a transition period to a general election and a likely change of Government, does the Minister agree that it would be appropriate for the information supplied to the International Monetary Fund and European Union by the institutions to which the Minister referred to be made available to the Opposition parties at the same time as it is provided to the IMF and EU?

On a related matter, will the Minister agree to put in place contingency arrangements given that a change of Government is likely prior to the conclusion of the first reporting period at the end of March 2011, as set out in the memorandum of understanding? In the run-up to the most recent general election in the United Kingdom, contingency arrangements were made for the change of government. Is it not appropriate, therefore, to have in place contingency arrangements with the Opposition with regard to this terribly important matter?

I will reflect in a constructive way on the two requests made by Deputy Burton. While I am not in a position to confirm this afternoon that I will comply with her request that certain information which is being transmitted should also be transmitted to the Opposition, I will consider it in a constructive way. The Deputy's second request related to contingency arrangements. It is not clear whether she is referring to contingency arrangements in the lead up to the poll or in the period after the poll.

That will depend on the Green Party and the date of the election.

I can confirm, however, that there will have to be contingency arrangements in place immediately at the conclusion of the poll. That is of vital importance.

Will the Minister indicate the date of the election?

It will be held in the spring.

The period for adjustment for meeting the Stability and Growth pact target has been extended by one year to five years. The original period the Government agreed with the European Union institutions was four years. Does the Minister accept that the EU having to arbitrarily extend the period by one year demonstrates a complete failure of the Government's negotiations with the EU institutions? The Government was told by my party at the time that it had failed as it would take six years to meet the target. Similarly, does the Minister agree that the targets arrived at in the deal with the International Monetary Fund and European Union institutions under the bailout constitute an utter failure on the part of the Government because they cannot be met?

We are now back to the realm of political charge and counter-charge.

The facts. The EU gave the Government an extra year.

Deputy Morgan should allow the Minister to reply so we can deal with one more question.

The negotiations resulted in a good arrangement for this country, which confirmed the national recovery plan the Government had already adopted. The Government had already embarked on contingency planning for the difficulties we face in respect of funding the State. Those contingency plans were finally formulated in a national recovery plan, which is the sovereign decision of the Irish Government and was accepted by the international authorities.

The Minister referred to the impossibility of renegotiating the very high interest rate attached to the package. With respect, he is not correct. The rate is renegotiable but not at the level of the Minister for Finance; it is renegotiable at the level of Council of Ministers and heads of state, obviously because everything is. Does the Minister realise that when the first tranche of money was transferred to Ireland, it was borrowed by our partners in Europe under their guarantee at 2.9%? That element was lent on to Ireland at a rate in excess of 6%. This is the first time the EU decided to make a profit in providing funds to member states. It confirms the very bad negotiation conducted by the Minister and his officials. These negotiations should be re-entered.

It is useful to get the Minister's view, which is the same as that of Professor Honohan and Mr. Chopra, that renegotiation is possible. Once there is agreement on general parameters and we sign up to the targets, the ways and means of achieving the targets are a matter for the new sovereign Government. The Minister is ad idem with others.

We are eight months into the Croke Park deal. Can the Minister tell us, in money terms, how much has been saved?

In response to Deputy Noonan, the interest rate charged to Ireland was raised with the EU authorities at a press conference earlier this afternoon on the new growth survey. Commissioner Olli Rehn pointed out that the interest rates charged to Ireland are in line with Council decisions last year on the euro area loan facility to Greece following intensive discussions with member states. That is the position on the interest rates.

Until the position changes.

I take it Deputy Noonan is not questioning the IMF interest rates, which are locked in, nor is he questioning the stability mechanism, which is also locked in. He is envisaging renegotiating with 27 member states. That is theoretically possible but to suggest there were bad negotiations because we have a better arrangement than Greece, which Greece subsequently sought, is inaccurate and misleading.

Regarding the Croke Park agreement, the figures in this year's Estimates reflect the savings that can be procured from the Croke Park agreement.

What about last year's savings?

Is not every policy change made on the basis of 27 member states agreeing?

Joan Burton

Question:

69 Deputy Joan Burton asked the Minister for Finance if he will set out the total 2011 contribution expected from the pension levy and from the recently introduced levy on public service pensions; if he will further set out the total contributions by public servants to their occupational pension schemes in 2011; and if he will make a statement on the matter. [1402/11]

A preliminary estimate of receipts for 2011 from the pension-related deduction or pension levy introduced under the Financial Emergency Measures in the Public Interest Act is €1 billion. The estimated receipts from the pension reduction for 2011, which was introduced under the Financial Emergency Measures in the Public Interest Act 2010, is €100 million. As regards pension contributions from public servants, a preliminary estimate for 2011 is of the order of €700 million. More detailed estimates will become available in the context of the Revised Estimates volume, which is in preparation at present.

I thank the Minister for the reply. Does the Minister agree it is important that all information about public service pensions is put out there? There are some 13,000 public sector pension holders and 4,300 spouses of deceased public servants who receive pensions. The bulk of pensions are below €12,000 a year and only one public service pension is in excess of €150,000 a year. Perhaps the Minister can tell us who is the lucky retired public servant who receives €150,000 a year. What is the net cost of public service pensions? We are provided with figures on gross cost when most public servants contribute significantly to their pensions. I am delighted the Minister told us the pension levy now produces €1 billion per year. The extra pension contributions will raise an additional €800 million, with €100 million from retired pensioners in 2011 and €700 million in additional pension contributions. It would be useful to set out this and to set out who gets what. What is the average public service pension? Most people receive less than €12,000.

I am delighted to set out this information in the public domain after the publication of the Revised Estimates volume. Revised legislation for public service pensions is among the items of legislation of essential budgetary importance that require enactment before the dissolution of the House. We will have a considerable opportunity in that context to discuss public service pensions. I will take into account the suggestion of the need to provide information on the numbers, the amount of their entitlement and related matters in the context of the presentation of that Bill.

Bank Guarantee Scheme

Ciaran Lynch

Question:

70 Deputy Ciarán Lynch asked the Minister for Finance his views on the net exposure of the National Asset Management Agency and the credit institutions supported by the Eligible Liabilities Guarantee to derivative instruments; the extent to which these exposures arise from hedging arrangements or from speculative positions; and if he will make a statement on the matter. [1372/11]

All banks publish their gross and net derivative trading and hedging positions in their audited financial statements. The NAMA derivative position is included in NAMA quarterly reports that are laid before the Houses of the Oireachtas.

Banks utilise derivatives as part of their normal risk management hedging operations, primarily to control their exposure to interest rate and foreign exchange risk. The net exposure to hedging derivatives in each of the financial institutions at the most recent published annual account date at AIB was €777 million, at Bank of Ireland €145 million, at INBS €88 million, at Anglo Irish Bank €83 million, at EBS €39 million and at Irish Life & Permanent €433 million.

I am advised by NAMA that it does not enter speculative derivative positions but utilises derivatives to manage to the greatest extent possible, the balance sheet foreign exchange and interest rate exposures arising from the transfer of assets from participating institutions. For example, NAMA has to use currency derivatives to hedge the foreign exchange exposure which arises on the purchase of foreign currency loans with euro denominated NAMA securities. In addition, NAMA uses interest rate derivatives to assist in hedging interest rate risk arising on NAMA securities and borrower derivatives which transferred to NAMA.

I am informed that EBS, INBS and Irish Life & Permanent do not use derivatives for trading purposes. Anglo Irish Bank no longer uses derivatives for trading purposes. The other banks take proprietary trading positions in derivatives with a view to earning a profit. Where such activities are carried out, it is within pre-defined trading limits set by the bank's board and monitored by independent risk management functions within the banks.

In the case of Bank of Ireland the fair value of trading derivatives at the time of their last published annual accounts was a net liability of €358 million. This total includes derivatives entered into with economic hedging intent but classified as held for trading under international accounting rules. The same applies for AIB, which had a net liability of €226 million.

It is important to note that any profits or losses on traded derivatives are fully recognised in the banks' annual accounts. The information for NAMA is contained in the quarterly reports produced by the agency, the latest one of which I will shortly lay before both Houses of the Oireachtas.

This question arose because the Minister issued a blanket guarantee at the end of November before the budget on Anglo Irish Bank exposure to interest rate and foreign exchange transactions. The reason it became necessary, which may have been recommended to the Minister by the board of NAMA, was that Anglo Irish Bank went down to junk bond status and many of the derivative positions essentially became closed.

Based on what the Minister knows about the operations of Anglo Irish Bank before the fall, and in view of the kind of behaviour the bank was engaging in, what does the Minister know about the derivatives it had entered into? The derivatives of most Irish banks were related to hedging, foreign exchange swaps and so on — routine business. It is basically a form of insurance. Then there were the geniuses who ran Anglo Irish Bank. If one is clever in the markets, there is a lot of money to be made from derivatives.

A question, Deputy.

Has the Minister reviewed the derivative positions of Anglo Irish Bank? He should take account of the fact that at the end of November he was forced to issue an extra guarantee for all the derivative positions of the Anglo Irish Bank. Does he have a chart showing when those positions expire and thus the risk ceases?

Taking the week ending 31 December last year——

Say 30 November 2010.

No; I am referring to the information at my disposal about the derivatives of Anglo Irish Bank which required the posting of collateral in the event that the derivative was out of money, which is what Deputy Burton is talking about. In that case, the derivative becomes a liability. That collateral is netted against the State's exposure in the event that the guarantee is called in. Let us take as an example, for illustrative purposes, the week ending 31 December 2010. In that week, the maximum net exposure of the State to derivatives, assuming the guarantee was called in — which is was not — was less than €10 million. I have every confidence in the current management and board of Anglo Irish Bank. They are doing their job, and the approach taken in this matter was essential to stabilise the institution.

Has the Minister reviewed all of the outstanding derivative positions of Anglo Irish Bank? Is he happy that has been done and that there has been due diligence? Has he spoken with the various parties now looking after Anglo Irish Bank? Is he satisfied that he has been advised of all potential exposures? Does he have a list of the dates on which the derivatives expire?

I do not have a list of those instruments before me this afternoon, and I would be surprised to be furnished with one.

It is commercially sensitive information.

Why? This is the biggest risk the State has ever run.

Please allow the Minister to continue.

The Deputy is very good at identifying various risks, but this is not the biggest risk the State has ever run.

Anglo Irish Bank?

It is essential simply to stabilise this——

Anglo Irish Bank is the biggest risk the State has ever run.

I take it the Deputy was referring to the particular issue of derivatives, not Anglo Irish Bank in general, which is a different situation. I accept that.

With regard to the particular issue that is the focus of the Deputy's question, I am satisfied that my officials have checked the matter with the bank and ensured there is no undue exposure for the State.

Flood Relief

Denis Naughten

Question:

71 Deputy Denis Naughten asked the Minister for Finance the steps he will take to address the summer flooding in the Shannon Callows; and if he will make a statement on the matter. [48334/10]

A national programme of catchment flood risk assessment and management studies, CFRAMs, which will lead to the development of comprehensive flood risk assessment and management plans for areas of significant flood risk, is being rolled out by the Office of Public Works. The appointment of consultants to undertake catchment-based flood risk assessment and management studies for the River Shannon is being finalised as we speak, and an announcement will probably issue later this afternoon.

The summer flooding of the Shannon Callows between Portumna and Athlone will be specifically examined in this study to reflect the social and environmental damage it causes in the catchment. In general, this summer flooding arises from the restricted capacity of the River Shannon at this location. Flooding can occur as a result of large flows from the River Suck, the Upper Shannon from Lough Ree, or a combination of both. The River Brosna can also contribute to flooding in this area. I am pleased to note that minor works were carried out on the Little Brosna last summer, and the National Parks and Wildlife Service has now approved further minor works at Shannon Harbour, which will be carried out when water levels and environmental windows permit.

The OPW has examined flood profiles for various flood events, large and small, to identify localised constrictions to flood flow between Banagher and Meelick. Arising from this investigation, minor maintenance involving the removal of low-lying branches and some trees on the New Cut and a number of small islands downstream of Banagher has been proposed. A license application has been submitted to the National Parks and Wildlife Service and the OPW is currently awaiting a decision on the matter. The proposed maintenance would be directed towards the mitigation of smaller floods.

The Shannon Callows is an important asset to the farming community and traditional farming practices are recognised as contributing to the economic, social and environmental management of this unique area. There is no doubt that the recent pattern of flooding in the Callows has caused significant hardship to many members of the community. I visited the Callows area in 2008, and in 2009 I accompanied the president of the IFA, local residents and public representatives to see the situation for myself and talk through the issues. I am conscious of the serious impact on both farming and the environment in the area due to the annual winter flooding and periodic summer flooding.

I have instructed my officials to identify any interim measures to be pursued in advance of the Shannon CFRAM study. A combination of further minor works and refined management of water levels will continue to assist in mitigating flood impacts. The impacts in 2010 were significantly less than those experienced in the previous two years.

In parallel with the commissioning of the CFRAM study for the River Shannon, the OPW is holding ongoing discussions with Waterways Ireland and the ESB to review water management protocols for the major storage areas in the Shannon system. Control of outflows from the Callows area is managed by the ESB and Waterways Ireland. The OPW has engaged with Waterways Ireland and the ESB to examine the most effective management of the sluices at Meelick and Lough Ree. Waterways Ireland has indicated that it will examine an upgrade to Meelick Weir with a view to automating the control of water levels at the weir.

In September 2010, the ESB carried out discharges from Lough Ree with a view to providing storage in the lake against winter floods. This allowed for some reduction of the level of Lough Ree prior to the winter rains. The ESB has also engaged with each local authority in the Shannon catchment, issuing twice-weekly e-mail updates on the status of the Shannon lakes and alerts about major spills at Parteen Weir. This data is based on three- to five-day rainfall forecasts and allows for several days' warning of potential flooding. In addition, a number of information sessions have been held for local authority officials, and further sessions will be held for council members.

I thank the Minister of State for his reply and welcome the good news that work on the Shannon Callows will commence this year. I do not like reminding the Minister of previous statements, but he told me something similar last year about a scheme in north Tipperary, the Templemore relief scheme.

It is making very good progress.

I am delighted to hear that. I was going to ask the Minister to confirm that he told me about the scheme at the start of last year and ask him whether it would at least start this year.

As there is a mobile phone interfering with the sound system, Members should ensure that all mobile phones are switched off entirely.

I am making a general observation.

Notwithstanding that, it is not mine.

With regard to the Shannon Callows, the Minister of State briefly mentioned tributaries, including the River Brosna. Are specific works scheduled for these tributaries? Will the work be done under contract or directly by the OPW? The Minister of State also mentioned that part of the solution to the problem was the storage of water from the River Shannon. Does that mean that in order to drain the Callows it is essential that we proceed with the proposal to take the water out of the Shannon and pipe it to Dublin? Is that what the Minister of State meant by his reference to storage?

A broad range of questions.

Yes. With regard to the flood relief scheme in Templemore, I am glad to say it is making good progress. As it is a larger scheme, it has had to go through different processes of inquiry, but money has been provided in our flood budget for the scheme to commence this year.

Part of the Lowry deal.

As a fellow Tipperary man, I am naturally very pleased about that.

The minor relief works along the Shannon in the vicinity of the Callows area can be done by any of the authorities in the area, supervised by the Office of Public Works, and of course we also have a direct labour force. We are not talking about draining the Callows, which is an environmentally sensitive area. It would be extremely far-fetched to link Dublin's water supplies and storage facilities to the solution of the Callows problem.

As a fellow Tipperary man, I acknowledge and appreciate the Minister of State's efforts concerning the Templemore scheme. It is nice to see that something can happen in Tipperary without a Lowry deal. There are three weeks left to ensure it happens, so I ask the Minister of State to use those three weeks.

It is already in the budget and we are ensuring that it will happen.

It might be a bit longer than that.

Credit Institutions Legislation

Michael Creed

Question:

72 Deputy Michael Creed asked the Minister for Finance if he and the Governor of the Central Bank have had any discussions with the European Central Bank on their concerns regarding certain provisions of the Credit Institutions (Stabilisation) Bill 2010; and if he will make a statement on the matter. [1305/11]

The legal drafting of the Credit Institutions (Stabilisation) Bill by the Office of the Chief Parliamentary Counsel could not begin until the conclusion of the negotiations with the IMF, the European Central Bank or ECB, and the European Commission which resulted in the programme agreement. Once a near final draft of the Bill was available, this was shared with the European Central Bank which was aware that the provisions in the Bill were required on an urgent basis to effect the restructuring of the banking sector. While the timeframe available for the consultation process was short, in advance of the circulation of the draft Bill to the ECB, my officials were in close contact with ECB services to facilitate an efficient and speedy consultation. It should be noted that the ECB welcomed the broad powers provided for in the Act.

The ECB opinion was received after the Bill had passed all Stages in the Oireachtas. My Department is carefully considering the ECB opinion, working closely with the Attorney General. I will be responding formally to President Trichet shortly on the main points raised in the opinion. In advance of this, it would be inappropriate for me to comment on the detail of the ECB's opinion although I believe that the main legal issues raised in the opinion can be fully addressed.

Regarding any discussions that the Governor and the Central Bank may have had on the content of the Bill with the ECB, the Deputy will note that I would not be a party to these discussions and I am not, therefore, in a position to make any comment on them. It is important to make the point that, as I highlighted in my speech on Second Stage, the fundamental purpose of the legislation was to ensure that the national authorities had the legislative tools to achieve the restructuring of the banks which we are committed to under the terms of the joint programme agreement with the EU and IMF, agreed in consultation with the ECB.

Regarding the opinions on the independence of the Governor and the Central Bank, section 5 of the Act provides that nothing in the legislation affects any obligation arising under the EU treaties, and protects the treaty principle of central bank independence. In regard to the position of the ECB as a creditor, which was the main focus of the opinion, I would have to take account of the position of the ECB when forming an opinion regarding the effect of orders and other obligations of the relevant institutions under section 61. The Central Bank of Ireland will be closely involved in the planning and decision making on any transfer measure.

As regards the concern raised by the ECB on the constitutionality of the Act, I believe this is not within the competence of the European Central Bank.

Despite the Minister's sweet words to the House in response to the ECB's views on this Bill around Christmas time, not since the time of the Third Reich was a Bill so radically put through a democratic parliament. Is the Minister not stung by the clear and deliberate criticisms that have been levied at him and the Government for the manner in which the legislation was put through the House, as well as its provisions? Am I correct in saying that, to date, the Minister has not formally responded to the ECB's stated opinion? What is causing the delay?

There is nothing unusual in this. The ECB expresses an opinion on every item of legislation relevant to banking.

The member state concerned then comments on the opinion. We are a sovereign State and this is a sovereign Legislature, which acts in the best interests of the Irish people.

I would not think so, not any more.

I have already indicated in my reply, which was not a sweet comment, that the European Central Bank has no competence in judging the constitutionality of measures in this State. The opinion was out of order in that respect, although the proper constitutional procedures were followed. As the Deputy knows, the President, rightly within her functions, convened a meeting of the Council of State and ultimately signed the legislation.

As regards the other matters of concern raised by the European Central Bank, which related to its position as a creditor and the ECB's independence, these matters are adequately covered by the legislation.

Is the Minister's reply not reflective of the hubris with which the Fianna Fáil Government has dealt with the EU over the last 13 years when we were cock of the walk? Does the Minister recall that the ECB is currently extending credit facilities of €100 billion at 1% to Irish banks? Many people in the ECB now seem to be taking the view that perhaps that could be pushed over to the Regling fund at the Minister's wonderfully negotiated rate of5.8%. The Minister is constitutionally correct in saying that the ECB has no role concerning legislation in Ireland. From a negotiating viewpoint, however, given that we are getting €100 billion at 1% for our banks but our citizens will pay 5.8%, does the Minister not want to mend his fences with Mr. Trichet?

No. What I made clear was that certain valid concerns were raised by the European Central Bank in the opinion, and those concerns are already addressed or can be addressed in the correspondence with the president. I indicated to the House, as I hope any Irish Minister would, that the ECB does not have a function in the constitutional validity of legislation enacted in this House. That is the position.

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