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Dáil Éireann debate -
Thursday, 7 Feb 2013

Vol. 791 No. 3

Leaders' Questions

A number of things need to be said about the deal on the promissory note and its replacement with long-term Government bonds. There will be grave disappointment that the total amount of debt remains unchanged. Given how policy in Europe is evolving, it will not be long before a system is put in place whereby the cost of further banking crises will be met by a central eurozone fund, in other words, a system whereby all member states in the eurozone will contribute and which provides for burden sharing. This is the essence of the banking union, which is coming down the track. This needs to be acknowledged.

In converting the promissory note to Government bonds, we are now fully accepting that the new regime will not be retrospectively applied to Ireland. That is the bottom line. The deal that has been done confirms that, in essence, the entire stock of Anglo-related debt will be borne by this State alone, a reality to which recognition must be given. Given the European Central Bank's insistence that this remains Irish debt and needs to be fully borne by the Irish State, the question that then arises is how best to pay it. This is essentially what the Government has been seeking to renegotiate over the past number of months. There is no doubt the replacement of the promissory note with long-term Government bonds with maturities of between 25 and 40 years eases the burden of repayments. There is no question about that. I believe independent analysis will support that assertion.

To properly assess the impact of this deal, we need the Government to publish the full details of it and to publish an updated economic and fiscal outlook. The last occasion on which this was done was in respect of the budget last December. The updated economic outlook needs to show, for example, the revised general government debt, the projected deficit, the Exchequer balance and the impact of this deal on the budgetary adjustments. We need those details and we need them as quickly as possible. The Tánaiste might say in his response how long the Irish Central Bank will be allowed to hold these long-term Government bonds, which is the key issue at the heart of all of this. As long as the bonds are held by the Irish Central Bank, the true interest rate to the State is reduced because part of it will be circular. However, the European Central Bank will want its money back as quickly as possible and will not, I am sure, allow the Irish Central Bank to hold those bonds indefinitely. The Tánaiste might also comment on the interest rate issue. I assume it is a floating interest rate linked to the ECB re-financing rate and is, in essence, a variable interest rate.

The net effect of the deal will be a €1 billion saving on the budget side. It is €1 billion that can be realised in one year on a one-off basis. How does the Government propose to use this money? Will it use the €1 billion as a cushion to achieve its overall budgetary targets or will it seek to renegotiate with the troika a reduction in the budget adjustment planned for next year, which is currently €3.1 billion? That is possibly the most fundamental question we would like to have answered.

I thank Deputy McGrath for his acknowledgement that the agreement concluded will ease the burden of repayment on the Irish taxpayer. On the broader issues which he raised - there may be confusion about where this fits with the decision taken in June to separate bank and sovereign debt and the progress on banking union - the Government has always said there were two elements to the bank debt issue, the first of which is the promissory note, which is the €3.1 billion required to be paid every year for ten years to what was in effect a dead bank. This issue has been dealt with in the agreement concluded with the ECB. The second element is the recapitalisation of the pillar banks, which issue will be addressed in the context of the establishment of banking union. The Deputy will be aware that the single supervisory mechanism must be in place by 2014. Other issues, including definitions of legacy debt and so on, are currently under discussion.

On the specific questions asked, the Irish Central Bank will sell the bonds only where such sale is not disruptive to financial stability. There is a schedule of sales, which if the sale conditions are right, will amount to €500 million up to end 2014, €500 million in the next four years, €1 billion in the following five years and €2 billion per annum thereafter. As I stated, such sales will be only in circumstances where they are not disruptive to financial stability. The interest rate will be a floating interest rate. We expect it to be between 3% and 3.5%.

Yes, this year. The Deputy will be aware that the Central Bank interest rate arrangement is slightly less than 1%. The balance between the 1% and 3% to 3.5%, which will be profits, will be returned by the Central Bank to the Exchequer. The net effect is as stated. This is a basket of bonds, the average duration of which is 34.5 years, and €1 billion off the deficit. In terms of the deficit reduction target, it is 0.6% and a reduction of €20 billion on our borrowing requirement. It is proposed - this matter was raised last night by some Deputies - to arrange for a full debate on this issue in the House next week, at which time the Deputy will be able to pursue those and other details.

I ask that the Government release the full details of the deal as soon as possible. Some of the information just given by the Tánaiste forms part of the crucial details. The schedule of disposal of the bonds by the Central Bank into the markets is at the core of the value of this deal. We need that information as quickly as possible.

My point in relation to the June summit - I am fully aware of the negotiations with respect to the ESM, the pillar banks and so on - was that if that agreement was to be implemented in its truest form, this would mean the cost of bailing out former Anglo Irish Bank and Irish Nationwide would be dealt with retrospectively under the new regime. It is accepted that is not now going to happen.

On the €1 billion saving on the budgetary side, which was confirmed earlier by the Taoiseach, how does the Government propose to utilise it? Will it use it as a cushion or as headroom in its budget numbers to achieve the 3% target as set out or will it, in discussions with the troika, point out that the Irish people have taken enormous pain in recent years and that it wants to use that money to reduce the severity of future budgets, in particular a reduction of well below €3 billion in budget 2014? That is the key question.

On the June deal, it is important it is not seen as a type of gift from on high. The June deal was achieved because we worked for it. The Deputy will be aware that Ireland was one of the few states which, in the early part of the discussions with its European partners, argued strongly for a change of European policy in respect of bank debt. We secured that change in European policy at the June summit.

No doubt the Deputy recalls the stability treaty referendum. I remember going out on the steps of Government Buildings on the day the result came in and the Taoiseach and I stated clearly on that occasion that our next target was to secure an agreement at European level on the separation of bank and sovereign debt, which we secured in June and it has been extremely helpful. It is important that we do not just regard the June deal as something that happened anyway. It happened because we worked for it and managed to persuade other parties of the value of it. In respect of the €1 billion off the deficit, this agreement has been secured and the issue of framing the next budget will be a matter to be considered in the course of time by the Government. I acknowledge Deputy Michael McGrath's positive response, but I was a little amused at his suggestion that perhaps we might seek further renegotiation with the troika on the terms of the bailout. What a short time two years is. Two years ago we were in the middle of the general election-----

The Tánaiste was promising to burn the bondholders.

Do not go there.

On 2 February 2011 a press release was issued by Fianna Fáil stating its leader, Micheál Martin, stated the Labour Party must stop pretending Ireland can renegotiate the terms of the IMF-EU rescue deal.

And how right he was.

Now we know.

Will the Tánaiste give us an update on all the promises he made?

I would not dig up the election files if I were the Tánaiste. It would not be a very good idea.

Does the Minister, Deputy Reilly, have anything to say on this?

To put this in context, this is a promissory note inflicted on the Irish people by a Fianna Fáil Government to pay off the private debt of a toxic bank which is now under criminal investigation. Last June the Tánaiste said the Government had succeeded in separating sovereign debt from bad bank debt and that the legacy debt would be dealt with. What the Government has succeeded in doing, and has announced today, is to turn the €28 billion promissory note into sovereign debt which could reach up to €60 billion. This debt has been tied to this generation and if adult children are starting work now they will be paying until 2053, which is their entire working lives, and their children will also pay for it. Instead of removing this burden from the shoulders of the Irish people the Government has doubled it.

Little wonder there is sweetness and light from Fianna Fáil on this issue given that it created it. Every penny of the debts of Anglo Irish Bank will be paid by Irish people as part of this deal. Any young people lucky enough to get a job in the economy today will be lumbered with this for as long as they are able to work. Does the Tánaiste accept the Government has failed to separate bank debt from sovereign debt? Does he accept that under this deal the total cost of bailing out Anglo Irish Bank has increased? Does he think it is fair that citizens are being asked to pay for this? Does he acknowledge that austerity will continue as part of the Government's policy?

The promissory note is in effect sovereign debt and the State was made responsible for bank debt by a decision made by the previous Government in 2008 which Sinn Féin supported. Sinn Féin's spokesperson in the Dáil that night was Deputy Caoimhghín Ó Caoláin, who described what the Fianna Fáil Government was doing as a courageous response. Deputy Adams's colleague, Deputy Pearse Doherty, who now has much to say about it, was then a Senator and he stated he supported it because the Bill was in the national interest. He also welcomed it as a decisive move.

He voted against the legislation.

Let us be clear about where Sinn Féin is coming from.

The Tánaiste should check the Dáil record. He is not being fair.

This is from the Dáil record.

It is incomplete.

There are many things Sinn Féin can censor but it cannot censor the Dáil record. It is here for all time. Deputy Adams's party was an enthusiast for tying the bank debt to the sovereign in 2008. The Government has been working since we came into office to separate it. It is not easy. There are different elements to it. We have secured an agreement at European level on the separation of bank and sovereign debt. We had to renegotiate the terms of the promissory note and we have succeeded in doing this. There is some difficulty in understanding some of the basics. If I offer Deputy Adams €1,000 which must be paid in March and I offer him another €1,000 which must be paid in 34 and a half years' time, which €1,000 will he take? By any standards the agreement secured is to the benefit of the Irish taxpayer and, as Deputy Michael McGrath has acknowledged, it will ease the burden on the taxpayer.

Except interest is being paid all the way along.

Deputy McDonald says the Tánaiste did not answer any of my questions, but in fairness he did-----

Internal strife in Sinn Féin.

-----because implicit in what he stated is that the bad debt is sovereign debt. For the record, Sinn Féin voted against legislation on the banking guarantee and the Tánaiste knows this.

If the Tánaiste is discussing election promises one of the most infamous was Frankfurt's way or Labour's way-----

It is not Frankfurt's way any more, is it?

It clearly is Frankfurt's way. I well remember watching on television the Minister, Deputy Rabbitte, stating as far as he was concerned this would not be paid and of course it is going to be paid. I think an indication of the difficulty of the once proud Labour Party, champion of the working class-----

We are very proud today.

We have no legacy like Sinn Féin.

-----is that it is using Fianna Fáil as a guarantor of the validity of its position. Imagine the Tánaiste is using Fianna Fáil to vindicate in some way what he is doing.

Would Deputy Adams not be big-hearted for once and acknowledge all the work done over the past two years?

Deputy Dowds please. This is Leaders' Questions.

The reason this should not be paid is because the people cannot afford to pay it. With regard to the Tánaiste's little metaphors about Sinn Féin, Sinn Féin is not taking on this debt and neither is the Tánaiste. The ordinary people who send us in here, those who do not even bother voting, those in all parts of the world because they cannot get a job here and the 500,000 people on the dole will be paying this. It would be far better if the Tánaiste just stood up and told us straight that what the Government has done is turned this into sovereign debt and pushed it up the pipe. It has passed the burden onto our children and grandchildren. This would be the honest and straightforward way of dealing with this as opposed to trying to spin it into something it is not. What will this mean for the average person who went out and voted for the Labour Party two years ago?

Some €1 billion less in taxes per year.

I did not say that.

What will this mean in their pockets and for those who cannot get health services and the young people who are unemployed? Will the Tánaiste tell us whether austerity will end on the back of this?

In fairness to Deputy Adams, he has a very difficult job to try to construct some way of finding a flaw in what has been negotiated with the ECB.

The flaws are very evident. It is not difficult to find them.

By any standards an agreement that reduces our borrowing requirement by €20 billion over the next ten years-----

Answer the question.

I am answering the question. The Deputy asked where is the benefit to the people. The benefit is that first, there is no longer a requirement to pay €3.1 billion of taxpayers' hard-earned money on 31 March this year and on 31 March every year for the next eight years.

So you will bring back the respite care grant.

The second benefit is that the deficit, which is very difficult, is to be reduced by €1 billion. That will have a tangible benefit in terms of the budgetary decisions that we have to make. Third, it will reduce the debt burden on the Irish people and will help this country to recover.

Deputy Adams said that we have to tell it straight. There is no way of coming in with a magic wand, trying to zap it all away and say we will not pay, we do not have to pay.

You said that.

We did not, actually. I am glad that Deputy Adams made that point because we did not say that. I want to correct that point and I am glad that Deputy Adams has given me the opportunity of doing so. From the very beginning of the crisis at the time of the bank debt, we were often asked whether we would default or refuse to pay if we were in government. We always said we cannot default, we have to renegotiate. We committed ourselves from the outset, including the time that we were in opposition, to the strategy of renegotiation. When the two parties that are now in government committed themselves to that strategy at the time of the general election and when the Government was formed, there were people - including commentators and those now on the Opposition benches who were then in government - who said it could not be done, it would not succeed, we would not be allowed to do it. I have quoted one political figure who expressed it clearly. Some of the commentators, who are now writing about flaws in this and are trying to find some hole in it, were the very people who said at that time that it was fanciful to renegotiate. Yet we did renegotiate.

What have you renegotiated?

We have renegotiated. We have significantly improved the terms of the promissory note. It does not have to be paid every year. It has been converted into a long-term bond, which will reduce our borrowing requirement by €20 billion and takes €1 billion or 0.6% off our deficit. By any standards that is a good agreement.

We have been ripped off.

A former Minister for Finance wrote a €30 billion IOU for Anglo Irish Bank - which in turn gave it to the Central Bank - without the knowledge or permission of his colleagues, or proper substantial debate in the Dáil, and without the consent of the people. It may very well have been unconstitutional. We all know the horrific consequences this has had for the Irish people. An insolvent Government promised to pay, on behalf of us all, €3 billion for 13 years to an insolvent bank. Any part payment has no basis in equity, social justice or morality for the people. The moral issue here demonstrates just how much the Government cares for the people of this country with the burden that has been inflicted upon them by mistakes made by politicians and bankers to the tune of over €9,000 per person. How often has it been said by prominent politicians and economists across the world that the taxpayer should not have to foot one cent of this bill? We have no legal obligation or requirement to pay any of this debt. The country is being torn apart by austerity. There is a widespread social consensus that any payment is unjustified and unjustifiable. It is fundamentally wrong in this crisis to leave it to 166 people to decide the fate of our nation for the next 15 or 16 years.

We should not underestimate the knowledge that the Irish people have acquired on the issue of promissory notes. Will the Government give people a say? They include nurses, gardaí, single mothers, the unemployed, emigrants and the thousands more who are about to leave. Will the Government go to the people in a referendum or an election on this grave economic crisis? The vast majority of people are saying that not one cent of this money should be paid. This debt is an immoral and unjust imposition on citizens, as well as on the future resources of the country. People deserve their dignity and the best way to do that is to let them have a say. Is that not a reasonable request?

Deputy Halligan referred to the last Government and the difference is this - the last Government saddled the Irish people with the debts of the banks; this Government is renegotiating and easing the debt burden on the people.

As regards going to the people, we did so two years ago in a general election. We went to the country on a commitment that we would renegotiate the terms of the deal. As I said previously, there were many people who doubted either that was possible or indeed that we would succeed. I have to confess there were times when it seemed to me that there were people in this House who seemed to wish that we would not succeed.

We are making progress along a number of dimensions. First, by any standards, what has been agreed today is hugely significant. The toxic bank that has been at the heart of the crisis - Anglo Irish Bank and Irish Nationwide in the form of the IBRC - is no more. We have liquidated that.

The €3.1 billion promissory note that was to be paid every March, no longer has to be paid. On several occasions, people here asked whether it would be paid. We have now secured an agreement which is significantly to the benefit of the Irish people.

We have also succeeded in persuading our European partners to have a fundamental change in banking policy. That fundamental change was reflected in the conclusions last June on the separation of bank and sovereign debt. It was followed through by the agreement to establish a banking union. Once again there were people who said that would not happen, there would be no follow through, and that some states might not allow it to occur. The reality, however, is that the legislative measures to put in place the single supervisory mechanism is proceeding. As it happens, this country currently holds the Presidency of the European Council and has responsibility to advance that, and we are doing so.

Arising from that, there is another set of discussions we must have on recapitalisation of the pillar banks. Those discussions will take place in the context of the establishment of the banking union and the possibility arising from that of the ESM recapitalising Irish banks.

Every citizen has a right to go to the courts on any issue but I find it incredible that a Member of this House, no less, went to the courts to try to stop the establishment of the European Stability Mechanism, which is the instrument we are now relying on to see some direct recapitalisation of Irish banks.

Would the Tánaiste accept that three quarters of the electorate are weary following the painful sacrifices of €30 billion being sucked out of the economy?

They are weary of retrenchment and misery. There is no promise in this agreement that over the next number of years, matters will get any better.

We must still pay this debt.

All that will happen is that we have stretched it out further onto our children and our children's children. Again, when the Tánaiste was in opposition and all of this broke some years ago, I listened to him - painfully - declaring on television and radio programmes that we would not pay this debt because it was unjust, unfair and unjustifiable. It was not our debt and we were going to burn the bondholders. The expression "burn the bondholders" came from Government Members and not from anyone on this side of the House.


The Deputy is wrong.

It came from the Minister for Finance on a television programme who said it.

The question being asked by the Irish people to which Members cannot get a direct answer-----

Withdraw that remark from the record.

That is nonsense.

The question that is being asked by the Irish people, who still are sceptical and too overburdened by what has been placed upon them is-----

The Deputy should not tell untruths in the House. That is not true.

Will the Government continue to draw the resources of the Irish nation out of the Irish economy, year after year-----

The foreigners are here.

----- by still being obliged to pay back this debt? Is it not a fact that there is no write-down nor the semblance of one? I have one further brief point.

I have one further point.

A question please.

Greece had two bailouts and got a 20% write-down on their debt.

It got nothing from the ECB.

The Minister stated this was not applicable to Ireland but has not come into the Chamber to explain the reason it is not applicable to Ireland. The Tánaiste should explain this to us.

It was not sovereign debt.

I call on the Tánaiste for his final reply.

Deputy Stagg should note that as a result of the Government's policies, 100,000 people have nothing to eat.

He is back. Bertie's bank guarantee boy.

Please. I ask all Deputies to co-operate.

Let me correct one point at the outset. Greece did not receive a write-down of sovereign debt.

No, it did not. It did not get a write-down of sovereign debt. Members should at least have a factual discussion.

Yes, based on facts.

I agree with one point made by Deputy Halligan.

The Tánaiste knows they got one.

I did state repeatedly that what happened in this country was unjust and unfair. Moreover, I still believe that and still think that. I refer to the extent to which the Irish people, working people and Irish taxpayers, have been saddled with the burden of the bad policy decisions that were made-----

They are all being made again.

---- the greed that was associated with the property boom, the over-lending, the lax regulation and all that went on in that regard.

The Tánaiste wanted more taken from Cyprus.

Please. I want the Tánaiste to conclude on this now.

It was and is unjust and unfair that the people who are bearing the burden in this regard are those who have lost their jobs, who have had their pay cut, who are finding it harder to pay the mortgage and who are in very difficult circumstances. They are the people who are bearing the burden in this regard and the duty and responsibility of the Government, which it took on two years ago, is to get us out of that position. There is no point in anyone trying to pretend there is some kind of instant abracadabra solution to the economic crisis this country has been obliged to go through.

The Government has had them all over there.

The Government is working its way through that crisis and improving it. The deficit must be reduced and the Government has been doing that. It stated it would renegotiate the terms of the bailout and has done so in several respects. It got a reduction in the interest rate and an improvement on the terms recently at the eurozone and ECOFIN meeting. Moreover, today's agreement constitutes a significant advance and must be acknowledged as such. I do not wish to claim it will immediately end the crisis because of course it will not. However, it is a significant advance. It is a significant change in the terms of the commitments that Irish taxpayers have been obliged to make in respect of what is being paid over to Anglo. One should not underestimate the significance of what the Government has done here over the past 24 hours.


Hear, hear.

It has put an end to Anglo Irish Bank, Irish Nationwide Building Society and IBRC. It has put an end to the payment of the promissory note - that the previous Government saddled on the Irish taxpayers - of €3.1 billion each March for ten years. The Government has exchanged that for a longer-term bond with maturity of 34.5 years. This will have the benefit of reducing Ireland's borrowing requirement by €20 billion, will take €1 billion off the deficit and constitutes a further 0.6% along the way towards achieving Ireland's deficit target.

The Government has another job of work to do now, to which the Taoiseach referred earlier today, namely, that on the back of the agreement made last June on the establishment of the banking union, further work remains to be done in respect of the easement of Ireland's bank debt. Moreover, that is not the only thing the Government must do as it must also instil greater confidence in the Irish economy. It must get greater investment into the economy to create the jobs that will bring about recovery. This is the reason for the work the Government has done on its budgets, in bringing stability to our financial system and on the negotiation of the bank debt arrangements, all of which contribute to stability. One builds investment on that and creates the jobs that are necessary to bring about recovery. It is all tied together and while it will not happen overnight, in two years the Government has made far more progress than any of the sceptics and cynics thought it would be able to make this time two years ago.