Vol. 737 No. 3
28 Deputy Michael McGrath asked the Minister for Finance if he will provide details of the elements in the EU-IMF programme with Ireland that he intends to put on the agenda for renegotiation as part of the forthcoming quarterly review by the troika, EU-ECB-IMF; and his objectives in this regard. [18891/11]
Quarterly reviews, such as the one which will start later this week, are a standard feature of financial support programmes. The purpose of these reviews is to assess the progress of the programme to date and, in particular, to determine if the targets for the relevant quarter have been met. It will also consider progress on targets which are due in subsequent quarters to ensure sufficient progress is being made.
The review process includes a mission by the EU, ECB and IMF staff to Ireland and the preparation of reports on their findings. The disbursement of further funds is conditional on positive assessments of compliance and approval by the Eurogroup, the ECOFIN Council and the IMF executive board, as appropriate.
The Government has repeatedly stated its commitment to the programme targets. Meeting these conditions on time and on target is the best way to ensure that we emerge successfully from this programme. That will mean that we can return safely to the financial markets for funding in as timely a manner as possible. This is one of the principal objectives of the programme. The Government's commitment to the programme does not stop us from seeking and agreeing changes to aspects of the programme. We have already done this successfully. The Government will continue to do so at the appropriate time.
For the forthcoming review, the primary focus will be on our performance against the targets due by the end of the second quarter of 2011 and assessing progress on targets due in subsequent quarters. I have already signalled that, notwithstanding the substantial consolidation already carried out, in particular the amount being delivered by the Government this year, difficult decisions in relation to future consolidations remain.
There is no doubt that budget 2012 will be another difficult budget that will require an adjustment of a minimum of the €3.6 billion already indicated. Final decisions in relation to budget 2012 will be made by the Government in due course in light of the latest relevant information available at that time.
I thank the Minister for his response. The purpose of the question was to establish whether there are particular items that the Minister has placed on the agenda for this week's visit by the troika. Does he wish to renegotiate issues in the current deal? The Minister has gone on record previously as saying he believes this to be a bad deal for Ireland. The issues that were changed during the first and second quarterly reviews were quite modest, to say the least, and certainly did not reduce the cost of the deal. The agreement to introduce a jobs initiative, the reversal of the minimum wage, an agreement to undertake a comprehensive spending review, and the decision not to transfer any further loans to NAMA are really changes around the edges of the deal. There is nothing there that reduces the cost or burden to the State as regards the EU-IMF deal.
There is an opportunity this week and if the Minister still believes it is a bad deal, what elements of it is he still seeking to renegotiate and change? It would be helpful to have some clarity on these issues. The Minister might consider providing us with an update on the interest rate reduction and whether he expects any movement on it before the autumn.
The Deputy has outlined the successful renegotiation of the deal we achieved when we met the troika a number of weeks ago. We agreed major changes, including the provision of scope for the jobs initiative which the Deputy recently described in extravagant terms in the House, a commitment to an expenditure review and, more important, to a review from 2012 to 2015. While the programme negotiated by the Deputy's party in government was to run straight through to 2014, there is now a commitment to a review following the first two budgets, which is significant.
On the review due to take place next week, we have not signalled any major items for renegotiation. However, during the quarter in the run-up to the budget there will be items for renegotiation because the manner in which we will make the correction in the budget may not accord with what is in the memorandum of understanding. As long as our approach is fiscally neutral, we will be in a position to substitute one measure for another.
Everyone accepts that there is no difficulty in making changes which are fiscally neutral. The troika will not have a difficulty with this. However, the Minister is on record since November last as saying this is a bad deal for Ireland. The question now is how does he intend to improve what he regards as a bad deal for Ireland. The changes made which I have summarised do not reduce in any way the cost of the deal to the State. The Minister said he would be in a position to negotiate these changes, yet he has not done so or taken the opportunity on the floor of the House today to indicate the issues on which he intends this week to seek renegotiation. Perhaps he might also take the opportunity today to advise the House whether an interest rate reduction will remain a live issue during the summer months or if we are unlikely to see any movement this side of the autumn.
An interest rate reduction is the subject matter of subsequent questions and I do want to take the ground from other Deputies by answering supplementary questions on the matter from Deputy McGrath. My response to it will come in due course.
The changes made in the review were substantial. On criticising the programme, I have always said the greatest problem in that regard was the manner in which the outgoing Government had turned bank debt into sovereign debt. In that context, the major change we have made which has huge cost consequences involves a restructuring of the banks which I announced at the end of March or early in April.
That was in the original deal.
29 Deputy Pearse Doherty asked the Minister for Finance in view of the 0.25 percentage point ECB interest rise of April last and in anticipation of the ECB interest rate increase due in the coming week, the way he intends to achieve the programme for Government to direct any mortgage provider in receipt of State support to present him with a plan of the way in which it intends to cut its costs, over and above existing plans, in a fair manner by a sufficient amount to forego a 25 basis point increase on their variable rate mortgage. [18894/11]
Implementation of the goals set out in the programme for Government to which the Deputy refers will be introduced in a measured way and in accordance with the Government's priorities over the period of the programme. The Deputy will be aware that as part of the restructuring and recapitalising plans announced last March, as part of the PCAR and PLAR exercise, the banks are engaging in cost cutting plans which are under way. I refer to the consolidation of the banks around two pillar banks, made up of the merger of Allied Irish Bank and the Educational Building Society, alongside Bank of Ireland. The merger of AIB and the EBS which concluded last week will enable cost savings through shared services and economies of scale. By deleveraging non-core assets, the banks will be better placed to focus on supporting the domestic economy. The effect of these changes will bring about cost reductions which will improve operating margins and permit the banks to better absorb funding costs. The Government remains in consultation with the banks in connection with the more significant parts of the plans, including a significant reduction in employee numbers.
We are all aware that the number of mortgage holders in distress is increasing daily. As of March this year, there were 86,271 mortgage holders in distress, which equates to approximately 500 families being subjected to serious mortgage distress every week. We know that 50,000 mortgage holders are more than 12 weeks in arrears. This is the largest increase in the level of mortgage holder distress since the Financial Regulator commenced releasing figures in this regard. New figures to be released this month by the regulator will show the impact of the European Central Bank interest rate increase announced in April. I am aware the banks are deleveraging and reducing their costs. However, there is a clear commitment in the programme for Government to direct any mortgage provider in receipt of State support to present to the Government a plan, over and above existing plans, of how it intends to cut its costs by a sufficient amount to allow it to forgo a 25 basis points increase in its variable mortgage interest rate. There is a good indication that the European Central Bank will again increase the rate later this week. This will be the second announcement and we are expecting more. Is the Minister directing the banks to reduce their costs in order that they will be able to forgo the 0.25 percentage point increase? Has he asked any of the relevant banks, as provided for in the programme for Government, to reduce their costs sufficiently so as to ensure the interest rate increase will be absorbed within the bank structures, thus relieving the concern of the 200,000 people concerned about the forthcoming announcement?
The code of conduct on mortgage arrears has been substantially revised to implement the recommendations of the mortgage arrears and personal debt expert group which published its final report in November last. It sets out how mortgage lenders must treat borrowers when facing mortgage arrears, with due regard to the fact that each case of mortgage arrears is unique and needs to be considered on its merits. In this context, the Government's economic management council recently asked that further work be carried out to address the situation of over-indebted mortgage holders with a view to identifying a range of responses appropriate to individual circumstances. The work will be undertaken by a group which is chaired by Mr. Declan Keane, an accountant seconded to the Department of Finance, and will report by the end of September.
The Minister has not answered my question. It is stated in the programme for Government that the banks will be instructed to forgo the 0.25 percentage point interest rate rise. My question on behalf of the 200,000 mortgage holders crippled by mortgage repayments is whether the Minister has instructed the relevant banks to come up with a plan which will enable them to forgo the 0.25 percentage point interest rate increase due to be announced this week by the European Central Bank.
The banks are being reconstructed. There will be two pillar banks. We will have much smaller banks, as the banks will be deleveraging most of what they have in terms of impaired debts abroad and will be concentrating on the home market. Much smaller banks will require fewer employees. Restructuring of the banks will result in significant savings to the banks which will enable them to offer a more cost effective service to all of their customers.
I appreciate that. However, my question relates to the interest rate applicable to mortgages and the banks being instructed to forgo the 0.25 percentage point interest rate increase. While I welcome all of the other information provided, have the banks been directed to forgo the 0.25 percentage point interest rate hike?
The restructuring of the banks has not yet been completed. The process is under way. We hope to have the banks fully recapitalised by the end of July, following which they will be in a position to provide better credit lines for customers. Also, as I stated, there will be redundancy programmes in the banks. When all of this has been done, the cost base of the banks will have been reduced and they will be in a position to offer a more cost effective service to all of their customers, including those with mortgages.
30 Deputy Joe Higgins asked the Minister for Finance in relation to his stated view that senior bondholders in Anglo Irish Bank and Irish Nationwide Building Society should have substantial losses imposed on them, if he discussed this question with US Secretary of the Treasury, Mr. Geithner, the European Central Bank and the EU; and if he will report on any such discussions. [18996/11]
I reiterate the Government's position on the bondholders of Anglo Irish Bank and the Irish Nationwide Building Society, INBS. As indicated in my statement of 31 March, the position on bondholders in Anglo Irish Bank and the INBS — institutions in different circumstances from the remainder of the banking system — will be considered following the completion of the independent review of the capital requirements of the INBS and Anglo Irish Bank last month. While the Central Bank has concluded that no additional capital is required for these institutions, this does not remove the onus on the Government to consider all options to reduce the cost to the taxpayer of resolving these institutions. I will, therefore, in the autumn raise with the IMF and EU authorities the issue of burden sharing to allow for the imposition of losses on unguaranteed and unsecured senior bondholders in Anglo Irish Bank and the INBS. As I stated at the time of my visit to Washington, I discussed this issue with representatives of the IMF who indicated they fully understood the Government's position and would work with us to seek to resolve it. I did not, however, discuss this matter with the US Secretary of the Treasury, Mr Geithner.
Regarding discussions with the ECB and the EU, there have been no formal consultations on the matter in line with Government policy as I have already outlined. I propose to engage with the EU and IMF authorities in the autumn on these issues.
It is important to reiterate that, in light of the potential broader financial stability and contagion issues that might arise, the Government will not take any unilateral action on this matter. Rather we will continue to work closely with our external partners to explain our perspective and hear their views.
Does the Minister agree that ordinary people and taxpayers will find it beyond belief that he did not discuss this issue with the United States Secretary of the Treasury, Mr. Geithner, who, we believe, vetoed the burning of tens of billions of bondholders' bad gambling debts at a G7 meeting and therefore was directly responsible for contributing at any rate to have that burden continued on the shoulders of the Irish people?
Could the Deputy ask a question?
Does the Minister agree he was posturing big time in Washington?
That is not a question. Will you ask a question, please?
I beg your pardon, a Chathaoirligh, it is a question.
It is not.
It is not up to the Chair to try to censor a Member of the Dáil from getting more information from the Minister for Finance.
Nobody was attempting to censor you. You will ask a question. Time is running out; now please ask the question.
I would have finished by now.
Well finish it.
You should not try to distract us from questioning the Minister for Finance.
Do not tell the Chair what the Chair can and cannot do. Now, ask your question.
Was the Minister's bold statement in Washington that he wanted the bondholders burned related to the fact that the following day was a press occasion for the Government on its first 100 days in office? When the Minister found himself in Washington, was he rather like the brave schoolboy smoking behind the shed, bragging against the teacher and talking big, but then when he faced the schoolmasters of Frankfurt and Brussels the big talk stopped? Was it not a most cynical intervention with no substance behind it?
I am glad the Deputy still has the same charitable view of other people's motives that he has had since he was first elected to this House. My statement in Washington was very carefully thought out and phrased. I know exactly why I made that statement and why I made it on that occasion, and I intend to pursue it in the autumn. I do not know whether I will be able to pursue it successfully, but in light of what was happening in Europe at the time and the imminent negotiations that were about to occur in Greece, I believe on reflection the Deputy will also see it as a very timely statement.
Why did the Minister not discuss the issue of the bondholders with the US Secretary of the Treasury, Mr. Geithner?
Ireland's bailout agreement as negotiated by the previous Government is with the IMF, the European Commission and the European Central Bank; it is not with the American Government. I intend discussing it with the European Central Bank, which is the body that does not agree to burden sharing with senior bondholders and I already discussed it in Washington with the IMF. I discussed it with the relevant parties and I did not make allegations against the United States Secretary of the Treasury as the Deputy has done in the House without any evidence of which I know.
Could the Minister not have asked him the simple question as to whether he vetoed the writing off of bad gambling debts to bondholders and therefore placed them on the Irish taxpayers' shoulders?
I was seeking the assistance of the American Government on other issues and particularly the assistance of its Secretary of the Treasury, Mr. Geithner. I certainly did not go to Washington to start making accusations even if those accusations were framed as a question.
The Minister could ask the question——
It is an accusatory question.
The Minister, without interruption.
All the Minister had to do was ask the question and not make an accusation.
Of course it is an accusation, framed as a question.
31 Deputy Michael McGrath asked the Minister for Finance if he has received any indication that the Troika, EU/ECB/IMF, will require Ireland to achieve a fiscal correction of greater that €3.6 billion in 2012; and his views on whether this is still the appropriate figure in view of all available economic and fiscal data. [18892/11]
As part of the memorandum of understanding on specific economic policy conditionality of the joint EU-IMF programme of financial support for Ireland, budget 2012 is to include an overall budgetary consolidation package amounting to at least €3.6 billion. This was the figure contained in the original memorandum of understanding agreed at the time of entering into the joint programme late last year and it is also the figure contained in the updated April 2011 version of the memorandum of understanding which was published following the first and second quarterly programme reviews in April of this year.
The precise nature of the measures to be implemented in 2012 will be decided upon in advance of budget 2012 in light of more up-to-date economic and fiscal data and the outcome of the comprehensive review of expenditure, which is under way.
The stability programme update submitted to the European Commission in late April forecasts the 2012 general Government deficit at 8.6% of GDP. Based on the macroeconomic and fiscal outlook at the time, this target is consistent with a level of adjustment of the order of €3.6 billion and is within the terms of the revised excessive deficit procedure recommendation issued by the ECOFIN Council last December.
Quarter 1 economic data released in recent weeks and budgetary data for the first six months of the year which were released yesterday were both broadly consistent with expectations. My Department is in the process of assessing what implications the latest macroeconomic and budgetary data might have for 2012 and beyond. Such assessment will, along with later data, inform the Government in the context of its budgetary preparations over the coming months.
The next quarterly review of the joint EU-IMF programme of financial support gets under way tomorrow and I, along with my officials, will be discussing with the external funding partners a range of economic and budgetary issues, including the current outlook for 2012.
Clearly the precise mixture of the elements in December's budget will not be decided until closer to the time. However, the key question is whether it is the mixture of elements or the overall figure that is subject to review between now and then. Rightly or wrongly, the Minister has considerably narrowed the options available to him in the preparation of that budget.
The Deputy should ask a question.
On the spending side he has removed social welfare completely and public sector pay is dealt with through the Croke Park agreement. On the taxation side——
The Minister to reply.
——corporation tax is not touchable, income tax changes will not happen, VAT policy is set in stone and so forth. Is it the make-up of the €3.6 billion that is subject to review depending on the economic data available at the time or is the figure itself open to review between now and then?
That is a very interesting question, but we are a long way from the budget which will be announced early in December. The Deputy will recall from the memorandum of understanding that while the target that has been recited for 2012 has been €3.6 billion, there is another target not so frequently mentioned, which is achieving a deficit of8.6%. We hope the means, a €3.6 billion adjustment, will achieve the 8.6% target, but there are many variables between now and December, which means that could move slightly but not by much. I said yesterday that the adjustment would be approximately €4 billion, but the target was €3.6 billion. In other words we must achieve a target of €3.6 billion but there is an issue of whether €3.6 billion is sufficient to bring the deficit below 8.6%. That is why I used the figure yesterday to indicate it is not as precise as people think and in the range of between €3.6 billion to €4 billion will get us in with the required deficit. Of course we will be discussing that with the troika as the year goes by. We will also be discussing the elements of the adjustment that will get us to those targets.
If I interpret the Minister correctly, he is saying the percentage deficit must be achieved and that, therefore, will determine the exact monetary amount of the adjustment to be introduced in the budget for 2012. If there is slippage in economic growth figures during the remainder of this year, that figure of €3.6 may increase significantly if we are still to come within the deficit of 8.6% of GDP for 2012. Is that a fair summary of what the Minister is saying?
I am not saying that as precisely as the Deputy is putting it. I am saying there are two targets: one is a monetary target of €3.6 billion and the other is a deficit target of 8.6% of GDP. To try to get the two of those aligned is what has to be done. Already, the target we have provided to Europe would get us to 8.6% with an adjustment of €3.6 billion, and there are other estimates which are slightly north of that. The IMF estimates that an adjustment of €3.6 billion would get us to 8.8%, so, while the figures are very close, there is a slight variation.
Is the 8.6% a must?
No, it is not a must but, obviously, it is a matter for negotiation. The assumption is that an adjustment of €3.6 billion will get one to a deficit of 8.6%. As the year goes by, we will know, but much will depend on the year-end figure. Obviously, if we have a year-end figure which exceeds the target, then the adjustment would not be as strong as would be required in the Estimates. However, if we fell short at year-end, it would be another variable that must be taken into account. I am not saying anything particularly new. I am simply saying that next year will be difficult and there will be a hard budget. Whether it is €3.6 billion or €4 billion, it will still be a very difficult budget.
So the €3.6 billion is fixed.
It is a minimum adjustment.
32 Deputy Pearse Doherty asked the Minister for Finance if, during any of his meetings at the European Council, he has raised the fact that the European Union will profit to the tune of €10 billion as a result of the 3% mark up on the interest rate charged on the EU portion of the EU/IMF bailout loans; and if he will make a statement on the matter. [18895/11]
The EU portion of the EU-IMF programme funding for Ireland is made up of the European financial stabilisation mechanism, EFSM, the European financial stability facility, EFSF, and the bilateral loans from the UK, Sweden and Denmark. Of these, only the EFSM relates directly to the European Union. Based on full drawdown of the €22.5 billion from the EFSM, the current margin of 2.925% and an average maturity of 7.5 years, the gross margin would be about €4.9 billion, out of which its costs would have to be deducted. Interest paid on EFSM loans, including the margin, will be entered into the EU budget as miscellaneous revenue from which all member states, including Ireland, benefit.
The margin on borrowing from the EFSF, on the other hand, accrues to the EFSF in the first instance. Based on the current margin of 2.47%, full drawdown of the €17.7 billion available and average maturity of 7.5 years, the gross margin will be around €3.3 billion. This ultimately accrues to the EFSF guarantors.
The margin from bilateral loans accrues to the relevant country. Only the UK facility has been agreed and it provides for a margin of 2.29%, providing a gross margin in the order of €650 million. The agreements, and therefore the margin, for Denmark and Sweden have yet to be finalised. Taken together, the total margin applying under existing arrangements could be of the order of €9 billion over the period.
It is the Government's strong position that the margin being charged on loans from both the EFSM and the EFSF is excessive. This argument, which has been supported by the European Commission, is one I and my Government colleagues, plus our officials, make at every possible opportunity. It is safe to say my ECOFIN counterparts are fully aware of this issue and I will continue to remind them and press them on this matter.
The Exchequer figures yesterday showed that just over 20% of all taxes collected in the State are now needed to pay off the interest on our national debt and that figure is about to increase given the figure for servicing the interest on our national debt is €5.2 billion this year and will increase to €9.2 billion by 2015. We often talk about figures when dealing with questions in the House, which is important, but there is also the question of fairness. Given this increase, does the Minister believe it is fair that our European partners are profiting by more than €9 billion as a result of our hardship and as a result of decisions this Government and the previous Government have taken to bail out bankers?
The Department of Finance and the European Commission have been busy sending out press releases on this issue, including one sent out before 7 a.m. today. The NTMA estimated at the beginning of December that the average cost of the EFSM loan would be 5.7% — I understand the previous Minister for Finance indicated this to the House — but it is expected as a result of the increased cost of borrowing at European level that the cost will probably increase to approximately 6.1% or 6.2%. If this is the case, the cost of borrowing under that portion would have increased by approximately €750 million. Will the Minister clarify whether this is the case? Is the average rate under the EFSM by the NTMA on 1 December last 5.7% or has the cost increased as a result of the cost of borrowing at European level?
It is very fair to say that when we talk about a bailout for Ireland, or indeed Greece or Portugal, we are not talking about grant-in-aid. We are getting a facility to borrow money and we are paying a very high interest charge on it. We are not in receipt of charity or of grant-in-aid. It is simply a loan facility to keep us going when we could not raise money on the markets, and the interest rate is very high.
I have argued consistently — in opposition, in government and at ECOFIN — that one of the flaws in the bailout programmes across the programme countries is that the cost of the programme is excessive, which makes it very difficult for programme countries to come out of programmes because the margin is too big. Clearly, the people who designed the programme in consultation with the last Government had considerations of moral hazard as well as being paid a strong interest rate. They wanted to discourage people from going into programmes and they wanted to ensure that people came off programmes at the earliest possible date. Of course, it is a flawed analysis. As I have told our colleagues in Europe, when a party like Fianna Fáil, which was the party of Government for a generation, is taken from 42% to 15% in a general election, that is moral hazard enough to be going on with when one is Government. One does not need a penal interest rate on top of that to make a Government behave. Despite this, these were the considerations that fed in.
A more realistic consideration is that some of the guarantor countries which are also contributors to the fund, such as Spain and Italy, were last week borrowing money at approximately 5%, and one could not expect guarantor countries, which are contributing, to borrow at 5% and lend at less than that. There is a real issue in this regard as well because, while the margin over the fund is approximately 2.5%, the margin over the costs of contributors to the fund can be quite slight. This is why it is so difficult to negotiate a very significant interest rate reduction. As a general principle, the architecture defending the euro has flaws in it, one of which is the price of the money.
As a supplementary question——
We are out of time and must move on.
