Sale of Promissory Note Bonds: Discussion

We will now deal with matters relating to the sale of the promissory note bonds with Mr. Diarmuid O'Flynn of the Ballyhea campaign group. He is joined by Deputy Joan Collins and other colleagues.

Before Mr. O'Flynn makes his opening statement I will brief him on privilege.

By virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to the committee. If they are directed by the committee to cease giving evidence on a particular matter and they continue to so do, they are entitled thereafter only to a qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and they are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person, persons or entity by name or in such a way as to make him, her or it identifiable.

Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the Houses, or an official, either by name or in such a way as to make him or her identifiable.

I invite Mr. O'Flynn to make his opening statement.

Mr. Diarmuid O'Flynn

On behalf of the Ballyhea Says Know group, I thank the committee for this opportunity. We have had many significant days since this began. This is probably the most significant one because it allows us to ask the committee directly to finish what we have started and to at least challenge the ECB on the injustice that has been done to Ireland and on the injustice that is still being inflicted on us. I also pay tribute to the work of Fiona Fitzpatrick in securing this date for us. Unfortunately, due to circumstances beyond her control, she cannot be with us.

There has been much coverage in the past few weeks of Anglo Irish Bank and events in the build-up to the banking crisis in Ireland. There has been no coverage of the ongoing consequences of those events. I am not only speaking about the billions in interest we will pay every year for many decades on the loans taken out to repair that damage; I am speaking about the promissory notes and Anglo Irish Bank debt legacy - €500 million destroyed by our Central Bank in 2014; €2 billion in 2015, €3 billion in 2016; €4 billion in 2017; and the €1 billion that we know of destroyed so far this year. That is €10.5 billion destroyed by the Central Bank of Ireland since 2014 and a further €3 billion in both 2011 and 2012, which is €16.5 billion in total, with another €14.5 billion still to go, giving €31 billion in all.

Ballyhea Says Know began in March 2011 simply as a protest against this socialisation of private bank debt, that is, the massive bill presented to the people for the greed and excesses of so many in the private financial sector. We realised quickly we were going to get nowhere simply through protest so we morphed into a campaign group. We went to Brussels three times and met senior officials from all three major EU institutions - the Commission, the Council and the Parliament. We went to Frankfurt to the ECB headquarters and presented a petition to a meeting of the governing council. We nailed our list of protests to the door in the manner of Martin Luther more than 300 years earlier. We sat down and spoke directly to senior ECB officials in Dublin, met the Governor of the Irish Central Bank on three separate occasions and had a Private Members' motion introduced in the Dáil. All this was backboned by a weekly march in Ballyhea and Charleville, joined by others in Ratoath, Dublin, Tralee, and Clonmel.

Through all those actions, we learned two outstanding lessons. First, there is a willingness on the part of the institutions to engage with Ireland on this issue. Second, willing as we are, that engagement will not be with the Ballyhea Says Know campaign. It has to be at official level, which is principally why we are here today. We ask the Oireachtas to set up a cross-party committee and to take this fight to Europe on behalf of the Irish people. It will be a fight; we are under no illusions on that score.

I refer to the background to the crisis. A currency requires many fundamental structural elements to enable it to withstand the shocks it will inevitably face. When the euro was being designed in the 1990s and as politics took over from monetary common sense, member states understandably point blank refused to make the kind of sovereignty concessions such a common currency requires. One by one, many of the critical supports were removed to such an extent that when the inevitable shocks came the currency inevitably collapsed. This is not coming just from the Ballyhea Says Know campaign; this comes directly from those who were up close and personal to the euro design.

In the early 1990s, Bernard Connolly was head of the European Commission unit responsible for the European monetary system and protecting the euro. In his book "The Rotten Heart of Europe: The Dirty War for Europe's Money", published in 1995, Connolly warned at length of the potential consequences of what was happening. For his pains he lost his job. Though his professional credentials and expertise in the area cannot be questioned - he now operates successfully in New York - it has been argued that Connolly is a sceptic and that it colours his views. No such accusation could be levelled at Paul De Grauwe. Highly respected and often used by the European Commission, a professor at the London School of Economics, De Grauwe also warned of the disastrous potential consequences if the euro was launched with those in-built flaws. In an article published in the Financial Times in 1998 headlined, "The euro and financial crises", he predicted almost to the letter what happened in Spain and Ireland. He said:

Suppose a country, which we arbitrarily call Spain, experiences a boom which is stronger than in the rest of the euro-area. As a result of the boom, output and prices grow faster in Spain than in the other euro-countries. This also leads to a real estate boom and a general asset inflation in Spain. Since the ECB looks at euro-wide data, it cannot do anything to restrain the booming conditions in Spain. In fact the existence of a monetary union is likely to intensify the asset inflation in Spain. Unhindered by exchange risk vast amounts of capital are attracted from the rest of the euro-area. Spanish banks that still dominate the Spanish markets, are pulled into the game and increase their lending. They are driven by the high rates of return produced by ever increasing Spanish asset prices, and by the fact that in a monetary union, they can borrow funds at the same interest rate as banks in Germany, France etc. After the boom comes the bust. Asset prices collapse, creating a crisis in the Spanish banking system.

In 2013, he published a paper entitled, "Design Failures in the Eurozone: Can they be fixed?", and, in 2015, he published "Design failures of the Eurozone". Others such as Milton Friedman in August 1997 and Martin Feldstein in November 1997 argued likewise that the design was fatally flawed from the outset. This is all proof the euro as designed should never have been launched. When it was, all that was predicted by De Grauwe and warned by Connolly happened and Ireland, as we know only too well, was particularly hard hit. Billions of euro poured into the country. Banks, trying to keep up with each other, with Anglo Irish Bank to the fore very early on, lowered their lending standards. Regulators and central bankers lowered their guard. Property prices ballooned until eventually it all exploded.

According to its website, the ECB manages the euro and frames and implements EU economic and monetary policy. Its main aim is to keep prices stable, thereby supporting economic growth and job creation. What was it doing as the various banking crises developed all across the eurozone? What was it doing on keeping prices stable as property prices inflated to ludicrous levels in Ireland especially and in Spain? While regulators and central bankers ignored the kind of major breaches of legislation such as those reported by Jonathan Sugarman here, where was the ECB? It was neither seen nor heard. That all changed after the crash as the ECB suddenly appeared front and centre as the Commission’s enforcer as the troika came to town.

One of the first measures taken to address the banking crisis was the establishment of the emergency liquidity assistance, ELA, funds, the clue for which is in the name. The ECB website states that ELA aims to provide Central Bank money to solvent financial institutions that are facing temporary liquidity problems. The Irish banks did not meet this criteria but came up with a way around it. Using the Asset Covered Securities Act 2001 and the Asset Covered Securities (Amendment) 2007, they applied pre-crash historic valuations to the assets they held on their books. This is in direct conflict with the most fundamental of accounting laws, which require that a true and fair reflection of the state of affairs must be presented. An AccountancyAge article in June 2014 said:

The true and fair accounting concept should be used to override compliance with reporting standards in exceptional circumstances, the UK’s reporting watchdog has sa[i]d.

In a statement, the FRC [which is the Financial Reporting Council] reconfirmed that the presentation of a true and fair view remains a fundamental requirement of financial reporting and said that, in the "vast majority" of cases, a true and fair view will be achieved by compliance with accounting standards.

However, where compliance with an accounting standard would result in accounts being so misleading that they would conflict with the objectives of financial statements, the standard should be overridden, the FRC said.

"The requirement to present a true and fair view in financial statements is enshrined in EU and UK law ..." said Stephen Haddrill ... chief executive of the FRC.

Those hugely inflated values hid the true position of the Irish banks in the lead-up to the infamous blanket bank guarantee. They hid that position again when applications were made for funding to the tune of billions of euro from the ELA funds. As we were to finally discover in late 2008, those banks were not suffering temporary liquidity problems. Had the true and fair valuations been used for the property collateral, they were, in fact, insolvent.

The most reckless of all the Irish banks throughout this period was Anglo Irish Bank, a point that was driven home by the publication of the so-called Anglo tapes. The eventual cost to the country is enormous; €35 billion was poured into the bank, €25.5 billion by way of promissory notes and a further €5.5 billion for INBS. They were notes signed by the then Minister for Finance, the late Brian Lenihan, offering a guarantee to the ECB on behalf of the Government if Anglo should fail to repay those billions of euro. Given how Anglo was disguising its true financial situation, those guarantees were offered under false pretences. Given that the ECB, as the central bank of central banks in the eurozone, should have been aware of this misreporting, those guarantees are null and void.

Under enormous pressure from the ECB, however, that is the €31 billion currently being borrowed by the NTMA, given to the Central Bank in exchange for the promissory note bonds, and then destroyed, taken out of circulation. This ongoing obscenity must end or at the very least it must be challenged. That brings me back to the start.

The troika’s intervention in Ireland in 2011 has been presented as a bailout for Ireland. It was not. It was a bailout by Ireland of the eurozone, a bailout in which successive Governments were strong-armed by the EU, with Germany and France in particular abusing their combined political and economic muscle. Including the €5.5 billion from NAMA, we poured a mind-boggling total of €69.7 billion into our banks – a world record of the undesirable kind. Against that we got loans, not gifts, of €67.5 billion from the troika at inflated interest rates.

We are told that Germany is a rock of financial sense. All those interventions by the ECB were not to save Irish banks – it was to save the megabanks in the bigger EU countries. A Bloomberg article from May 2012 quotes a report of the Bank of International Settlements, which outlines how:

German banks had amassed claims of $704 billion on Greece, Ireland, Italy, Portugal and Spain, much more than the German banks’ aggregate capital. In other words, they lent more than they could afford.

When the European Union and the European Central Bank stepped in to bail out the struggling countries, they made it possible for German banks to bring their money home. [That is exactly what has happened]. As a result, they bailed out Germany’s banks as well as the [German] taxpayers who might otherwise have had to support those banks if the loans were not repaid. Unlike much of the aid provided to Greece, the support to Germany’s banks happened automatically, as a function of the currency union’s structure.

They were in over their heads in Wall Street as well. This was exposed by Mr. Michael Lewis in his brilliant book, later a film, which I recommend to everybody, The Big Short.

We accept that when the bank crisis hit, the ECB and everyone else involved faced an emergency situation and took emergency measures to save the eurozone’s banks, some of which meant a very loose interpretation of rules and regulations. We accept also that as a full member of the eurozone from day one, Ireland must share the cost of what happened. What we do not accept is that the banking collapse was Ireland’s own fault, and it was most certainly not the fault of the people. We also do not accept that Ireland’s own bankers acted any worse than bankers elsewhere and certainly were no worse than bankers in Germany. What we will not accept, now or ever, is that we should be forced by the EU, and by the ECB in particular, to bear a disproportionate cost for that banking collapse across the eurozone. That cost has a direct impact on all the current crises being suffered in this country, from homelessness to housing, and to what is happening in our health service and all points in between. We have taken this as far as we can and it has not been easy. Today, we are asking the elected representatives of the Irish people, as a cross-party committee, to step forward, take over this campaign from us and right a wrong that has been done to all of us in this country. Those promissory notes must be challenged.

I thank Mr. O'Flynn for that opening statement, and before I go to members, I acknowledge, in the Public Gallery, Dr. Chang Po-ya, President of the Control Yuan in Taiwan, Dr. Bau Tzong-ho, who is here with us, and their colleague, director general, planning office, Ms Doris Wang. They are behind us and accompanied by Senator Wilson and colleagues from the representative office of Taiwan in Dublin. The Control Yuan is a very powerful body within government in Taiwan and does work similar to this committee and the work of the Office of the Comptroller and Auditor General etc. They are here to meet their colleagues in Ireland. I wish them well with all of those meetings and thank them for their attendance. I also acknowledge the work done by the Taiwanese representative in Ireland, Mr. Simon Tu, over the last number of years. His engagement with members here has been positive and helpful and he has grown a great relationship in respect of trade, commerce and cultural links with Taiwan. Long may that be the case. They are very welcome and I hope they enjoy their stay in Ireland. I call Deputy Paul Murphy.

I thank the witnesses for their presentation. I pay tribute to all of them, and Ms Fiona Fitzpatrick, for the work they have done against the powerful forces they are up against. It is a community and a campaign fighting for debt justice for people in this country. I agree with the call for a cross-party committee but I also warn that I do not think they will be able to wind up their campaign. It will be necessary to keep pushing because if they were not pushing from the outside then the pressure will not be there. Even if a cross-party committee is set up, and I support that, I encourage the witnesses to keep going with their campaign because they have got to this point but it will take more to do it.

The work Ballyhea Says Know has done is valuable in two broad respects educationally. One is the myth busting that this was a bailout for Ireland. I agree it was not - it was a bailout for the European banking system, paid for by ordinary people through years of austerity and the misery that caused. Less than 1% of Europe's population took on more than 40% of Europe's banking debt. The second point, and the one I want to home in on, is the other even more dangerous myth. That is the idea that we are where we are - this is all very unfortunate, it is something that happened in the past, we were pressured into, maybe we should not have done it back then but we are where we are, it is done and there is nothing that can be done about it. I want to focus on that. Will Mr. O'Flynn explain what is happening now regarding the destruction of money by the Central Bank? There has been €10.5 billion destroyed since 2014 and there is another €14.5 billion to go. Will Mr. O'Flynn explain how that works, why it does not make sense, from the point of view of people in this country, and what the alternative is?

Mr. Diarmuid O'Flynn

I thank Deputy Murphy for his support over the last number of years, his support on this and his support in the European Parliament as well because he got us hearings there. It is difficult to get information on what is happening at the moment. Deputy Michael McGrath asked a parliamentary question last year which uncovered how much had been destroyed up to now. We were speculating because sometimes one misses these reports, another €500 million has been destroyed, but one does not know it has happened. The only place where it is reported is on the RTÉ news website and in The Irish Times. That is basically a copy and paste report and it looks to me like something that has been fed out from either the Central Bank or the Department of Finance. Every time something happens, the reports are almost identical to the previous one issued.

They declare it to be almost a good news story - the Central Bank has made a profit on this IBRC wind-up note. It was declared that a profit of €150 billion went to the Exchequer because a €500 million bond was sold for €650 million or whatever. It is presented as a good news story because the country has made €150 million. What is not told is the full story and that is why I have a major problem with some media here. They talk about fake news but there is also incomplete news and that is almost as bad as fake news - in fact it can be worse. We are not told what happened to the €500 million. Let us say that the Central Bank got €650 million and it gave €150 million to the Exchequer but what happened to the €500 billion? That is never mentioned.

That €500 million is destroyed. I backed the former Governor of the Central Bank, Professor Patrick Honohan, into a corner one day when in the company of two MEPS, namely, Mr. Luke 'Ming' Flanagan - I was not working for him at the time - and Ms Nessa Childers, the late Deputy Peter Mathews, who was a brilliant friend to this campaign, and Deputy Stephen Donnelly, who should also know his finance. What Professor Honohan eventually said, when I pressed him on what happens to the money, was that the money was extinguished. That is what is happening with this money. The €31 billion was printed by the Central Bank and given to these banks. The ECB allowed this to happen but because these banks were wound up and were unable to repay that money, the aforementioned €31 billion must be taken back out of circulation.

Under the deal done by Deputy Noonan, there were ten €500 million bonds, five of which were to be sold at a rate of one per year under a new arrangement from 2014. However, with interest rates going down, these bonds were bought by the NTMA, although people are not being told this. The Central Bank is getting €650 million but it is from the NTMA so it is all borrowed money that is buying these bonds. Even the €150 million which is declared as profit is money that was borrowed by the NTMA. The €650 million is given for the €500 million and the latter is destroyed, with the rest declared as a profit for the Exchequer. All that is being reported is that we are making a profit of €150 million. It is not being reported that the transaction is circular. The €650 million becomes new debt which attracts interest and which will have to be repaid in full when the bond matures.

This country has been crying out for money over the past four years. When people such as Deputy Paul Murphy suggested that money was needed for Irish Water or to fix the hospital system, highly-paid radio presenters were asking, "Where would we get the money from?" Our Central Bank has destroyed €10.5 billion in the past four years with borrowed money. The NTMA could have used this money for other things but it, along with this Government, chose to accelerate the destruction process. People say this is computerised money but the debt is real and the interest we are paying is real, as are the suffering and deprivation of services. There is €10.5 billion or €14.4 billion still to go but this is an obscenity at a time when our services are struggling for finance.

Can Mr. O'Flynn explain what the alternative is?

Mr. Diarmuid O'Flynn

I will not pretend that we are experts because we are not. We did not have much of a clue when this started. We went to the ECB and to all the various officials, including the most senior that work for the Commission. We met the official responsible for Ireland's finances at the time of its intervention, and who had responsibility for the macrofinances of three countries. He was one of the most senior economists and had a string of letters after his name. We sat and debated with him for an hour but he could not show us how what they were doing was right. We met senior officials from the troika for nearly two hours, having met Patrick Honohan of the Central Bank. I have never been so depressed coming out of a meeting because that guy just patronised us. He almost patted my colleague on the head and suggested it was way over our heads. We laid out our case to the ECB and they said it could be tackled. They said it would be very difficult but that is was not impossible. I come from a small parish and we have teams trying to get to the under-14 final, the junior final and the senior final. They are all difficult but just because they are difficult does not mean it should not be attempted. One picks one's best team and trains to the nth degree to go into battle. This battle can be won. The ECB said things could not be done - such as quantitative easing - when we were at the beginning of the crisis before going on to print €80 billion per month.

Is it not the case that the burning of real money contradicts the general policy of quantitative easing? In reality, the fact that we are burning money means what is happening is quantitative squeezing. If we froze the sale of the bonds and wrote down the debt, would there be any negative implication in terms of inflation across the eurozone? What other negative implications might there be?

Mr. Diarmuid O'Flynn

"Quantitative squeezing" was a term that was coined by Luke "Ming" Flanagan in the European Parliament and that is what it is because €30 billion is massive for us. It is difficult to take on the ECB but that is what we should do. It is not just on the basis of morality that this can be challenged - and it is immoral - but it can also be challenged in terms of legality. We have commissioned reports suggesting other avenues that can be explored, which I can send to members. The ECB must be challenged and we must stop the sale of further bonds now. As members will know, if a person owes another person money, once the money has changed hands it is a lot more difficult to get it back. We should also be fighting to get back what has been lost. All the ECB would have to do is reprint the €14.5 billion as it would be a drop in the ocean for the ECB.

I commend the witnesses for the work they have done over the years. What is Mr. O'Flynn's background?

Mr. Diarmuid O'Flynn

It is fairly chequered.

I do not want to go into every detail. Is it in finance or economics?

Mr. Diarmuid O'Flynn

No. I finished school in 1970 at 16. I went to London and did accountancy for a year and a half but I could not take London because the weather was like this. I came back and was involved in construction for over 20 years as an engineer and subcontractor. Then I got into sports journalism and worked in the cartoon section of the Irish Examiner, where I was for over 20 years before being recruited by Luke "Ming" Flanagan to advise him on economic matters in Brussels after this issue emerged. I have no qualifications in this area.

We know what we know but there is an awful lot we do not know. This is not just a question of economics, there is also a question of right and wrong. That is the bigger question for me. What was done to us was wrong and even the guy from the IMF accepts this.

We did not have the support structures in place for a new currency when it was launched and they are trying to put them in now, with the Single Supervisory Mechanism, the Single Resolution Mechanism and the ESM. They were needed at the very beginning. If they had been in place when the banking crisis hit Ireland, the shock would have been absorbed across the entire eurozone and we would not have been landed with that bill.

I completely agree with Mr. O'Flynn on that. His campaign is a demonstration of what people achieve when they have passion and purpose.

I commend Mr. O'Flynn in that regard. The European Central Bank has stated this issue could be tackled, but that it would be very difficult to do so. Does Mr. O'Flynn have that in writing? Did he say he had a report?

Mr. Diarmuid O'Flynn

No. We produced a report on it afterwards. I am not the most diplomatic of people. We had been due to meet Mr. Rodriguez, the head of ECB delegation here. I believe his father died that week. When we went to meet the two men, I expressed my disappointment that we were not meeting the senior person, which, to me, reflected bad manners on their part. One of the men who did most of the talking explained to us that he was senior to the other fellow. He was the most senior official. We have not lied about anything, but they did not want their names to be used. I explained that we were producing a report on the meeting with both the Central Bank and them and he said it was okay, that, by all means, we could do so, but he asked that we not mention their names. Ms Fiona Fitzpatrick was there with me. That is a significant point. When he said it was would be very difficult, we mentioned that it would not be impossible.

It was within the ECB that the official asked that their names not be mentioned.

Mr. Diarmuid O'Flynn

He was a senior official in the ECB here when the troika was still in Dublin. It was in 2012 or 2013. It was a long meeting and he knew what we were there for.

Was the meeting minuted? Does Mr. O'Flynn have a note on it?

Mr. Diarmuid O'Flynn

No. The two of them were sitting on one side of a big table and Ms Fitzpatrick and I were sitting on the other.

Does Mr. O'Flynn have the minutes of any of the meetings either with the Central Bank or-----

Mr. Diarmuid O'Flynn

I had a blog at the time, thechatteringmagie14. Our position was set out in black and white and I used to play at full forward.

Mr. Diarmuid O'Flynn

I wrote the blog afterwards and it would have been detailed because I would have done it immediately afterwards. They were not contemporaneous notes but what had happened at the meeting would have been fresh in our minds.

Mr. O'Flynn has a note of it. We are completely supportive as a cross-party committee on the issue, something Mr. O'Flynn has sought. He has said he obtained legal advice on it and believes it can be challenged in terms of the legalities. From where did he receive that legal advice?

Mr. Diarmuid O'Flynn

It was from not the Ballyhea group. A case has been heard before the Supreme Court, but a verdict on the point I mentioned about the use of historical valuations for their assets has not yet been delivered. There is a major difference in that respect. Accounting standards were changed and international accounting standard, IAS, 39 was introduced here in 2005. Under the accounting standards, it allowed bodies to use historical valuations. If one had a property, one could have used a mortgage valuation from two or three years previously. That is a standard, but there is major difference between a standard and the law. Where there is a difference between a professional accounting standard and the law, the law takes precedence. The official said that in Britain in 95% of cases - Deputy Michael McGrath is an accountant and will understand this - if one went by the standards, one would also be complying with the law. If one was to give a lower value to one's house which had appreciated in value, one would not be misrepresenting it in the sense that somebody might be investing in it. However, in this case they were overstating the value of what they had on their books by a ratio of almost 2:1.

Mr. O'Flynn mentioned a Supreme Court case.

Mr. Diarmuid O'Flynn

It has not yet given its verdict.

Which Supreme Court is it?

Mr. Diarmuid O'Flynn

The Irish Supreme Court. The person who took the case was Mr. Ed Heavey, a banker in Cork.

Does Mr. O'Flynn believe the same could happen again? Has any mechanism been put in place to prevent the same thing from happening again in the issuing of promissory notes? There are major external threats in the case of Italy, in respect of a trade war and Brexit, while there is over-inflation when it comes to property. Could we find ourselves in a similar position again?

Mr. Diarmuid O'Flynn

I do not think we would have it again, as many of the support structures required have been put in place. Not all of them are in place in that we do not have a European-wide deposit assurance scheme. However, where we are susceptible to a major shock is if interest rates go up. The national debt is still astronomical. We talk about the debt-to-gross domestic product, GDP ratio, but, for Ireland, GDP is not a good measure.

Mr. Diarmuid O'Flynn

Rather, we should use the debt-to-gross national income, GNI, ratio, by which measure the national debt is still off the Richter scale.

Does Mr. O'Flynn believe anything has changed in the culture of the banks?

Mr. Diarmuid O'Flynn

No, nothing. We bailed them out once by pouring money into them, but in Ireland we are bailing them out a second time because they get their money through the ECB at a zero percentage rate and then lend it. They have a licence to print money. They charge an interest rate of 4% or 5%. Our interest rates are way above what they are elsewhere in Europe. In Ireland we are bailing out the banks a second time through the interest rates at which we are paying.

They have had tax free concessions for decades.

Mr. Diarmuid O'Flynn

They are now talking again about the bonus culture because they are making profits, but they do not think they have to work for them.

Fáilte roimh an gcoiste. I thank the delegates for appearing before the joint committee and the work they have been doing for many years. There is no doubt that the actions of Mr. O'Flynn's group were instrumental. The blog he wrote in the early stages which showed, on a weekly basis, the guaranteed and unguaranteed debt being paid by the State was instrumental in shaping the debate at the time. Information is power and by putting it into the public domain it forced the then Government to deal with some of the challenges from groups such as his and others within the Houses.

It important to hear again the fact that we are continuing to pay Anglo Irish Bank's debt on a month by month and year by year basis and that that will continue to be the case for many years to come. There is much debate about the state of the economy and the upcoming budget, reducing debt and not borrowing to deal with other social crises, but, as Mr. O'Flynn has made clear, we are continuing to borrow money to nullify the promissory note given to Anglo Irish Bank in 2010 and that will continue to be the case.

Mr. O'Flynn has made the point that it is not just about economics, it is also about the rights and wrongs of this. I could not agree more with him. There is not anything in his presentation with which I do not agree, except in the case of the some of the bankers. On the jailing of Mr. David Drumm and the fraud he perpetrated within Anglo Irish Bank-----

There may be an appeal in that case. The time in which an appeal could be made has not expired. Therefore, it would be wrong for us to name individuals.

I do not want the Deputy to get into trouble.

I am not going to say he is guilty of anything else for which he has not already been convicted. He has been found guilty.

He may appeal his sentence. That is the point I am making.

Regarding Anglo Irish Bank, bearing in mind that there may be an appeal of the sentence, clearly, the conviction was for providing false information for shareholders, but it could be argued that it affected the then Minister's decision at the time because the books of the bank showed that it was in better shape than it was. Does Mr. O'Flynn believe that provides additional scope for a more robust challenge in that regard? For example, if I was to enter into a contract with him based on information he had provided for me that was proved to be fraudulent, it would nullify my contract with him.

Is there an argument in that regard?

The sin of all this is that it is occurring nearly every six months. The Central Bank is selling off at an accelerated rate what are now the Government bonds. When the Government liquidated IBRC, it did a terrible thing. It changed the promissory note into State-owned bonds. This was absolutely appalling. Worse, it presented it as a victory for the Irish people. While there was an important reduction in regard to how we dealt with this on a year-by-year basis, the debt still remained and the bill still existed.

Of the €34 billion that was in the promissory note, only €14.5 billion has not been paid back so far. Does the argument now centre only on what remains? That question is on the strategy. Some €14.5 billion in bonds are now held by the Central Bank of Ireland. The other bonds do not exist anymore. As the delegates said, the money has been destroyed. Alternatively, does the delegation argue we should revisit the issue of the €34 billion?

Mr. Diarmuid O'Flynn

We have never concerned ourselves with the conviction, or otherwise, of any individual. For us, this has just been about getting bank debt justice for Ireland. With regard to justice on foot of the actions of individuals who did whatever they did, we never got involved. That is an issue for the courts and the people here. We know white-collar crime in this country is not punished anyway. Our view is that jailing somebody only costs us money. Where people are found to have committed white-collar crime, especially on this scale, the fitting punishment is to strip them of all their assets and put them on a Government pension if they are of an age and in a council house, just as they did to an awful lot of people in this country. Jailing them costs us money. The only way to teach manners and lessons regarding white-collar crime is to hit people where it hurts. Since greed is the cause, they should be hit where it hurts, namely, their pockets.

On the issue of whether fraudulent behaviour is a ground for appeal, of course it is. We are talking about the declaration used not only by Anglo Irish Bank but also by all the other Irish banks. In the lead-up to the blanket bank guarantee, the banks deliberately and knowingly misrepresented the true and fair value of what they had in their books. They were actually insolvent at that time. They were not suffering from liquidity problems; they were insolvent. This would have been revealed had they declared the true and fair value, which they were legally obliged to do. I am not referring to standards because they were complying with the standards. Standards comprise one thing; the law is another. They were not complying with the law. Therefore, they completely and deliberately misled the Government in the lead-up to the blanket bank guarantee. They also misled the European Central Bank. I do not believe the European Central Bank was fully aware of what was happening. It should have been but I do not know whether it was. That is why Mr. Trichet clamped down so hard on the Irish banks. They were using a standard that no other country in Europe was using to misrepresent their true circumstances. It was on that basis that they were the getting money from the emergency liquidity assistance fund. On those grounds, the promissory notes are invalidated.

Our fight now is not just for the €14.5 billion. In fact, it is not just for the €31 billion. Thirty-five billion euro was put into Anglo Irish Bank. People forget that a lot of money was taken out of our National Pensions Reserve Fund. Nearly €20 billion was taken out of the fund to be put into banks. It was not just what was borrowed. We took this out of our own pockets and put it into the banks. It is not just a question of that money because one should also consider the interest lost on that money over the years.

A conservative estimate with regard to the National Pensions Reserve Fund is that €25 million to €30 million was lost. We should ask the European Central Bank and perhaps the Council not just for the €31 billion. Some €69.7 billion is involved. It would not take a genius or actuary to calculate what we got back from the sale of the AIB shares lately and what we got back from Bank of Ireland. The relevant figures should be offset against one another to determine the figure we were forced to put in and what we believe we should have put in proportionate to our population in the eurozone. This is what we are arguing about.

May I ask one final question? It is very short.

The promissory note has caused serious damage, as Mr. O'Flynn said. The Government does not intend to reclaim a penny of the €34.7 billion. As the injections went in, starting at figures of 12,000 in 2010, up to 34,000, not one debate or vote was required in this House regarding any of the promissory notes signed by the Minister. As we approach the tenth anniversary of the guarantee, does Mr. O'Flynn believe it would be appropriate to repeal the legislation that allows for a Minister solely to provide that type of financial commitment to financial institutions? This committee scrutinises every line of expenditure from Departments but the provision to which I refer allows a Minister to commit billions upon billions of euro of Irish taxpayers' money without any scrutiny or recourse to a vote within the House. Is legislative repeal something the delegates call for or support?

Mr. Diarmuid O'Flynn

It is certainly something we support. We elect people to look after these matters. It is not something we get involved in. Personally, I find it absolutely extraordinary that it could happen. As the Deputy said, the Dáil can examine line by line what is proposed to be spent in a budget but a Minister for Finance can still do what the Deputy described. It does not stop at €31 billion because no limit or figure is set, which means any amount can be committed by a Minister. Absolutely, the matter should be examined.

I welcome Mr. O'Flynn and his colleagues. I also welcome Deputy Joan Collins. I thank Mr. O'Flynn for his presentation. I join others in commending the group. It is a group of immense conviction. It has stayed the course on this issue. As Deputy Pearse Doherty said, it has helped to shape public debate and has had influence - more than its members might think.

Based on the figures Mr. O'Flynn is presenting, more than half of the debt, as such, has been sold on in the form of Government bonds. Another €14.5 billion, Mr. O'Flynn says, is still resting with the Central Bank. Is his position that we should not advocate that Ireland take any form of unilateral action?

Mr. Diarmuid O'Flynn

We should freeze the sales now. I acknowledge the European Central Bank has been pushing this but we have gone way beyond what we committed to sell.

Mr. Diarmuid O'Flynn

It would not take the form of unilateral action because we are way in advance. That must be stated first of all. There are times when unilateral action is necessary but this is not one of them. In this instance, we could just freeze the sale and put an all-party committee together to start the fight and the argument.

With regard to the argument of the European Central Bank, that institution would take it back to monetary financing, stating the origin of all of this was the emergency liquidity assistance that Anglo Irish Bank or IBRC was able to access using the promissory notes. Its argument is that this funding was temporary and has to be taken out of the system, as such, because otherwise it would increase the amount of money in supply, resulting in the printing of money and so on. Who should pay this bill ultimately? The senior bondholders were repaid. The junior bondholders took losses of approximately €15 billion across the banks but the senior ones were all paid in full. More than half of the money is now Government debt, which is sovereign debt. The balance is debt also but it is with the Central Bank of Ireland as opposed to being held by third parties.

Ultimately, who should share this burden?

Mr. Diarmuid O'Flynn

The €31 billion is already in circulation so nobody would actually be paying the debt. It is already out there; it is in circulation. What the Central Bank is doing is taking it back out of circulation. That is what the destruction of the money is about. Nobody would actually be paying for this. It is just money that is in circulation.

On the use of the emergency liquidity funds and the ECB's responsibility in that area, the argument we are putting forward is that the grounds on which the emergency liquidity assistance was granted were wrong. Its granting broke the ECB's rules and regulations. This assistance was for banks suffering from liquidity problems. It was specifically not for insolvent banks. Those banks presented a false picture of their true state of affairs. It was a false picture of which the ECB should have been aware. They were using accounting standards as opposed to the law in order to get around those EU rules and regulations. I have the actual promissory note; it is literally just a note. The ECB must have known then that these banks were not suffering liquidity problems. There were insolvent banks. That money should never have been issued. That is the argument we have made. It should never have been issued. As the bank of last resort and as the central bank of all the central banks of Europe, the ECB should have said "No".

The ECB at the time feared that if any bank in the eurozone failed, even one of the smaller Irish banks, the system would break down because of the domino effect. This is on the record. It felt that it would bring down the entire eurozone banking system. It was right. As I have shown in my presentation, the Bank for International Settlements calculated that, at that time, the German banks alone were exposed to the banks of the periphery to the value of more than $700 billion. If they went down, the big banks across Europe - Deutsche Bank, Bank BPS and so on - were also going to come down. There was a study done late last year by a German university on where the so-called Greek bailout funds went. I can send the Deputy the link. It found that 91% of the €240 billion or €250 billion that supposedly went to Greece actually went straight out the back door to the German, French and other banks that were exposed to Greece. I have read that in there as well. The ECB was right in its fears. That is why it demanded that the Irish banks pay everything and would not let them to fail on anything. That is also why it allowed the use of the emergency liquidity assistance fund for insolvent banks. It wanted them to keep their doors open.

I have final question and then I will have to leave because I tabled a question to the Minister for Health and it is due to be taken in the Dáil. The members of the committee are meeting the ECB in September. There will be an opportunity to follow up on this in Frankfurt at that stage. I hope to be there. I will also raise the issue with colleagues. We can liaise with Mr. O'Flynn prior to that. What would he say to the argument we are likely to hear back, namely, that the general political narrative across Europe is that Ireland is doing exceptionally well? The economy is one of the fastest growing in Europe. While our debt, at €200 billion or so, is large, in nominal terms it is falling quickly as a proportion of the size of our economy. It will also be said that there are far bigger priorities including the migration crisis and Brexit and that there is really no justification for making an exception to policy for Ireland because we have recovered well and the model worked. We are likely to hear that we should move on. That could well be the response.

Mr. Diarmuid O'Flynn

The first thing I would say is that none of that is relevant to what happened. It would not matter whether Ireland was still in the very depths of despair - which an awful lot of people are and a huge proportion of this country still is - what happened was wrong and has to be challenged. It is that simple. The argument members are more likely to hear is that which the Deputy presented earlier, namely, that it was a Government guarantee so it is the responsibility of the Government and our banks and bankers. The main thing here is that German banks and German bankers were the most irresponsible. I can send the Deputy another link. Much like the big short on Wall Street, the German banks were reckless beyond belief, even more so than their Irish counterparts. They exposed themselves and they are still exposed. Danske Bank is still massively exposed and in massive danger even now. People have this notion about the responsible Germans. We bailed them out. The committee should make no mistake about that. We bailed them out, as did the Greeks, the Spanish and the Portuguese. The money that came into these countries in the form of loans, which are now being repaid by the people, went to German, French, Dutch and other banks. That is where it went. It did not go to bailing out the people. This is what the socialisation of debt has meant. It means that we are carrying the can not only for the Irish banks. A few of them should have just been let go. There is an argument that the entire system had to be saved, but we have been presented with a disproportionate and much larger part of the bill than we should have been. That should be our argument.

I have two Senators offering. I will ask them to be brief because we have another group waiting. We will take Senator Kieran O'Donnell and then Senator Paddy Burke. We will then ask Mr. O'Flynn to answer their questions. We will take the two questions first.

Can I also come in on the-----

Yes, but I will take the two Senators first.

I welcome Mr. O'Flynn, Ms Queally-Moloney, Mr. Ryan and everyone else. I just have a couple of questions. Apart from anything else, the witnesses have obviously made study of the promissory note. They have probably studied it more than anyone. Did the design of the promissory note come from the Government of the day or did it come from Europe? Did Mr. O'Flynn examine from where it emanated?

Mr. Diarmuid O'Flynn

We got a copy of the promissory note through a freedom of information request. I will read it out. It was from December 2010. The promissory notes were issued over the period 2009-2010. It was not just suddenly €31 billion. It was done stage by stage and step by step. The note is addressed to Professor Patrick Honohan, Governor of the Central Bank of Ireland. It states:

Dear Patrick

I am advised that the Central Bank (the Bank) may decide-----

Who was this written to?

Mr. Diarmuid O'Flynn

It was addressed to Professor Patrick Honohan.

Mr. Diarmuid O'Flynn

It was written by Brian Lenihan and signed by him.

What was the date of the note?

Mr. Diarmuid O'Flynn

It is dated December 2010 and it states:

I am advised that the Central Bank (the Bank) may decide that it is appropriate to provide liquidity assistance to the EBS Building Society. The amount to be advanced and the terms and conditions of any lending are to be decided by the Bank.

It is the policy of the Government that the Bank should not incur a loss in the provision of emergency liquidity assistance to support Irish credit institutions. Accordingly, if any such loss is in prospect the Government will [there is a redacted element and then the note continues] provide for the Bank to receive payment to make good any shortfall.

That is quite literally the promissory note. It was based on the premise of emergency liquidity assistance.

Does that not emanate from the fact that under EU treaties, the ECB cannot fund the national debt of states?

Mr. Diarmuid O'Flynn

We understand that.

I have two very quick questions following on from that. Was the restructuring of the promissory note just as important as the promissory note? Prior to the restructuring of the promissory note, the State paid €3.1 billion in 2011, which came out of current spending and had a drastic effect on the resources available. I know that there is interest on the moneys being borrowed but did the restructuring in 2013 not remove the need for that draconian measure and alleviate the pressure on the State in the context of what it could allocate per annum regarding day-to-day expenditure for services for ordinary citizens?

Mr. Diarmuid O'Flynn

Is the Senator referring to the annual budget?

Mr. Diarmuid O'Flynn

Yes.

Did it not have a dramatic impact on the impact the promissory note was having on the day-to-day lives of people in terms of Government spending?

Mr. Diarmuid O'Flynn

Yes.

Would Mr. O'Flynn accept that?

Mr. Diarmuid O'Flynn

No, the-----

We are going way over time.

Finally, does Mr. O'Flynn believe that Anglo Irish Bank was a systemic bank and that it needed to be saved?

Mr. Diarmuid O'Flynn

No.

Mr. O'Flynn referred to a European context.

Mr. Diarmuid O'Flynn

It was absolutely not a systemic bank.

Hold on for a second. I call on Senator Paddy Burke.

I welcome everybody. The then Minister for Finance, the late Brian Lenihan, said on numerous occasions that it was a liquidity problem.

He did not think that up himself. He was going on advice from the Department of Finance. How complicit were the Central Bank and the Department of Finance in the negotiations that went on behind the scenes to give that advice to Brian Lenihan, who wrote the document? He was not going on his own advice, he was advised. Behind the scenes, there must have been a great deal happening.

Mr. Diarmuid O'Flynn

The Senator's final question goes back to what I said already. The reason they thought it was a liquidity problem was because that was what was presented to them by the auditors and accountants of the banks. They did this because they were using historic valuations. They were not using the true and fair valuations. They were presented with a false picture. That is why they thought it was a liquidity problem when actually the banks were insolvent. We cannot blame them because they were presented with a false picture, because of the accounting standards that were used, but they did not comply with the law.

On the other issue, Deputy Pearse Doherty already referred to the changeover in 2012 by the then Minister, Deputy Noonan. That is when this could and should have been challenged, because at that stage it was not actual Government debt. It was on the basis of a promissory note. It was at that stage the ECB should have been challenged and told we are not doing this and that we would simply not destroy €3.1 billion every March. The ECB should have been challenged at that point because Ireland had the high moral ground. In addition, the ECB was very vulnerable at that time. It was still in panic mode and searching all over. It was blindly reaching all over the place. Ireland was in a very strong position at that stage. Instead, what the then Minister, Deputy Noonan, did to alleviate his own financial position - he was taking €3.1 billion out of the spending every year simply to alleviate his own position as Minister for Finance - was that he restructured. The value was not dropped by 1 cent. He restructured what remained of the entire promissory note and kicked it out to be paid by future generations. It was a sell-out of future generations of massive proportions. He did not have the bottle to take on the ECB, which he should have done. He was in a strong position to do so.

I want to make two points. I support the call from Ballyhea Says Know on a cross-party motion. However, I do not know whether the Chairman will make a decision in that regard today.

No, we will take the submission and then we will come back to it.

What should also be looked at - this was mentioned by Deputy Pearse Doherty - is the Credit Institutions (Financial support) Act 2008, which gave the Minister for Finance absolute power without coming to the Dáil for a vote. Whether that should remain in place should be investigated. In the case I took the Supreme Court, the court stated that the time was exceptional and that it was an exceptional measure in exceptional circumstances. The court backed the Constitution. That has to be changed. The law has to be changed or there should be a discussion on whether it should be changed. That proposal should be put forward by the committee.

I thank Mr. O'Flynn and his colleagues for coming before the committee. I also thank Deputy Joan Collins. On the two questions she raised just now - they were also raised by other members during proceedings - we will revisit the submission and the two queries members had and we will make a decision on them at a later stage. I thank the witnesses for taking the time to come here. I compliment them on their work. It will form part of our consideration at our next meeting.

Sitting suspended at 11.25 a.m. and resumed at 11.30 a.m.