I welcome the Minister of State, Deputy Brian Hayes, to the Chamber.
Promissory Note Arrangement: Statements
I thank the Leas-Chathaoirleach for giving me the opportunity to come before the House to set out in a comprehensive way the Government's position following the decision taken last week concerning the promissory notes. The elimination of the promissory notes last week meant it was a good week for the country and the people. As a people, we can look forward once again with positive expectations. The promissory notes in Anglo Irish Bank and the Irish Nationwide Building Society served as a millstone around the neck of the taxpayer. This burden has eroded confidence and limited the economy's ability to grow. The Government has now succeeded in alleviating this burden and placing the State in a position where the debt is more manageable and the State is provided with the space and time to recover and grow.
I note that all respected economic and political analysts have recognised last week's agreement to be the best possible outcome for the country. This shows what we can achieve as a country and a Government when we work together towards a common objective. The Government has rid Ireland of the annual 31 March promissory note repayment, has reduced the State's cash borrowing requirement by €20 billion in the next ten years, has brought the State €1 billion closer to meeting its deficit targets and has consigned Anglo Irish Bank and the Irish Nationwide Building Society to history.
I recognise that some on the Opposition benches have acknowledged the significant benefits of last week's deal for the country. It is a shame that others on other parts of the Opposition benches seem incapable of recognising this positive development for fear it may have an impact on their electoral strategy of negativity.
It is truly appalling to devise a strategy of winning seats on the basis of hoping for the worst possible outcome for one’s country.
Tá brón orm. I am sorry to interrupt, but are copies of the Minister of State's script available?
There should be. If there are not, I apologise.
I understand it is a matter for the Minister of State and his staff, not the Chair.
I am not giving out. I just wondered if copies were available.
I am sorry if there are no copies available.
We might get one after the event.
The Minister of State should proceed.
There is no one behind me. There is no one in front of me.
The Minister of State is all alone.
He is on his own.
I am in the hands of the Senators. We are taking the reduction in public sector numbers beyond belief in terms of their implementation. I will kick on, as the saying goes.
In the absence of a script, will the Minister of State repeat the reference to the figure of €20 billion in order that we can be sure when we come to debate it. I missed out. I apologise for not being present.
I will do that.
The Minister of State should be allowed to speak without any more interruptions.
Certainly.
I have heard Sinn Féin's criticism that the Government did not demand a repudiation of the promissory notes. However, as Sinn Féin knows from its experience during the Good Friday Agreement negotiations, it is pointless sticking rigidly to a position that will prevent an agreement which is in everyone’s interests. Sinn Féin knows that full well as the party showed through its negotiating realism in not demanding a united Ireland as a precondition in the Good Friday Agreement talks. This is yet another example of how it speaks differently on this side of the Border from what it does north of it.
There are some in this House who seem determined to follow the policy of default no matter what the consequences for those reliant on the State. The reality is that the promissory notes have been part of the general Government debt since they were issued in March 2010. They can be seen in all national and European statistical releases since. Therefore, a non-payment would have been, in effect, a default. Many others and I have detailed the dire consequences for all citizens of such a policy of default and I do not propose to repeat them today.
It is worthwhile to revisit the origins of the promissory notes. The concept of the promissory note was born out of the need to provide the IBRC and other institutions with sufficient capital. In order to minimise the impact that would have had on Exchequer borrowing, a promissory note was issued to the IBRC instead of Government bonds. The promissory notes were by their nature and structure unsatisfactory. From the State’s perspective the high interest rate and the amortising repayment schedule placed a considerable burden on the State’s resources, particularly at a time when the current deficit has to be addressed.
In addition, they required fortnightly approval for collateral purposes from the Central Bank and the European Central Bank, thus creating a long-term structural liquidity issue for the banking sector as a whole. From both the Central Bank's and the ECB’s viewpoint the use of exceptional liquidity assistance, ELA, for long-term funding to pillar banks was also problematic. Exceptional liquidity assistance was only ever intended to be a temporary funding arrangement. There is little to be achieved in revisiting the decisions taken by the previous Government on the banking crisis. Suffice it to say that on coming into office the Government inherited an extremely complex set of problems that it had to address.
The Government has taken considerable steps to stabilise and restructure the banking sector which have been the subject of many debates in the House. In spite of calls on the Government to adopt an aggressive approach in negotiations with our external partners, the Government recognised from an early stage that any comprehensive, sustainable solution to our problems, including our banking problems, had to be addressed in the context of an overall European solution. We have worked hard to rebuild Ireland’s reputation in Europe and to build momentum behind proposals that are in the interests of Ireland and the European Union as a whole.
It was clear to the Government that the co-operation and support of European and international partners was essential to reach a solution that is in all our interests. The Government has always set out clearly that it would not act unilaterally and that it would be bound by agreements entered into by it and previous Governments. If Ireland is to remain attractive to investors, the State must abide by sovereign commitments, no matter which Government made them. Our strategy has and is paying real dividends and the recent announcement is a major step in regaining our economic independence through improving the affordability of our debt position and reducing our debt-servicing costs.
We have been seeking and will continue to seek a comprehensive solution to the remaining structural and funding issues in the banking sector. Our discussions always had two distinct but related elements. First, the structural funding issue in the banking system, particularly the exceptional liquidity assistance in the IBRC, which has now been resolved. Second, the matter of investments in the going-concern banks, including AIB, Bank of Ireland and Permanent TSB.
In recent months it has become evident that the complexity of issues around the establishment of the European single supervisory mechanism would impact on the timeframe for achieving a comprehensive solution. It was decided in that context to progress the situation on the promissory notes as an initial step and to seek an adjustment of the terms which underpin the punitive promissory notes arrangements. Notwithstanding this, we will continue to participate in the development of the ESM and the structuring of the single supervisory mechanism to ensure that Ireland will benefit, on similar terms to other member states, from developments in this regard.
To be blunt, the promissory notes issue has been resolved to the satisfaction of the Government and the great majority of Members in this House and the other House, but we are absolutely aware of the other part of the equation, which is to put in place and seek support from the ESM on legacy bank debt. Two important statements stand out for us. The first is the decision of 29 June 2012 by the Heads of Government where a clear distinction was made between sovereign debt and banking debt and in the same paragraph the reference to the well-performing Irish programme. Of importance also was the commitment made by President Hollande and Chancellor Merkel who recognised that our situation was unique and different and issues remained to be resolved in terms of the other part of the banking debt, namely, the amounts of money that had to be used to recapitalise and prop up our banks. The Government is conscious of this. Progress is being made in that regard, but it is a medium-term strategy because in order for the ESM to be the vehicle through which recapitalisation can occur and where our issue can be addressed, we must get in place the single supervisory banking mechanism. That is a key part of the Presidency negotiations. The other two parts of the strategy are some form of agreement on how we deal with bank resolution and also what kind of deposit interest scheme we must put in place.
As I indicated to the House on previous occasions, the key aspect is to replicate effectively what the Federal Reserve has across the United States of America. Europe needs a single supervisory system, in particular for the 17 member states of the European Union that use the euro. Europe needs the same reserve the Federal Reserve has in the United States of America to deal with banks that collapse. That is another policy instrument that clearly was not there at the time of the collapse which must be put in place as part and parcel of the recovery programme which will be so important across the European Union.
In response to Senator Sean D. Barrett's point about the implications, I will go through them because it is important that I indicate where we stand. The revised arrangement on the promissory notes is a major step forward in the restructuring of the banking sector, strengthening the position of the Central Bank and reducing our borrowing requirement and debt-servicing costs. Those benefits, when coupled with making the necessary adjustments in line with our commitments under the programme of financial assistance, will serve to enhance Ireland’s reputation. The decision re-establishes long-term stability for a large part of the banking system for the first time since the start of the banking crisis. The exceptional liquidity assistance which was provided for the IBRC and is inherently short term, costly and unstable is removed.
It is clear that all parties to the current arrangements have something to gain from the discussions and from an agreed approach to the restructuring of this issue. The key objective of any new arrangement was to make the banking-related debt more sustainable in the long run.
The improved debt sustainability of the new arrangement is testament to the effort and focus of the Irish parties in this matter and the benefits of the constructive and consensual approach taken with our European partners.
The €3.1 billion repayment due on 31 March each year served as a constant reminder of the devastating impact that Anglo Irish Bank and Irish Nationwide Building Society had on the economy. The passing by the Oireachtas of last week's Act means that the IBRC, the former Anglo Irish Bank and Irish Nationwide Building Society, will be removed from the financial landscape. The IBRC promissory notes, of which the Central Bank of Ireland has assumed full economic and legal ownership, will now be exchanged for a portfolio of long dated Government bonds with a maturity up to 40 years. Over half of all the banking related debt will now be pushed out over 40 years and its burden on this economy will be significantly lightened.
The principal benefits from this arrangement are that the promissory notes are gone, they will be exchanged for long term Government bonds. The maturity of the bonds will have significant benefits from a market perspective as it ensures the liability to repay is beyond most credit investors' time horizon. There will be a reduction in the State's general Government deficit of approximately €1 billion per annum in the coming years, which will bring us €1 billion closer to attaining our 3% deficit target by 2015. Furthermore, a significant element of the interest payments on the Government bonds which will now be held by the Irish Central Bank will ultimately be returned to the Exchequer in the form of Central Bank dividends. The State will borrow €20 billion less in the next ten years due to the cash-flow benefit of this arrangement and next year the cash-flow benefit will be €2.3 billion, excluding initial transaction costs. This arrangement will lead to a substantial improvement in the State's debt position over time and the housing of all the wind-down assets in one entity, NAMA, will result in just one wind-down vehicle.
The decisions announced in the past week involved the following key steps: the liquidation of the IBRC, by way of legislation; the assumption by the Central Bank of Ireland of full economic and legal ownership of the promissory notes and all other collateral held as security for funds provided by the Central Bank under various liquidity arrangements; the exchange of the promissory notes in the hands of the Central Bank for long-term Government bonds, with maturities of up to 40 years; and the issuing on Friday of Government bonds that will pay interest every six months based on the six month Euribor interest rate, which stood at 0.369% today, plus an interest margin, which averages 2.63% across the eight issues. This interest rate is certainly at the better end of our expectations last week. All remaining debt of the IBRC to the Central Bank which is secured by a floating charge over the assets has been acquired by NAMA from the Central Bank in return for NAMA bonds.
In recent days there has been media speculation on a supposed fire sale of the assets of the IBRC. I can provide the House with some comfort in this regard. Put simply, this will not happen. As part of the role of the liquidators, the assets of the IBRC will be valued independently before being sold. Any assets not sold to third parties at or above the valuation price will be sold to NAMA at the independent valuation. This ensures a floor price on the assets of the IBRC and that, where required, assets with limited sale potential can be worked through in the medium-term by NAMA rather than sold to the best available third party at any price.
The Government's approach is consistent and focused on the best outcome for the State and its people as result of attaining yields from this asset. The success of our programme implementation to date has been recognised by the financial markets. Our ten year bond yields have remained below 6% for a number of months. This morning they were at 3.8% and last week they were at 4.1%. These are extraordinary movements in a ten year bond rate in such a short period of time; when we first came into government they were at 15%. The blended rate at which we were lent money from the two EU funds is about 3.3% and we are only 0.5% from a full market return. Once we are below the blended European rates, there is no point holding on to the troika because we can borrow independently. In circumstances where 0.1% is seen as a seismic change in the cost of Government debt, to see such a reduction is extraordinary.
These collective actions represent a major improvement in Ireland's position. We have demonstrated in terms of the promissory notes the value of what can be gained from a carefully managed and sustained engagement: the maximum benefit for Ireland. The Government and the people of this country are determined to recover our economic independence, to recover our pride and self-belief and to create a present and a future free from the excesses of the past and the burdens placed by the few on the citizens of the State.
In bringing these discussions to a successful conclusion I acknowledge, first and foremost, the stewardship of the Minister for Finance and the work of the officials of the Department of Finance. The Department of Finance has had a difficult history of late given the crash, but it has shown in its negotiating skills the best of the public service. The forging of this agreement is as much down to their persistence and professionalism as it is to the political work of the Minister on behalf of the Government.
I commend the agreement to the House and look forward to its support in the work it does in the years ahead.
I welcome the Minister of State to the House and commend him and the Minister for Finance for reaching a stage where there is no longer any doubt that the new arrangement that has got rid of the promissory notes. There has been an extension of the payment term and reduction in the interest rate and that cannot be seen as anything other than a good deal. The Minister of State dealt with Sinn Féin earlier and he can talk to the Sinn Féin Senators about it.
I am glad the Minister of State mentioned that further progress is required. I do not want the European Union to see this as the deal being done. With the banking union and the ESM, the 29 June statement on breaking the link between banking and sovereign debt, which has not yet happened, must be followed up. This arrangement has sovereignised the promissory note arrangement. We must keep our eye on this issue. If another country such as Belgium had a banking crash now, the banks would effectively be capitalised directly through the ESM. We did not have the arrangement available to us and Ireland is at a grave disadvantage for that reason and I ask the Minister of State to continue pushing on that issue.
We have an hour to discuss this issue, which is not enough. I am glad the Minister of State is here, but this is a complex arrangement. At the very least, the Minister of State and his senior colleague should make themselves available to the Oireachtas Joint Committee on Finance, Public Expenditure and Reform to go through this in more detail.
There are other questions that I cannot ask in the time available, but I want to hone in on the sense of relief that the interest rate has reduced and the payment term has extended. We all feel this as Oireachtas Members and certainly the Government feels it. We must contrast that, however, with the feelings of those in mortgage arrears where there has been no improvement. I know the Minister of State is working on this, but perhaps some sort of similar arrangement might be offered to a mortgage holder to extend the term and reduce the interest rate, allowing him or her to have some disposable income. While forecasts for growth are flat or positive to a degree, we will not return to growth in real terms until the mortgage crisis is resolved.
I ask the Leader to provide more time to discuss this matter. I await the Minister of State's concluding remarks with interest.
Members of the public want this deal explained to them in detail and have reacted in a manner similar to the manner in which my party reacted. They, too, have given it a qualified welcome because they want to know the details and how the deal will impact on their lives. A great deal of disappointment has been expressed about the reaction of the Labour Party, both in the Cabinet and the Dáil, when it engaged in triumphalism and popped open the champagne. It was also unfortunate that the Tánaiste attacked Labour Party Deputies who voted against the budget. People watched proceedings on television in their hundreds of thousands as they sought to find out what the deal will mean for them. Like my party, they are prepared to wish the Government well and congratulate it when it records an achievement. However, they want the know the details, including what impact the deal will have on the budget in December. No one seems to be able to answer this question.
Will the €1 billion available in each of the next two years be deducted from the deficit. While a good case can be made for such an approach, I would prefer if this money were used for a rigorous, targeted programme of investment in jobs. Unlike some of the previous job initiatives, however, it should be made clear how many jobs such a programme would create. People want information and for this reason, they deserve to have longer debates in the House. They will congratulate the Government if they believe congratulations are in order but they want to know how the deal will affect them personally. This information has not been provided. Senator Darragh O'Brien made a useful proposal that the Joint Committee on Finance, Public Expenditure and Reform examine the deal in detail. I believe members of the public would watch proceedings in droves if that proposal were accepted.
Our previous discussion of the promissory note took place late at night amid considerable uncertainty about what would happen the following day. Thankfully, certainty was provided the following day when a deal was agreed that most people consider to be a good one. We must congratulate those who put it together on behalf of the State, in particular, the Minister for Finance, Deputy Michael Noonan, his officials and the Governor of the Central Bank, Professor Patrick Honohan.
The deal should primarily benefit citizens. If it results in €1 billion becoming available each year, the money should be used to reduce the burden imposed on the people. I will cite figures provided by Senator Sean d. Barrett. Since 2008, the tax take has increased by €9 billion to €39 billion and is expected to reach €43 billion this year. This is a significant increase. Given that the entire adjustment has been made on the tax side, taxpayers should be given as much leeway as possible.
Those who believe this is a good deal include Wolfgang Münchau of the Financial Times, Standard & Poor's, Moody's and The Washington Post. Last year Professor Karl Whelan of University College Dublin who has provided sharp insights into this issue calculated that a 40 year bond would deliver a reduction in the net current value of Ireland's obligation of 43%. The reduction under the new deal is probably a little less than that as the average maturity is 34 years. However, Ireland will be in a fairly healthy position before it starts to repay the money. That is the nub of the issue.
Without meaning to be critical, the original deal was done by the previous Government. I was not party to it and the House was not provided with much information on the process used to arrive at it. The front-loading of the payments for Anglo Irish Bank and Irish Nationwide Building Society through the Irish Bank Resolution Corporation was a scandal. The arrangement was imposed on the previous Government, whose only choice was to accept it or refuse to make the payments and threaten default. The latter option would have been a high risk strategy and may not have resulted in a better deal. The scandal came about through the actions of the Merkel-Sarkozy-Trichet triangle, whose objective, it seems, was to teach the Irish nation a hard lesson.
The Government had to renegotiate and restructure the promissory note deal. Having achieved this objective, it must make further deals, as the Minister of State noted, on the remaining institutions, namely, Allied Irish Banks, Bank of Ireland and Permanent TSB. I am satisfied that a deal will be done on these institutions at some point. The reorganisation of the existing arrangement with the troika has resulted in a net reduction of €10 billion in the amount to be repaid.
I agree that one hour is not sufficient time to discuss this issue. I congratulate those speakers who correctly described the new arrangement as a good deal. Those who failed to do so, including the Sinn Féin spokesperson in the other House, are the 12 angry men. They are getting angrier because they would prefer to retain a bad deal for political advantage and to suit their agenda of carnage, mayhem and chaos. Unfortunately for Sinn Féin, the deal has been widely welcomed, with the Fianna Fáil Party, for example, taking a mature and correct position on it. When one wants to ignore something one wishes they are not important and hopes they will never work. This deal is important and will work and I congratulate everyone involved in securing it. If it provides a financial benefit, whether in real terms or on the books, as it were, citizens and taxpayers should reap the benefits.
I welcome the Minister of State to the Chamber. The last time we debated the issue was not, as Senator Michael D'Arcy stated, late at night but early in the morning when the sun had not even risen. During last week's debate we finally dealt with the dissolution of an ugly and toxic chapter in our history, namely, Anglo Irish Bank and Irish Nationwide Building Society. Members had to decide how to vote on the issue without knowing the full equation. While it was clearly an historic occasion, it was discomforting and troubling that Members had to vote on the basis of trusting an incomplete scenario. As I stated on the morning in question, we had to take a gamble, a punt, that the full equation of our bank debt restructuring and, I hope, some write-down of the debt would be delivered in the subsequent days. In the end, although the restructuring of the debt was only partial in that no write-down was achieved, none of the reckless activity of the rogue, criminal banks of Anglo-Irish Bank and Irish Nationwide Building Society, which was underwritten by the previous Government, was forgiven, cancelled or reduced.
Yesterday, in The Irish Times, Ashoka Mody wrote:
What is the principle that requires the Irish taxpayer to honour the debts of a rogue bank? The promissory notes deal must not be judged by the relief it provides to the Irish budget [which it does]; the right benchmark for its achievement is the debt obligations that live on.
Mr. Mody sounds a note of clarity. We are in a peculiar, Irish position in this regard. As David McWilliams puts it, we are a debtor and creditor to ourselves. This deal means it will no longer be necessary to make the annual promissory note repayment of €3.1 million in the next ten years. The replacement of the promissory note with long-term bonds will significantly reduce the financing needs of the Government and kick the can down the road in the hope that inflation and growth will not overburden our children's and grandchildren's generations. The total cost to the taxpayer is likely to be €55 billion in the next 35 years or thereabouts. We are dependent on growth, job creation and reducing poverty and inequality in society to avoid overburdening our children.
The Minister of State predicts that the short-term gain will not lead to a long-term cost, but he cannot assure us that this will be the case. What the promissory note deal has done is achieve certainty. We now know how much we have to pay and how, when and for how long we must pay it. Anyone managing household budgets can relate to this. We must now continue to negotiate on the rest of our bank related or legacy debts.
We must seek solutions that will further improve our debt sustainability, in particular the extension of our bailout loans. It is a relief that the new arrangements will result in annual savings of €1 billion in Government spending from 2014 onwards. We remain in the grip of the troika-imposed reduction of the budget deficit to below 3% of GDP by 2015. This will require further cuts in spending and increases in taxes unless significant economic growth occurs. There is unlikely to be a significant spike in economic growth, which was initially forecast to be 2.2% in 2013 but is now forecast to be less than 1%. There is also no sign of an increase in jobs.
I have heard the Governor of the Central Bank, Professor Patrick Honohan, discuss candidly on radio the challenge of mortgage debt and the lack of action from our other banks. The Governor was sending out the strongest possible warning to everyone that the Government and the banks are not fulfilling the obligation on them to tackle this problem. I would welcome a response from the Minister of State on that issue.
The austerity measures placed on us by the IMF, with the promissory note deal, mean that we are likely to make an easier exit from the bailout programme and return to the markets. We now need to realign our emphasis away from the austere philosophy of the IMF towards the profound responsibility of Government to citizens and, in particular, vulnerable sectors of society. I heard the Minister of State's colleague, the Minister for Social Protection, Deputy Joan Burton, suggest in the Dáil a more nuanced citizen-centred approach. There is a limit beyond which additional austerity becomes counterproductive. After five years, we are close to that point. The IMF has admitted in its staff report that it underestimated the affects of austerity on economics throughout the financial crisis.
Today the Caritas Europe study of the impact of the European crisis was published. The first in-depth examination of the impact of austerity policies on people in the five EU countries worst affected by the economic crisis concludes that the policy of prioritising austerity is not working. It presents a picture of a Europe in which social risks are increasing, social systems are being tested and individuals and families are under stress. The report's main conclusion is that austerity is not working and an alternative is needed. It makes a series of recommendations, including that EU funds play a bigger role in addressing poverty and that social monitoring should be put in place for countries in EU-IMF programmes.
According to the CSO, over 700,000 people across the State are living in poverty, of which 14.2% are in employment. The Minister of State spoke eloquently about pride and self-belief. We need to talk about our vulnerable citizens and how we might alleviate their burden, which is directly linked to our bank debt and bailout programme. Ordinary vulnerable citizens are shouldering these challenges. I urge the Government to look out for them.
In hindsight and with a week lapsed, I am glad that I voted with the Government to dissolve the Irish Bank Resolution Corporation, IBRC. I acknowledge and congratulate the Minister for Finance, Deputy Michael Noonan, on his leadership in achieving this significant step towards the unburdening of our debt. Tús maith, leath na hoibre.
I wish to share time with Senator Jimmy Harte.
Is that agreed? Agreed.
I welcome the Minister of State to the House for this important debate. I would like first to comment on what Senator Thomas Byrne said. It is typical of him to make cheap political points. Far from being triumphalist, the Government parties were magnanimous, in particular to Fianna Fáil in acknowledging the excellent speech made by Deputy Michael McGrath. It was a sense of relief rather than triumphalism that Members of this and the Lower House felt as they met into early hours of last Thursday morning.
This deal represents a significant step forward for the country. As outlined by the Minister of State, it brings significant gains for the people. I do not propose to waste time repeating the significant savings which the country will achieve as a result of this deal. The Government has demonstrated that it can work cohesively and, I dare say, quietly. The complexity of the deal on the promissory notes is matched only by the unprecedented lack of rumour and speculation. Not only are the Minister for Finance, Deputy Michael Noonan, the Minister for Public Expenditure and Reform, Deputy Brendan Howlin, the Taoiseach and the Tánaiste to be congratulated, so too are the officials of all the Departments, members of the diplomatic corps and others who worked tirelessly behind the scenes to bring about this deal.
Critics of the deal argue that the Government should go back and insist on a debt write-down by way of a sharing of the principal amount with other eurozone members, the banks of which, it is argued, were stabilised by us bailing out our banks. The deal on the promissory notes is in effect a debt write-down, a rose that, as the great Bard might say, smells just as sweet on St Valentine's Day.
Really.
Other critics suggest we have socialised the bank debt and kicked the can forward. The fact remains that Irish bank debt has been part of sovereign debt since that fateful night in September 2008. Accusations by the Opposition that the Government has moved not to remove the burden from the people but to add to it are rubbish. This is an argument that suits certain Opposition parties which want to appeal to a certain cohort of the people who are rightly angry about what has happened to the economy and the lives of ordinary people, but it does not serve the truth.
While this new arrangement on the promissory notes is welcome, it is to be hoped it is only the beginning of wider reform of the European banking sector which will result ultimately in a more sustainable deal on overall Irish bank debt. Moreover, the decision by EU finance Ministers in January 2013 to consider extending the term of Ireland's bailout loans may be more important than the deal on the promissory notes and could, it is estimated, reduce the State's funding needs by €43 billion more than the €20 billion provided for in the current deal. What is important is that we now have new hope, the end is in sight and there is light at the end of the tunnel.
I regret the limited time provided for this debate. It has been suggested the Government's estimated reduction of €1 billion in the general Government deficit per annum is overstated. For example, Davy has presented other figures. It would be beneficial if time was allowed for a more lengthy debate during which we could delve into some of the particulars of the deal.
I welcome the Minister of State to the House. A Member on the Opposition benches said that when the deal was announced, there were champagne corks popping, which is not true. The only place, in terms of politics, where champagne corks ever popped was in the Galway tent.
The Senator has only two minutes remaining which he should use wisely. He should ask a couple of questions that are relevant.
The truth may hurt, but I will continue to repeat it. The previous Administration signed the promissory note and told taxpayers it had to make tough decisions and that it had no choice but to pay it off over ten years. It also said the agreement could not be renegotiated. As in Samuel Beckett's play Waiting for Godot, nothing happened. The previous Administration was supported by Sinn Féin in terms of its actions on the night of the bank guarantee. Those unqualified experts who suggested we throw the IMF out of the country because it only destroys countries and that this deal could not be renegotiated have been proved wrong. That did not happen by a fluke. It was the result of hard work by the Minister for Finance, Deputy Michael Noonan, Minister for Public Expenditure and Reform, Deputy Brendan Howlin, the Taoiseach and the Tánaiste and members of the Government parties. It would suit the political agenda of some if this deal had not been achieved.
I was recently asked to explain this deal to a gentleman. The man concerned purchased his house in 1973 for £3,500, which was the equivalent at the time of more than three years wages. He said he did not anticipate at the time that he would ever in his life be able to pay off that £3,500 loan with a lump sum. Had he listened to commentators of the time, he would have rented rather than bought his house and would not own a property 40 years later.
This deal, in the context of straight economics, is a good one. While it is not the perfect solution, it is a step forward.
I welcome the Minister of State to the House. As stated by him, the reduction in the State's borrowing requirements over ten years amounts to €20 billion. It is good news and a relaunch for us in terms of the removal of that monkey from our backs.
We have the monkey off our backs now and we have the chance, on 17 March in the White House, to move on the EU-US free trade area proposed by President Obama in his State of the Union address. I look forward to changes in policy. This one is gone.
I never enjoyed being a poster boy for the previous situation because a poster boy stares blankly from the poster and says nothing. He gradually loses his colour and bits of him fall off in the wind and rain. Eventually, he is scraped off and replaced by a poster for a different product. Let us not be the poster boys for anything.
Let us bring our intelligence to play on these economic policy issues. We should have examined the euro's design faults. It is funny that Sweden, Denmark and the United Kingdom read the small print. Do we have enough expertise in the public service to make sure we do not sign up for something silly when it comes from Europe? The Minister of State mentioned the reforms in the Department of Finance, which were vitally necessary because we were taken to the cleaners that night. In parliamentary terms, there should be never again be an incorporeal Cabinet meeting. It means nothing, with no minutes or record of who was present. How did people give away €64 billion, including €32 billion to the bank the Minister of State was talking about? We must have parliamentary procedures to defend the Exchequer against that, which is why we proposed that the Fiscal Responsibility (Statement) Bill. It was taken up by the Minister.
The Minister and the Minister of State were very good in remaining here until 6 a.m to go through all the details. That is a significant change from doing business behind closed doors, which led to so many problems. What kind of people are the public interest directors of banks? What kind of people were the public interest directors of the Central Bank? What was wrong with the Central Bank that it could not see this crisis? Yesterday we asked that Science Foundation Ireland take a walk and meet people in the Royal Irish Academy. People other than insiders have ideas about public policy. Morgan Kelly should have been involved. The former Minister, the late Brian Lenihan, went to see David McWilliams and they had some garlic. Parliament cannot give away policy to insiders, including the social partners, whose role must be criticised. If someone goes into the Department of Finance and suggests €64 billion would be a start, that must end. We need more openness and transparency, even though they are clichés.
Replicating the Fed may be worthwhile, but it is not what we signed up for. There should have been warning lights in the design of the euro. Does somebody have a sense of irony in respect of the Central Bank taking over the former Anglo Irish bank HQ? I hope we paid them zilch for the building, but it is a funny memorial to the level of incompetence that applied on both bodies in getting us into this mess. We must insist on a much higher standard of appointment to State boards and a proper Government economic service. There must be a relaunch of the free trade initiative on St. Patrick's Day.
Instead of crude, across-the-board cuts in public expenditure, how about analysis and documentation to show that we are dropping the least useful programmes? How about a capital programme that actually provides rates of return on different projects? The sum of €20 billion is important but a lap of honour will be useless. We have many reforms to do and we must ask how 18 people, which is about as many customers as Anglo Irish Bank had, managed to make themselves a vital national institution. What appraisals were done? Let us get this into the open because we cannot repeat the parliamentary, administrative and banking regulation mistakes. Much institutional reform is required and I have criticised the Government because it has been slow on institutional reform. Now that we have debt removed, let us see a whole new way of conducting Government.
I would not mind a fire sale, even though the Minister of State is reluctant. If someone asks what one did in the recession, one could answer that one got a house in Leitrim for €4.82. We should not leave them just there because they are worth something in asset values. The Minister of State mentioned that the Department of Finance had recovered, which is good because it played a leading role this time. After the period 2008 to 2010, our public administration and parliamentary institutions must combine with all sides of the House. Members will help to ensure nothing like this ever happens again.
Despite the sharp criticism of my party from the Minister of State and three Senators from the Government benches, I sat and listened and did not interrupt. Perhaps I will get the same respect from Members of the opposite benches.
That is a great change, a wonderful change.
I want to paint a picture to set the context and then make one simple point of fact. The Minister of State has seen the report released today that shows up and magnifies the crisis in Europe and the State in respect of poverty and employment. The 2011 CSO figures show that 25% of the population is living in deprivation. One third of children are living in deprivation and twice as many people at work are living in deprivation. The low paid, the unemployed and lone parents were hardest hit. A study of the impact of austerity across Europe concludes that austerity is not working. Many people are genuinely suffering and have borne the brunt of six austerity budgets. In that context, we are asking them to pay the debts of a toxic bank. The taxpayers of this country, the people who have borne the brunt of six austerity budgets, did not borrow one cent of the €28 billion. The taxpayers of this country did not spend one cent of the €28 billion, which is a legacy debt of a toxic bank. It belongs to the people who lent to the bank and were reckless in their lending. It is the responsibility of those who ran the bank and mismanaged the situation. It is not the debt of the people, it is the debt of the bankers and those who lent to the banks. Why on earth should I celebrate turning toxic banking debt into sovereign debt, which is the ultimate fact? We got rid of the promissory note, as one of the Government Senators said, but replaced it with a sovereign bond. The bonds will be sold to the private market and interest will be repayable every six months. Once they are sold, the interest rate will be determined by the European Central Bank. We asked this generation and also the next generation of Irish people to pay the debt.
I resent the assertion of the Minister of State that my opposition to the taxpayers having to pay debts that are not theirs is somehow party political or designed to gain party political advantage. I too have two young children and do not want them to pay these debts. I would not ask the Minister of State or any Senator from the Government or Opposition to pay my mortgage. If I had 20 years on my mortgage left and asked the Minister of State to pay it and offered him a good deal to pay the loan over 40 years, would he see it as a good deal? He would not and that is the central point the Minister of State and the Government have not come to terms with.
Sharp criticism was directed at my party, but that is not the view of many people I meet every day of the week. They are genuinely suffering. The reports today demonstrate conclusively and show policy makers and Oireachtas Members the level of deprivation and poverty and the impact of the decisions taken by the Government on people who live in the State. On the day the two reports appeared and explicitly highlighted it, the Minister of State is asking me to see turning €28 billion of toxic dodgy banking debt into sovereign debt as a positive development. He is asking my children, his children and families outside the Chamber to pay for it. I will not be part of this and neither will my party.
The Minister of State pointed out that the European Central Bank, ECB, had sought a separation of banking debt from sovereign debt, but there has been none in this deal. Instead, the Government turned banking debt into a sovereign bond last week. That is the reality. The Government will not receive my support or that of my party for doing so while imposing austerity budgets that cause such deep hardships for many families.
I call Senator Paul Coghlan who has three minutes.
I thought that I had five minutes.
The Senator has not been promoted yet.
I forgot. Forgive that lapse.
I welcome the Minister of State to the House and thank him for his overview of the situation. The arrangements which were noted by the ECB last week were the most brilliant financial engineering ever in the State's history. This is certainly the most significant financial development - I love the smile of my colleague opposite - since the previous Government signed up to the bank guarantee. As the Minister of State mentioned, where sovereign debt is concerned, it is proper that a Government not renege on a previous Government's action. It was based on the best advice at the time, regardless of whether we agree with it now. Like the Minister of State, I compliment all involved.
The promissory notes were a death sentence in every sense of the word. The State could not afford the short-term annual payments €3.1 billion. We now have long-dated bonds and no capital will be repaid before 2038. God only knows what a Government will do in 2038. None of us will still be around in politics. The process will continue until 2053. An interest rate of 0.36% is an unbelievable bonus, in that it will free up €1 billion per annum to ease the budgetary situation. The transfer of the Irish Bank Resolution Corporation, IBRC's assets to NAMA must also be welcomed. This is an extraordinary turnaround that each of us welcomes.
With the greatest respect to Senator David Cullinane who has left the Chamber, his comments were bunkum. We will not ask our children or grandchildren to pay. In 2038 a Government may roll over these bonds into other bonds or so on. The interest rate is 0.36%. In the short term and before they are sold, the interest will be paid to the Central Bank which will return dividends to the State. I do not understand Sinn Féin's position on write-downs and defaults. Do we want to be another Argentina? No way. The State has always paid its way and will continue to do so. We will be frugal and prudent.
I compliment the Minister for Finance, Deputy Michael Noonan, the Governor of the Central Bank and all of the officials involved.
I welcome the Minister of State to the House. I also welcome the opportunity to contribute on the important promissory notes arrangement agreement reached last week. As Senators on both sides of the House have acknowledged, this is an important step in Ireland's recovery. The arrangement will make our debt burden easier to bear.
Senator David Cullinane expressed a great deal of negativity, as have others in Sinn Féin, but there was a degree of unreality about his comments. I took a careful note of them. He stated the deal had the effect of turning toxic bank debt into sovereign debt, but toxic bank debt had already been turned into sovereign debt through the disastrous bank guarantee of September 2008. I well recall that all-night sitting, as do others who were in the House then. Sinn Féin voted for the bank guarantee whereas the Labour Party and certain Independents opposed it. The guarantee lumbered us with Anglo Irish Bank's debts, using this cumbersome and expensive promissory notes arrangement to do so. Under that arrangement, we would repay from public money Anglo Irish Bank's debts to the tune of €3.1 billion every March, borrowed over ten years.
It does not take a genius to work out the details of the new deal. The Minister for Finance, Deputy Michael Noonan, gave a practical example of his own mortgage arrangement. The new deal allows us to get better terms over a longer period for the same debt. It does not amount to a write-down, but that was not possible, as we know. Indeed, the Greek Government had sought a write-down from a much worse financial position and was told that it was impossible. This deal is as close as we are going to get to one.
Senator Aideen Hayden made a point. I understand why there is an amount of negativity about the deal, particularly on the part of Sinn Féin and others. There is a justifiable anger among the public at their forced shouldering of the massive debt burden. However, the new deal is the best way to ensure that the debt is manageable over a longer period. Arranging cheaper financing over a longer period and transforming 40% of legacy debt into long-term debt have significantly reduced the cost of financing the debt to the State and its people.
For households, last week's deal means that the gap between revenue and expenditure will be reduced by €1 billion every year. We will need to borrow less in the coming years than would otherwise have been the case. This will have a real impact and will be felt by people in coming budgets. This must be welcomed.
Any fair-minded and impartial observer must acknowledge the fact that the arrangement's real value lies in the considerable reduction in what the people will pay. Like many in the Chamber, I have small children and do not want to see them shouldered with an unmanageable debt. The deal's effect will be to make the debt infinitely more manageable over a much longer period. I commend the Government for its negotiation.
I welcome the Minister of State. This deal is another step in the right direction on the road to recovery. Businesses negotiate all of the time. To that extent, I see this as an everyday deal, but at a much larger scale. It gives us a great deal of breathing space, which is what we need now.
I was examining some figures. According to Mr. Cormac Lucey, we will need to pay approximately €22 billion less in interest and principal payments in the next ten years under this deal. That is a considerable saving. Had we continued along the same route, we would have increased our chances of falling into a devastating debt trap. While I regret that we did not get an even better deal, as one always looks for a better deal, it is easy to understand the constraints placed on our negotiators. It is likely that this is the best deal with which we could have emerged, given the strategy taken by the ECB. The ECB is unable to give write-downs.
As the Minister of State has argued, if one defaults, it does not mean that one's debts are gone. Argentina is still experiencing the effect of defaulting ten years after the event. As to the argument that we will leave greater debts to our children and our children's children, we must remember the fact that all states are in debt. Ireland will be no different. To name one, the United States of America owes a significant debt to China. That situation will not change in the next 100 years. However, I accept that a small amount of our debt, approximately 2%, has been written off in this deal.
We are still in a difficult situation and must deal with a number of issues, for example, unemployment and the mortgage crisis. In the same way that the promissory note was renegotiated, the customer - the Irish citizen and mortgage holder - should have more opportunities and facilities to restructure debts. I regret that, apparently, the restructuring under this deal will have no impact on the next budget. I would be glad if it did or if the Minister of State could dissuade me from believing that there will be none.
We must remember that this pact only addresses approximately half of our bank-related debts of €64 billion. I wish the Government more success in tackling the other half, which relates to AIB and Bank of Ireland, throughout 2013. I hope the European Financial Stability Facility, ESFS, terms can be improved. Our Presidency of the European Union will help us in that regard. I urge the Minister to do what he can.
I will raise a number of issues. I am sorry that Senator David Cullinane has left. We had plenty of noise in the Chamber last Thursday morning. There was no shortage of it and it appears to be continuing. The Sinn Féin position is to talk out of both sides of its mouth and misrepresent the situation. Its Members have a way with words.
As Senator Ivana Bacik outlined, the €3.1 billion was sovereign debt, in that we were going to pay it every year for the next ten years.
We had another scenario with Deputy Pearse Doherty who stated in the other House that even though he recognised that the ECB could not write down the debt, we should have asked for it anyway. That is the politics and the economics of the land of nod; we know we cannot get it, but we should ask for it anyway.
I welcome the deal. While we are not foolish enough to believe it is a solution to all our problems, the most important aspect of it is not the way we view ourselves but how others outside the country view us, including the international markets, the ratings agencies and the foreign direct investment companies. Not only does the deal provide ease in terms of the methods of our borrowing requirements in the coming years but it will also ease the journey of the many of our State companies which want to borrow on the international markets.
It is important to record the scenario of the price of a house in 1983 and the price of a house in 1980. I got a text from a young man in the University of Limerick who said that in 1973 the price of a pint was 19 pence. Incidentally, that was the last year Limerick won the All-Ireland final; it could be another 40 years before they win the next one. The price of a pint today is €3.85. That puts things into perspective.
During the discussion with the Minister for Finance, Deputy Michael Noonan, he made a very good point. He said if somebody told us we had a debt and we did not have to pay anything on the capital for the next 30 years, and we got the interest at less than 1% and we were in business, as Senator Feargal Quinn rightly said, it does not matter what the volumes of money are, what matters is the management of that money over a long period. What we have is a write-down in effect because the value of that money in 40 years time will blow itself out.
First, I would not have started from here. I accept that the Minister for Finance, Deputy Michael Noonan, is a decent, good, highly intelligent man and within his own parameters he has done a brilliant job, of that there is no doubt, but it is disgraceful that we started from there. We should historically nail the situation firmly into the record that Jean Claude Trichet twisted the arm of an already ill Irish Minister for Finance, the decent late Brian Lenihan, and forced a disgraceful, immoral and illegal deal on the people. We are not paying debts that we incurred; we are paying the gambling debts of others. It is absolutely fiendish and disgraceful.
I wish to quote from an article written by the former IMF mission chief to Ireland in The Irish Times yesterday. He states:
Continued, large budget cutbacks are due through 2015. Unemployment will remain disastrously high. Mortgage arrears and foreclosures will continue to climb. Even if world trade finally picks up, the largely-enclave Irish exports will draw in more imports, providing limited fillip to domestic GDP.
The last sentence of the article is instructive. He states: "The alternative is unending human pain, [this is the alternative to addressing the legacy debts which are part of the real evil] a culture of national dependency and a fraying European economic and social fabric."
We are dealing with austerity. The Caritas report was launched at 10 a.m. this morning. This organisation of a wonderful combination of Roman Catholic charities and socially vested groups has done a survey across Europe, one section of which concentrates on the five programme countries. It has shown that what we will have is structural unemployment and structural poverty. That is appalling.
I have started listing reasons not to celebrate the centenary of the 1916 Rising and will need to add to them all the time. I will continue to do this. So far we have had soup kitchens, evictions, hedge schools where children were told to jump up and down to keep warm, and penalties for improving one's property - one wonders what James Fintan Lalor and Michael Davitt would have thought of that - and now we have informers in terms of the iniquitous property tax. I have a lot more to say and will have another opportunity to say it.
I welcome the Minister of State to the House. When we were here at 6 a.m. last Thursday, Members asked where the deal was and said we had no deal, but we concluded a deal the following morning. The result of the deal is far better than any economic commentator would have envisaged - that is a fact - except for those who have advocated default and we all know where that would bring us. It would wreak havoc on the most vulnerable in the community, more so than people are talking about in terms of austerity. Default would have meant much more. We had Sinn Féin Members here again this morning thriving - these are the people who thrive on the misery of others. Their interest is self-interest, not what is in the interests of the people.
There are very real and significant benefits for Ireland and its people with this new agreement. It will deliver new jobs and new investment. The reduction in the State's cash borrowing requirement over the ten years by €20 billion has substantially improved the State's debt and that has been acknoweldged by the vast majority of Members who have spoken. The improved investor confidence, as demonstrated again by other speakers, by the upgrade by Standard & Poor's and the ratings agencies, is a vote of confidence----
They should be jailed, the whole bloody lot of them.
I did not interrupt the Senator.
I know.
Senator Maurice Cummins to proceed, without interruption.
If the Senator mentions the ratings agencies, he is asking for it.
Please allow Senator Maurice Cummins to continue, without interruption.
As I have limited time, I would like to be able to complete what I have to say. I know the Senator's interest in the ratings agencies.
The State and companies operating in Ireland will be able to raise finance now for investment and lending and this has the potential to make a very real impact in job creation, of that there is no question. The Department of Finance estimates that the general Government deficit will improve by approximately €1 billion per annum in the coming years, which will bring us €1 billion closer to attaining the 3% deficit reduction target by 2015. This means that expenditure reductions and tax increases will be of the order of €1 billion less to meet the 3% deficit. It must be pointed out, however, that this has to be taken in the light of the general Government deficits of €8.9 billion and €5.3 billion in 2014 and 2015 which are envisaged, which means that we will still continue to spend more than we take in in taxation. We all know that is not sustainable and it will have to be addressed as a matter of priority. That is a priority of the Government. The deal on the promissory notes will help to bring the public finances closer to a sustainable position and that is what this deal is all about.
I commend the Minister for Finance, Deputy Michael Noonan, and the Taoiseach, the Tánaiste and all the Ministers for their diplomatic efforts. I said more than 18 months ago that this was not a sprint, that it was a marathon, and it has borne fruit and will continue to do so. We have a long way to go, but this will be done.
I thank all colleagues for their contributions in this debate. Senator David Norris made the statement that he would not have started from here.
Neither would we.
I would not have started from here either, but the choices that we faced did not allow us the luxury of making some-----
I voted against the guarantee.
I know all that. Those of us who are looking for the magic bullet still have not found it and the task of the Government when we got the mandate we received in the 2011 election was to do our best to renegotiate what was a bad deal for this country, a deal that did not help our prospects.
Many people have been voting and betting against this country in the past few years. Celebrity economic commentators, the Sinn Féin Party and those who previously were one of the great defenders of the banks now in the Technical Group have been having a huge punt against this country for the past few years hoping things would go in one direction because their own personal egos would be helped by this. They are getting it badly wrong. The country is coming back.
I was at the ECOFIN meeting earlier this week with the Minister for Finance, Deputy Michael Noonon, where I have the pleasure of calling him Monsieur le Président, as he is the chair of the ECOFIN group, and he enjoys that, I might add. One of the things one gleans from speaking to the finance Ministers of the 27 member states is that people are talking about Ireland. They recognise that we are going to come out of this programme and that we are making a success of our programme. They talk about the fact that Irish ten-year debt is down to 3.8% where it was 15%. They know this and it has a huge impact on the country. As other Senators on the Government side have said, we are not going to get money into companies such as the ESB and Bord Gáis and for PPPs unless we can make the Irish sovereign debt position look less risky.
I welcome the support of Senators, particularly that of the Fianna Fáil Party, for the deal. The speech of Deputy Michael McGrath, the Fianna Fáil spokesperson in the Dáil was deeply patriotic. He put the interest of the country before that of his party. It is important that this be recognised. The only way to get out of this difficulty is to work together on an agreed strategy and that strategy is proving successful.
Where did we go this year? We have got this important deal, but we are not swinging from the rafters in celebration of it. As Senator Aideen Hayden said, it was with relief rather than anything else that it was negotiated. We know the people were looking for it. They have suffered badly. I live in an ordinary housing estate, like lots of other ordinary people, and I see all around me the impact of the current situation. Decent people cannot find work and their children are emigrating. I am not in some kind of parallel universe. Like the great majority of politicians I live in the real world. We have to work hard for our people to get the country back to a better place.
The deal has been put in place but we have other plans for 2013. We hope to extend the maturities on the European money, which is two thirds of the total amount we got. We have already done a deal on the interest rate. Now we want to extend the maturities on it. At some point this year, there will be a launch of ten year Irish money for the first time in three and a half years. If we get two of them over the line we will be, effectively, back to the markets and the outright money transaction, OMT, that Mr. Draghi has been promising us will come into being. That is success. We are talking in terms of the banking union later this year. Only one half of the debt has been dealt with through this issue, but the ESM, through banking union, is the other part of the game. That kind of incremental progress on a month by month basis will get the country to a better place.
As other colleagues have said, the ECB does not do write-downs. I was in the room when the Greek deal was done. It had nothing to do with the ECB. It was all about public sector involvement and private sector involvement. Private sector involvement meant the banks taking a haircut and the public sector involvement meant that if a person had Greek debt, they were not going to take any interest on it. It had nothing to do with the ECB. Looking to the ECB for something it does not give will not be productive.
I agree with one comment made. The involvement of Mr. Draghi is absolutely crucial. The legacy of Mr. Trichet was not the best. I say that in the most diplomatic way I possibly can.
The Minister of State can say that again. That is an example of litotes, under-emphasis for the sake of effect.
Mr. Draghi's involvement has been monumental, not least in bringing the Council to the unanimous position at which it arrived, but at a bigger level in the three year money at 1% offered to the banks, the bond buying for the Spanish and Italian banks and the OMT proposal. He has been the game changer. He understands that if we are to get to a better place, we must deal with the debt.
Our debt problem is difficult. It is about 118% of GDP at present and will max out at about 120%. The debt problem in every other European Union country is just as bad, or close to it. The average debt position is about 98% of GDP. When I was studying economics, I was always told the red lights go off when the debt is more than 90% of GDP. Europe is in a bad place on debt. We must work on achieving an agreed solution to which we can all sign up. That is why banking union is so important and why we are ambitious for a further deal that will help the country get back on its feet.
I appreciate, as the Government does, the support we have received from this House. The Government will make itself available to this House, to committees and to the Dáil to make sure we go through the detail of this on a constant basis. We need the contrarian view. I agree with my colleague, Senator Sean D. Barrett. We need contrarians in this society, including Senator David Norris, in order that we are constantly asked questions. If we have learned one thing from this crisis, it is never to take at face value the advice of the permanent government. We need people on the outside, people in politics, the commentariat and others constantly putting us under the microscope in terms of finding a solution. That has to be for the good of public policy.
Well said.