I thank the Seanad for agreeing to discuss the Central Bank Bill 2014 today. There are two purposes to this legislation. The first is to extend the current Central Bank legislation which allows for the transfer of assets and liabilities between holders who have banking licences to permit the transfer of assets and liabilities from a building society to the holder of a banking licence. There is only one building society remaining in Ireland, ICS. This legislation will facilitate both the State and Bank of Ireland in fulfilling their respective commitments to the European Commission as part of the bank’s amended restructuring plan.
The second purpose is to make provision for certain payments out of the Central Fund to an account established by the European Stability Mechanism, ESM, as agent on behalf of euro area members. This account is to receive payments for the purpose of providing financial assistance to the Hellenic Republic, Greece.
The Bill has three sections and the Long Title. Section 1 provides for the amendment of the Central Bank Act 1971. Section 2 provides for certain payments out of the Central Fund to be transferred for the ultimate benefit of Greece, subject to certain conditions. Section 3 contains the Short Title.
Let us consider section 1. In July 2013, the Bank of Ireland agreed an amendment to its restructuring plan, which had previously been agreed by the European Commission in respect of State aid received by the bank. This allowed the bank to retain its life insurance subsidiary, New Ireland Assurance Company. As part of this amendment, the bank committed to certain substitution measures, including the sale of the ICS distribution platform together with, at the option of a purchaser, up to €l billion of mortgages and up to €1 billion of matching deposits. The purpose of the ICS substitution measure is to support new entities in entering the Irish market, thereby increasing competition to the ultimate benefit of the consumer.
For the avoidance of doubt, Bank of Ireland is not required, under the substitution measures agreed, to sell ICS, but rather to offer for sale the distribution platform together with, at the option of the purchaser, certain assets and liabilities of ICS. The ICS distribution platform includes the ICS brand, the IT system and the broker network.
As matters stand, Part III of the Central Bank Act 1971 can be used by banks to transfer among one another their assets and liabilities under a scheme of transfer under Part III of that Act. The effect of the amendments proposed in this Bill would be to expand the scope of Part III of the 1971 Act and enable building societies to transfer assets and liabilities under that legislation to banks. ICS is the sole remaining building society in Ireland. Part III transfer schemes have been used successfully by banks many times in the past, and after these amendments are made a building society - in this case, ICS - would also be able to transfer its assets and liabilities in accordance with that framework. Any transfer of assets and liabilities pursuant to the 1971 Act is subject to the approval of the Minister for Finance after consultation with the Central Bank.
After this legislation has been enacted, it is expected that ICS will apply, pursuant to Part III of the 1971 Act, to transfer the bulk of its assets and liabilities to Bank of Ireland. It is likely that an onward transfer of some of those assets and liabilities, to a third party, would subsequently be effected. This onward transfer might include up to €l billion of the €6 billion mortgage book held by ICS. The restructuring plan, which has been agreed between Bank of Ireland and the EU Commission, requires that the Commission approve the purchaser of the ICS platform. The primary purpose of this condition in the restructuring plan is to encourage competition in the mortgage intermediaries market.
It is important to note that economic ownership of the ICS Building Society has transferred to Bank of Ireland, and the members do not retain any rights to any distribution of the assets of ICS. Bank of Ireland and ICS employ exactly the same procedures under the mortgage arrears resolution process, MARP, and both organisations comply with the Central Bank code of conduct on mortgage arrears, the CCMA. Mortgage holders with ICS are not treated any differently from mortgage holders with Bank of Ireland. The value of the ICS mortgage book is €6 billion, with approximately 40,000 account holders.
The motivation for the substitution measures agreed was to allow for a new entrant to the market, thereby increasing competition to the benefit of the consumer. This can best be achieved through sale to a regulated entity, and the broad thrust of the text included in the restructuring plan is consistent with this. The Commission, however, has the final say on the ultimate purchaser.
There is also the broader issue of CCMA protection for residential mortgage borrowers whose loans have been sold by a bank to an unregulated entity. This issue was raised during the debate on this legislation in the Lower House. In this context, I ask the House to note that the sale of loan books to unregulated third parties Bill, which is listed in the Government legislative programme, is intended to address concerns surrounding the continued applicability of the code after the sale of loan books to unregulated entities. The Government is committed to introducing legislation to protect mortgage holders and will work with other interested parties to achieve the best solution for consumers. Officials in the Department of Finance are actively examining this with the Central Bank and the Office of the Attorney General with a view to bringing forward legislation to address the issue. It is intended that this legislation will apply to all loans issued by a regulated financial service provider and subsequently transferred to an unregulated purchaser. As I indicated during the debate on the legislation in the Dáil, I intend that the legislation will be prepared before 2015.
Section 2 of the Bill relates to the securities market programme payment. This second aspect of the Bill is designed to allow Ireland to participate in one of a series of measures agreed on 27 November 2012 which are designed to provide additional help to Greece in putting its economy on a path to sustainable growth and its domestic finances on a sound footing. Greece has experienced serious budgetary and economic problems in the past few years and these, in turn, have resulted in its inability to secure international funding at sustainable rates. Given its problems, and the efforts it has taken to resolve them, Greece warrants and deserves all of the support that can reasonably be offered by its fellow member states. In the light of this, on 27 November 2012 a new package of measures designed to assist Greece was agreed by euro area finance Ministers. One of these measures is the securities market programme measure, and section 2 of this Bill facilitates Ireland's participation in this. Member states under a full financial assistance programme are not required to participate in the scheme while in a programme. As Ireland successfully exited its programme in December 2013, we are now liable to make payments under this process, beginning in 2014, with the next transfer date being 1 July 2014. Ireland is expected to make its first payment of €31 million for 2014 by that date, and the necessary legislative provision will need to be in place by that time. As no payment was required from Ireland for 2013 while we were in a programme, the total amount that we would have paid has been reduced by €35 million. The remaining total now is €126 million. This will be paid annually, in decreasing amounts, between 2014 and 2025, with the last payment, covering the years 2025 to 2038, being €1.85 million.
Section 2 provides a legislative basis for Ireland to make the transfers required under this measure. These will go to an intermediate account operated by the ESM on behalf of the euro area member states and, subject to conditionality, will then be transferred to Greece. The transfers involved are to be of an amount equivalent to the income that will accrue to the Central Bank of Ireland from the SMP portfolio of Greek Government debt during that holding's lifetime. The Bill provides that these transfers may take place up to 2026. However, as the income amounts in 2026-2038, when the final income will be generated for central banks under the SMP, are quite small, it is proposed that this be rolled together into one payment, which will be made in 2025. The euro area member states agreed in January 2013 that the European Stability Mechanism, ESM, would be the agent for making such payments. The ESM accordingly established an intermediate account into which the euro area member states could place an amount equivalent to the income on the SMP portfolios accruing to their national central banks as from budget year 2013.
It is important to note that, as with previous such measures, certain of the November 2012 concessions to Greece are to accrue in a phased manner and are conditional upon strong implementation of the agreed reform measures in the programme period as well as in the post-programme surveillance period. The current SMP measure and the deferral of interest rates previously agreed provide an additional level of financial conditionality, both during the existing programme and also in the period of post-programme surveillance that will apply when Greece emerges from its programme. In Ireland, however, we have already exited our programme. We are therefore subject to the normal fiscal and economic policy co-ordination and oversight which applies to all EU and euro area member states. We are, of course, also subject to post-programme surveillance, but without the added potential financial sanctions which can apply to Greece as part of these measures.
Greece and the other euro area member states agree that it is only through the full and strict implementation of the fiscal consolidation and structural reform measures included in the programme that Greece will regain competitiveness and will be able to fund itself sustainably through the international markets. Some will ask why Ireland is not seeking or being offered the Greek package, or one similar to it. I would respond by strongly emphasising that it is important to differentiate between Ireland and Greece. Ireland's situation differs in fundamental aspects from that of Greece. Accordingly, the approach to these issues is fundamentally different. Greece has been treated for several years as a special case. The statement by euro area Heads of State and Government dated 21 July 2011 and reiterated in October of that year makes it clear that the Greek situation is different from that of other countries and therefore requires an exceptional response.
Senators will know that for all the programme countries, including Greece, the programmes were designed with conditions in the recipient countries in mind. There was no one-size-fits-all programme. Greece's programme was distinctly different from that of Ireland. It is important to note that the concessions agreed, which include the SMP measure being facilitated under this legislation, are specific to Greece and are accompanied by significant additional conditionality. The concessions to Greece must also be seen in the context of the very significant debt restructuring that has taken place under the Greek programme.
In terms of fiscal and economic performance, there are several key differentiating factors. Greece's public debt prospects are of a different order of magnitude to Ireland's. Notwithstanding significant private sector involvement in March 2012, in its autumn forecast later that year, the European Commission forecast that the Greek debt-to-GDP ratio would worsen, reaching over 180% in 2013. This outlook, along with a poorer than expected economic and fiscal performance up to that point, was what prompted a reconsideration of Greece's debt sustainability in November 2012. Even after the series of measures that was agreed, and taking account of the impact of structural reforms in raising both growth and revenue over the coming years, Greek public sector debt could amount to approximately 124% of GDP by 2020. The corresponding Department of Finance assessment for Ireland's public debt, published in April's stability programme update, is that the debt-to-GDP ratio peaked at 123.7% in 2013 and will decline thereafter.
The Greek economy has suffered a deeper and longer lasting recession than was anticipated, with GDP declining by 23.5% from 2008 to 2013. Despite this, some welcome signs of recovery in the Greek economy are now emerging. Greece posted a general government primary budget surplus of €1.05 billion from January to April this year. This follows a primary surplus of 0.8% of GDP in 2013. Recent data releases give credence to expectations that Greece should return to economic growth in 2014. Confidence indicators continue to improve. Structural reforms undertaken in labour and product markets have underpinned improved competitiveness, leading to expectations for strengthened exports and investment. In addition, Greece's bond yields have also dropped sharply recently. There is nevertheless some distance to go towards a sustainable recovery.
A critical difference between the two economies in this regard relates to the importance of international trade. In Greece, exports amount to the equivalent of approximately 25% of GDP. Export growth is, therefore, not in a position to provide any significant offset to the contractionary effect of ongoing fiscal austerity. In Ireland, by contrast, exports amount to the equivalent of over 100% of GDP. This means that the growth of exports can provide a powerful offset to the impact of fiscal consolidation on economic activity. Our overall economic performance is also very different. The Department of Finance's budget 2014 forecast envisages growth of 2% this year and an average of 2.5% in 2015 and 2016. Employment is increasing and unemployment is falling. In Ireland's case, therefore, economic growth is helping to ensure debt sustainability. In Greece, despite the recent welcome signs of recovery, the economy has nevertheless contracted sharply, and this compounds the problem of that country's very heavy debt burden.
Ireland's route back to economic stability and financial sovereignty is different, shorter and less severe than that of Greece. That is not to downplay the pain being experienced by many in this country. However, I reiterate that this is not a case of one size fits all. Each programme is tailored to the economic factors at play in the relevant member state. In this context, in terms of the economic challenges facing Ireland and Greece and the best way to deal with them, Ireland has exited its programme and its needs are very different from those of Greece. As a result, what is appropriate for Greece is not necessarily appropriate for Ireland.
I look forward to a constructive debate on the Bill. Section 1 will allow Bank of Ireland and the State to fulfil their commitments to the European Commission under the bank's restructuring plan and encourage competition in the mortgage intermediary market in Ireland for the benefit of the consumer. Section 2 represents Ireland's most recent contribution to the unquestionably desirable cause of helping Greece achieve sustainable growth and jobs. We must play our full part in that regard and I, therefore, urge Senators to agree the legislative measure required to allow Ireland to participate in the SMP measure designed assist Greece.
I commend the Bill to the House.