Dáil Éireann Debate, Tuesday - 21 May 2013
65. Deputy Derek Keating asked the Minister for Finance the outcome of his recent negotiations at European leader level in relation to the promissory notes; and if he will make a statement on the matter. [19949/13]
View answerAs the Deputy is aware, on 6/7 February the liquidation of IBRC was agreed in the Houses of the Oireachtas and the IBRC Promissory Notes were replaced with longer-dated Irish Government Bonds. This followed extensive discussions with our European partners at all levels, particularly in the later stages of 2012 and into 2013.
The new arrangements go a long way towards addressing the systemic liquidity issue in the Irish banking system and substantially improve the debt position of the State, while materially improving our ability to regain access to the bond markets and exit the Troika programme.
The Promissory Notes were replaced with a portfolio of Irish Government bonds comprising:
- three tranches of €2 billion, each maturing after 25, 28 and 30 years;
- three tranches of €3 billion, each maturing after 32, 34 and 36 years;
- two tranches of €5 billion, each maturing after 38 and 40 years.
The principal benefits from this arrangement are:
- The Promissory Notes are gone. They were exchanged for long term Government Bonds, with an average maturity of 34 to 35 years as opposed to the 7 to 8 year average maturity on the Promissory Notes.
- The maturity of the bonds have significant benefits from a market perspective as it ensures the liability to repay is beyond most credit investors’ time horizon.
- A reduction in the State’s General Government deficit of approximately €1 billion (0.6% of GDP) per annum over the coming years, which will bring us closer to attaining our 3% deficit target by 2015.
- A significant element of the interest payments on the Government bonds, which are held by the Irish Central Bank, will ultimately be returned to the Exchequer in the form of Central Bank dividends.
- The State will be borrowing €20 billion less cash over the next 10 years due to the cashflow benefit of this arrangement. Next year the cash flow benefit will be €2.3 billion (excluding initial transaction costs).
- The arrangement will lead to a substantial improvement in the State’s debt position over time.
- The housing of all the 'wind down assets' in one entity (NAMA) will result in just one wind-down vehicle.
The substantial benefits of this arrangement flow from the exchange of the Promissory Notes for far more efficient financing from the State’s perspective.
This Government is aware that this solution does not address other challenges in the Irish banking system. However it was an important step in restoring the health of the Irish banking sector and confidence in the Irish economy. We have been seeking and will continue to seek a comprehensive solution to the remaining structural and funding issues in our banking sector, in conjunction with our European partners. 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.
