Dáil Éireann Debate, Wednesday - 18 April 2012
8Deputy Richard Boyd Barrett asked the Minister for Finance the position regarding the ongoing negotiations with the ECB on the repayment schedule of the promissory notes; and if he will make a statement on the matter. [19315/12]
View answer10Deputy Bernard J. Durkan asked the Minister for Finance the extent to which it has been possible to engage with the EU, IMF and ECB in the matter of any restructuring or other easement of conditions arising from liabilities associated with promissory notes in respect of the former Anglo Irish Bank or other liabilities arising from the memorandum of understanding wherein it might be possible to reduce the imminent impact on the economy and consequent benefit to economic recovery; the extent to which such message has been favourably received by his EU counterparts; and if he will make a statement on the matter. [19299/12]
View answer26Deputy Thomas P. Broughan asked the Minister for Finance the current status of negotiations to restructure the Anglo promissory notes in view of the deferral of the 31 March 2012 promissory note payment; and if he will make a statement on the matter. [19296/12]
View answer29Deputy Patrick Nulty asked the Minister for Finance if he will provide an update on efforts to renegotiate the Anglo Irish Bank/ Irish Bank Resolution Corporation Limited promissory note; and if he will make a statement on the matter. [15185/12]
View answerI propose to take Questions Nos. 8, 10, 26 and 29 together.
The Government has been committed to reviewing the arrangements that were put in place to capitalise Irish Bank Resolution Corporation, IBRC, formerly Anglo Irish Bank and Irish Nationwide Building Society. The purpose of this review is to determine whether there is a way to reduce the overall cost to the State. Part of the capitalisation of IBRC was provided using promissory notes as consideration. While the development in regard to the end of March promissory note payment is positive, we must continue to work toward the greater benefits that would derive from the re-engineering of the note. There are potential improvements for the banking sector which could also stem from the ongoing technical discussions.
It is for these reasons that we must look at the recent developments as an initial step in a process. This is a medium-term project. The Government is focused on developing an alternative solution to the promissory note arrangement for IBRC. It is too early at this stage of the process - indeed, it would be inappropriate - to predetermine what a successful outcome will look like or to indicate how the various stakeholders have reacted or may react to various proposals. We want to arrive at a successful conclusion that is in the interests of Ireland and the EU.
On the basis of what the Minister is telling us it is difficult not to see this entire negotiation and the debate around it as a complex accountancy trick to convince people that progress is being made on this issue when, in fact, very little is happening. If I understood correctly, he said we do not have to borrow the €3.1 billion this year but that this will have an effect on our deficit to the tune of some €90 million. Will the Minister clarify whether that is the consequence of this rather complex arrangement? If our deficit is increased as a result, does this mean there will be a corresponding requirement for additional cuts in expenditure in order to meet our deficit target of €8.6 billion? Setting that aside, does he accept that whatever deal he is pushing for will make absolutely no difference in terms of the austerity being imposed on ordinary people? He is essentially confirming the Government's commitment to pay Anglo Irish Bank's €30.6 billion in gambling debts, plus interest, while merely expressing the hope that this interest, pending negotiations, will be somewhat reduced over time. Not only has he confirmed the Government's intention to repay all of the bank's gambling debts but the period for which the Irish people will be subject to austerity, which is further enshrined in the fiscal compact, will be extended. The reduction in our debt to GDP ratio which is required under the compact will be affected by the fact that this €3.1 billion is simply being kicked down the road. Does the Minister accept there will be no let-up in austerity but instead an extension of the period of austerity?
It is difficult to reply to that contribution, but I will try to do so. There are two policy streams involved here. First, we must get to a point where what we collect in tax matches what we spend. As long as we are running deficits, there is a large gap between the two. That is the fiscal side of it, and we have committed to reducing the deficit to €8.6 billion at the end of this year, to below €7.5 billion next year and to 3% of GDP by 2015. The other aspect is that we want to return to the markets and to be able to borrow again and repay our debt. One influences the other, but the promissory note issue is really about the sustainability of the Irish debt position and improving our possibility of returning to the markets rather than having much to do with the annual budget.
It is true that an extra €90 million will have to be paid as a result of the arrangement, which must come out of the 2012 figures, but there is no need to make any adjustments because we can cover this amount, as we see it at present, within the figures in the budget. As such, there is no question of any additional expenditure cuts. As I said already, debt servicing in the first quarter is €70 million behind where we estimated. There is always slight movement on figures within the context of a budget which comprises €36 billion in tax plus a significant borrowing requirement after that. In that context, €90 million is within the swings and balances of the budgetary position. We will not be making policy decisions as a consequence of this deficit adjustment other than that we are aware of it and it must be paid.
I apologise for being late for Question Time; I was in a committee meeting. I acknowledge the progress made to date as a result of the very tenacious stance the Minister and Government have adopted in regard to this issue. Is it possible to speculate at this stage as to the alternative options it may be possible to pursue in the context of a potential restructuring of conditions attaching to the promissory notes, having regard to the likely support for same from other member states, particularly those in the eurozone?
As I have said on several occasions, we are pursuing the possibility of achieving a full deal on a replacement of the promissory note with a mechanism which would, in general terms, lengthen the period of repayment and reduce the interest rate to make it significantly easier on the Irish taxpayer. However, we are not looking for any write-offs or anything like that, because it was made quite clear when the Greek deal was done that it was a unique arrangement for that country. Deputy Boyd Barrett asked a similar question, to which I offer an analogy. If one opts to replace a five year term loan involving very onerous payments with a type of mortgage arrangement over 25 years, one will end up paying more but the annual payments will be much less burdensome. Moreover, by the end of the repayment term, growth and inflation will have eliminated much of the burden of the debt. One should bear in mind that most national debt is not repaid, rather it is serviced by paying the interest on it and then it is rolled over. As a factor of GDP, it reduces dramatically as the years go by in a growing economy with some inflation.
Is the Minister's claim that we can cover the €90 million deficit increase as part of the swings and roundabouts of the budgetary position not slightly disingenuous? He is saying on the one hand that there is no impact and, on the other, that there is an impact but it can be covered. Another way of putting this is that we would have an extra €90 million if this were not done, which would necessitate fewer expenditure cuts. This means that however the Minister frames it, come the next budget, €90 million less will be available for expenditure on public services and the people. Furthermore, no matter how the Minister might construe it, will taking on this debt burden not have an extremely suffocating effect on the overall economy? In the Minister's discussions with the troika, have its members given him an explanation to the question asked by Vincent Browne among others? What justification, moral, economic or otherwise, have they given to the Minister for asserting the people of Ireland are obliged to pay back the gambling debts of Anglo Irish Bank?
I thank the Deputy and call on the Minister to reply.
Has the Minister even asked this question and has the troika given him an answer?
One of the most valuable things a country has is the ability to honour its sovereign signature. The sovereign signature of Ireland was given by the Government's predecessors in office at the end of September 2008. It guaranteed all the debts of the banking system in Ireland, including those of Anglo Irish Bank.
That was done by a discredited Government, which bankrupted the country.
A country that wishes to pay its way in respectable company does not walk away from its signature.
That was a time-limited guarantee and what the Minister has just stated is absolutely not true.
A question, please.
That was a time-limited guarantee and we, as the sovereign, are under no obligation to honour an expired guarantee. The Minister has just stated he is not seeking or has not achieved any write-down in the total quantum of debt.
I have not looked for it. When the Deputy uses the word "achieved", it makes it sound as though I was seeking it.
Okay. This is the question I want to ask the Minister. The Taoiseach has stated in this Chamber that in all negotiations, including those in respect of the bondholders and the promissory notes, the present Government has never sought, is not seeking and will never seek any write-down in the total quantum of debt Ireland ultimately will owe. He has made that statement in this Chamber and the Minister may even have been sitting beside him at the time. Other Ministers have flatly contradicted that assertion outside this Chamber and have stated that Ireland has negotiated hard for write-downs. The Minister himself signalled a welcome search for a write-down in senior Anglo Irish Bank debt from the New York Stock Exchange. As the person who I imagine to be the key negotiator, can the Minister confirm whether he and Ireland's negotiating team have ever looked for, are looking for or will look for a write-down in the total quantum of debt? I ask because Members have heard directly contradictory views from Cabinet members.
The position always has been absolutely clear, which is that the Government will only act with the full permission of the European authorities and, in particular, with that of the European Central Bank, ECB. The latter has made it absolutely clear on several occasions that there will not be write-downs.
I thank the Minister and call Deputy Michael McGrath.
Can the Minister confirm he was not actively seeking such write-downs? I apologise but this is an extremely important point. That was not the question, as I understand the position of the ECB and the Commission. Directly contradictory claims have been made by members of the Cabinet and this is extraordinarily important. Despite what is the ECB's position or despite what it has told the Minister, has the Minister or Ireland's negotiating team ever challenged that? Has that team ever indicated that although it understands the ECB's position, it still seeks such a write-down and has it ever set out the reason? Everyone is familiar with the reasons and the Minister has stated previously that he would like such a write-down. Everyone understands the moral reasons and no one has argued the case better than did the Minister when in opposition. Has the Minister sought the write-downs, which it was heavily suggested he would do, as the Minister for Finance in waiting?
Deputy, I think we have got it.
The Government has made its position absolutely clear, both in opposition and in government, that it would not act unilaterally and would only act in this respect with the permission of the European Central Bank.
That is not the question. I understand that.
What is the point in asking me what one would do were the European Central Bank to say "No", when the Government already has stated it will not act were it to do so?
How will the Government know unless it asks?
That is not what I asked the Minister. That is not the question.
Deputy Michael McGrath, briefly, as we are running out of time.
The Minister will acknowledge the history of Ireland's bank related debts is a little more nuanced than he set out a few moments ago. As the Minister is aware, shareholders lost approximately €60 billion, depositors were repaid in full - I am sure all Members agree this was the right thing to do - and junior bondholders lost approximately €15 billion. The only people left to take the hit for the losses were either taxpayers or senior bondholders. Since 2008 and right up to the present, the position of the ECB has been that senior bondholders would not contribute a single cent. Consequently, the only people left at the end of the queue or on the hook are the taxpayers. This is what happened as, guarantee or no guarantee, ECB policy ensured this would be the outcome. Since the Minister announced the arrangement regarding the promissory notes, the language of the ECB has been quite hardline. Essentially, it does not care, once it is repaid its money through the Irish Central Bank. Why would the ECB not deal directly with the Irish Bank Resolution Corporation, IBRC, in respect of this bond? Is it because it will not deal with a dead bank? It is accepting a bond, in effect, from Bank of Ireland but will not accept the same bond from IBRC. What was the requirement for coming up with a cumbersome structure involving NAMA and Bank of Ireland? Why not go directly with the bond from the IBRC and receive the money from the ECB?
First, I agree with the Deputy's summary of the various groups that took losses as a result of the collapse of the Irish banking system and it is good to have them put in summary form like that. I refer to the problem of the taxpayer being the last in line and accepting the total burden because the bondholders have the support of the ECB. That is as a result of the deal the previous Government did on the night in question, which was the time to have done a better deal to share the burden.
Does the Minister believe the ECB would have allowed senior bondholders to be burned, even in 2008?
As the records left behind are less than informative, I am not quite sure what happened on the night.
The Minister should publish them.
Burn the papers as well.
It is known that a bad deal was done. On the question of the ECB taking a hard line, I agree it takes an extremely hard line. The Deputy should recall what happened in Greece during the biggest write-off in history, which was comprised entirely of private sector involvement as not a single euro of European Central Bank debt was written off. It refused to get involved in writing off any official debt, even though it was holding a large quantity of Greek bonds. The ECB is very hardline and they are hard people with whom to negotiate. The Government secured an arrangement on this occasion which the ECB did not oppose. However, as for the project on which the Government has now embarked, it undoubtedly will be tough.
Should we take a hard line with the ECB?
Yes, but with whose army?
Why would the ECB not deal with the IBRC?
Simply do not pay them.
That would be an interesting economic concept.
Bring down their banks.
