The Deputy will be aware that there were discussions with our external partners on the issue of payment to bondholders. I have advised the House on a number of occasions that our European partners expressed strong reservations about burden sharing with senior bondholders and the rationale for this position. This commitment was agreed with our external partners and was the basis on which Ireland’s financing strategy was built. However, the Deputy will also be aware that under the Irish Presidency significant progress in dealing with Ireland’s banking debt has been made. In February the successful conclusion of negotiations with the ECB facilitated the replacement by the Irish Government of the Promissory Notes issued to IBRC with a series of longer term, non-amortising floating rate Government bonds. This has resulted in significant benefits to the State including spreading the cost of the Promissory Notes from a weighted average life of c.7-8 years to c.34-35 years at a lower funding cost for the State, resulting in significant annual interest savings.
The Government has also successfully negotiated a further extension of the maturities of our EU loan facilities. Recently the EU Finance Ministers agreed in principle to further extend the maximum weighted average maturities on our EFSF and EFSM loans by up to 7 years, over and above the extension agreed in 2011. This further maturity extension removes a re-financing requirement of some €20 billion for the Irish state in the years 2015 to 2022. This extension of maturities has a number of significant benefits for Ireland, including smoothing our redemption profile, improving our long term debt sustainability and it has a positive impact on the cost of Exchequer borrowing through creating further downward pressure on our borrowing costs.
The Deputy will also be aware that under the Irish Presidency the European Union finance ministers agreed a deal on new rules that will force investors and wealthy savers to share the costs of future bank failures.The plan stipulates that shareholders, bondholders and certain depositors with more than €100,000 should share the burden of saving a bank, instead of a taxpayer-funded bailout.
These new rules will likely come into force by the end of the year and mark a revolutionary change in the way banks are treated and it is a major milestone in our effort to break the vicious link between the banks and the sovereign.
Finally, on the 20th June 2013 the Eurogroup of Euro-area Finance Ministers agreed the framework under which the European Stability Mechanism (ESM) will operate its direct bank recapitalisation instrument. It is expected that this facility will come into force towards the end of the first half of 2014. In addition the Eurogroup also agreed to include retro-active recapitalisation of banks in the framework, to be considered on a case-by-case basis once the instrument enters into force.
There is still a lot of negotiation to be done on this aspect of the facility but the agreement now in place keeps the possibility to apply to the ESM for a retrospective direct recapitalisation of the Irish banks open for us, should we wish to avail of it.