Other Questions
6Deputy Micheál Martin asked the Minister for Finance the timeline that he envisages for conclusion of the discussions with the EU European Central Bank in relation to reducing the net cost of the bank recapitalisations; and if he will make a statement on the matter. [5629/12]
Amharc ar fhreagraAs I have indicated, I am committed to reviewing the approach to the promissory notes with a view to reducing the overall cost to the State of correcting the banking system. The troika has agreed to engage in a process with Irish officials to produce a common paper which will consider options for re-engineering the notes in terms of the maturity of the notes, the interest rate, the cash flows and so on. Any solution must be consistent with the orderly resolution of IBRC that is already under way. In tandem with this technical review, I recently met with Commissioner Rehn and the President of the European Central Bank, Mario Draghi, to progress the matter. Additional detail on such proposals will be available when the ongoing work is further advanced.
Given the nature of advocacy and the decision making process in the EU, I would not expect this matter to be concluded in the short term.
I thank the Minister for his reply. The purpose of the question is to establish the Government's objective in seeking to revisit the issue of bank recapitalisation costs. It is clear from the reply that the focus is on the €30.6 billion promissory note structure for the former Anglo Irish Bank and Irish Nationwide Building Society. As many commentators have pointed out and the Minister will, I am sure, agree, the core issue is not the coupon rate that is being paid. I am seeking to establish what objective the Government seeks to achieve through the technical papers, apart from the general aim of trying to ease the burden on the taxpayer, with which we all agree. Is the Government seeking a write-off or write-down of the capital amounts owing? Is it proposing a repayment holiday until the economy is in a much stronger position or a refinancing of the €30 billion sum over a much longer period at a cheap interest rate? Has it identified its preferred options? While I accept the Minister will not provide a great deal of detail, will he indicate what is the core Government objective apart from easing the burden on taxpayers?
The core Government objective is to enhance Ireland's capacity to repay its debts in order that we can get back into the markets when the programme is drawing to a close and fund at reasonable amounts. We wish to become a normal eurozone country, that is, one which is no longer involved with the programme. The primary objective is to enhance our capacity to repay. If anybody has a good suggestion on how we can achieve this objective, I will examine it. My suggestion to the European authorities for several months has been as follows. If the most expensive element facing us, namely, the arrangement by way of promissory note for the funding of Anglo Irish Bank, as it was known, were replaced by an alternative financial instrument of lower coupon and longer duration, the benefit arising would be that the markets, when they look at Ireland, would conclude that this particular obstacle has been relieved and the country's capacity to repay has been increased significantly. Given our capacity to repay, they would then decide they could lend to us again at low interest rates.
If I interpret the Minister's response correctly, the objective is to identify another financial instrument through which we can refinance the sum involved and repay it over a longer period at a cheap interest rate. This appears to be the essence of his reply. I assume, therefore, that the mandate given to the officials who are engaging with the troika is not to seek a write-down of the amount involved or defer the repayment until the economy is in a better position but to restructure it in the manner the Minister outlined. Is that the essence of the Government's position?
What I laid out for the Deputy was the negotiating position put forward by me initially and which has become the Government's position. The mandate to the representatives of the troika who are engaged in producing a common policy paper is to find ways and means, whatever they are, to enhance Ireland's capacity to repay debt and enhance our position as I have outlined. However, certain things have been ruled out. It is clear from the October summit that private sector involvement, PSI, will only apply to Greece. This was written into the agreement of the 27 member states at the October summit. Nothing of that nature will be involved. We are not talking about resiling in any way from our obligations.
The Deputy will appreciate that the arrangement entered into by the Fianna Fáil-Green Party Government for funding Anglo Irish Bank was an extraordinarily extravagant piece of financial engineering. In addition, taking an interest rate holiday has brought about a position in which the coupon is approximately 8.5% and stretches on for a long time. These decisions predated the bailout and were taken in the autumn of 2008 and early months of 2009 when the bailout programme was not in place.
As the coupon is going into a State bank, it is not the primary issue.
While it may have seemed sensible at the time, it is in retrospect the height of foolishness. However, we are stuck with it and must negotiate our way out of it.
The Minister asked for proposals. He will be aware that on 1 or 2 September I put a proposal to him on what should be done. As I knew he would not act on it, I subsequently put another proposal to refinance and deal with the capital costs through an extend and pretend arrangement. I accept the Minister is arguing the case for a version of this proposal. I will repeat a question I put to him during questions several months ago. Does he acknowledge that the interest rate is not the issue in respect of the coupon rate because the payments will stay in the State bank and be returned to the State when the bank is wound up? The real interest cost, which the Minister continues to deny, is the cost of borrowing €3.1 billion on 31 March each year and transferring it to Anglo Irish Bank. Given the Minister's statement that a resolution of this issue is unlikely to be found in the immediate future, should the State pay into Anglo Irish Bank the €3.1 billion that is due on 31 March or should the payment be suspended pending the outcome of the current discussions? Will the Minister publish the terms of reference of the troika technical group in respect of its deliberations?
Notwithstanding our significant differences on what should be done about paying off banks such as Anglo Irish Bank, bondholders and so forth, does the Minister agree that, in the context of seeking any relief on the debt burden, the Taoiseach's comments in Davos were stupid and reckless and undermined any moral credibility we have in seeking debt relief as he essentially stated we deserve what we are getting because people went mad borrowing?
The Deputy's question is not related to the question addressed to the Minister.
Did his comments not substantially undermine the Minister's negotiating position in seeking debt relief from our EU partners?
The Taoiseach was speaking conversationally in a question and answer session. If I told Deputy Boyd Barrett that the people of Dún Laoghaire believe he is the best public representative in the greater Dublin area, it would not mean every one of them stated that view. The Taoiseach's reference to "the people" is a manner of speaking. He did not mean that everybody in Ireland was to blame for what happened.
Was his statement reckless?
Some people in Ireland, at political, banking and developer level, were to blame for what happened. The Taoiseach used a colloquialism. An awful lot was made of a normal way of expressing oneself.
We will proceed to Question No. 7.
Will the Minister answer the questions I asked or is he avoiding them?
The Chair is independent in this matter.
I answered the Deputy when I replied to Deputy Boyd Barrett. It was the same issue.
7Deputy Robert Troy asked the Minister for Finance his plans to implement any of the recommendations of the interim report from the Commission on Credit Unions or if he intends to wait until the publication of the final report; and if he will make a statement on the matter. [5646/12]
Amharc ar fhreagraThe Government established the Commission on Credit Unions to review the future of the credit union movement and make recommendations in relation to the most effective regulatory structure for the sector. The commission is to take into account credit unions' not-for-profit mandate, volunteer ethos and community focus, while paying due regard to the need to fully protect depositors' savings and financial stability. The Commission on Credit Unions submitted its interim report to me on schedule at the end of September 2011 and it was published shortly thereafter. The interim report deals with phase one of the commission's work regarding the strengthening of the regulatory framework for credit unions, including more effective governance and regulatory requirements.
In summary, the interim report's recommendations are: the establishment of a credit union stabilisation mechanism; the introduction of a prudential rulebook for credit unions setting out a comprehensive framework of regulatory requirements; changes to credit union requirements on governance, competency, risk management, internal audit, lending, compliance, liquidity and other matters; the commencement of Part III of the Central Bank Reform Act 2010 for credit unions, which will provide the Central Bank with the powers to set out regulations and a code of fitness and probity for the credit union sector; the commencement of credit union contributions under the deposit guarantee scheme; enhanced Central Bank powers to inspect, investigate and gather information from credit unions; the extension of the Central Bank's administrative sanction regime to credit unions; and the application of the provisions of the Central Bank (Supervision and Enforcement) Bill 2011 to credit unions.
The interim report was well received by stakeholders and wider commentators. I have accepted the interim report recommendations and have asked my Department to prepare legislative proposals for inclusion in the credit union Bill to be published by the end of June under the EU-IMF programme. These proposals are to be discussed with the Commission on Credit Unions before being submitted to Government for approval.
Additional information not given on the floor of the House.
There are a number of recommendations which will be given effect in the meantime.
My Department is currently making the necessary arrangements to commence credit union contributions under the deposit guarantee scheme and will be discussing implementation issues and timelines with credit union stakeholders over the next few weeks.
In accordance with the commission's recommendations, I expect to be in a position to commence Part III of the Central Bank Reform Act 2010 shortly, which would apply the Central Bank's fitness and probity regime to credit unions. Once commenced the Central Bank will then have to formulate and consult on draft regulations and a draft code before the fitness and probity regime can come into full effect for credit unions.
The commission recommended that the resolution powers granted to the Central Bank under the Central Bank and Credit Institutions (Resolution) (No. 2) Bill 2011 should be considered for those credit unions that meet the intervention conditions set out in the Act. The Central Bank recently undertook the first such action through the appointment of a special manager to Newbridge Credit Union.
The final report of the Commission on Credit Unions is due to be submitted to me by the end of March and I expect that it will deal with the remaining issues in the commission's terms of reference, including restructuring. I do not propose to bring forward proposals on these issues until I have had the benefit of considering the commission's recommendations.
I thank the Minister for his response. The interim commission report was a good day's work. There are a lot of sensible recommendations in it, many of which can be acted on in the short term. I understand the final report is due in March and that the Minister will come forward with the promised legislation to deal with the credit union sector. We need to give as much certainty as possible to those involved in the credit union sector that it has a strong role in the provision of financial services in this country going forward.
I have some concerns about the cost implications of some of the recommendations such as that each credit union would have an internal audit function, risk and compliance officers and so forth. Allied to that, when does the Minister expect to activate the resolution fund in terms of contributions going into it from credit unions and other regulated entities?
We are pursuing the commencement of the resolution fund at present. Discussions are going on between ourselves, the Central Bank and the credit union movement but a number of the recommendations of the interim report have already been implemented. I expect to be in a position shortly to commence Part 3 of the Central Bank Reform Act 2010, which would apply the Central Bank fitness and probity regime to credit unions. Once commenced, the Central Bank will then have to formulate and consult on draft regulations and a draft code before the fitness and probity regime can come into full effect for credit unions.
The commission also recommended that the resolution powers granted to the Central Bank under the Central Bank and Credit Institutions (Resolution) (No. 2) Bill 2011 should be considered for those credit unions that meet the intervention conditions set out in the Act. The Central Bank recently undertook the first such action through the appointment of a special manager to the Newbridge Credit Union.
We will await the result of the commission's proposal. That will give us little enough time to formulate the Bill by June but in parallel with the final stages of the commission's consideration, we will run heads of the Bill by it for its views so that we are in a position to legislate as soon as its final report comes in.
Some months ago in the Seanad the Minister estimated that the overall bill for supporting credit unions could be somewhere between €0.5 billion and €1 billion. As I understand it, he has provided €0.25 billion this year and will provide a further €0.25 billion next year. Is that still a valid estimate following the stress tests which have now been completed?
I was asked a direct question in the Seanad and at the time, there were a lot of rumours going around about credit unions, which were exaggerated. They were applying the conditions that apply to a small minority of credit unions to the generality and I wanted to allay fears by saying that the Central Bank and the Government stood ready to support credit unions, their depositors and their borrowers. That position stands and that is what happened in Newbridge.
Is the estimate still broadly-----
I rely on the Central Bank and the registrar of credit unions. Effectively, what I was saying was that we will support the credit union movement and will ensure it remains solid.
I welcome the Minister's comments again today that the problem relates to a small number of credit unions. There was quite a bit of concern about, and criticism of, the Minister's handling of the intervention by the registrar of credit unions to appoint a special manager to Newbridge Credit Union. Thankfully, maybe because of the day that was in it, other news stories and the media acting responsibly on this issue, there was not widescale fear in regard to credit unions when this hit the news headlines. What was lacking was reinforcement of what the Minister echoed today that this was an exceptional matter and that the overwhelming majority of credit unions are on a sound financial footing.
Will the Minister reassure us and, indeed, the credit union movement that any future interventions by the registrar will be part of a wider reconstruction plan of the credit union movement?
The decision to intervene in Newbridge and to put in a special manager was a decision under law by the Central Bank. It was not my decision. Under the same legislation, the Central Bank had to consult me before it moved in. It had that consultation and deemed it necessary to intervene and then it did so. The function of the manager is to run the credit union in Newbridge on an ongoing basis and to come back with a report which will, effectively, be a business plan for the future running of the Newbridge Credit Union. While there was some nervousness over the first 24 or 48 hour period, it settled down and it is trading away. The manager went in on a Friday afternoon, the credit union opened on the Saturday morning and normal business was conducted and continues to go forward.
I draw the Deputy's attention to the interim report of the Commission on Credit Unions. It sets out data on credit unions over the years 2006-11. It states that 56 credit unions are under-capitalised with 27 of those considered to be significantly under-capitalised. That is out of a total of approximately 430 to 450 credit unions. We would want to get these things in proportion. We are really talking about 27 credit unions, some big but of a lot them small, which are seriously under-capitalised. Another 29 are under-capitalised. That is the quantum. That is the area of difficulty. I can tell the Deputy again that the Central Bank and the Government stand ready to support the credit union movement.
8Deputy Niall Collins asked the Minister for Finance his views on whether a financial transaction tax even if implemented at EU wide level would be damaging to the financial services sector here in view of the fact that Ireland competes with many centres around the world; and if he will make a statement on the matter. [5618/12]
Amharc ar fhreagra21Deputy Thomas P. Broughan asked the Minister for Finance his views on a proposed financial transaction tax; if he envisages this tax as part of the new package of measures to support the euro within the Eurozone States; and if he will make a statement on the matter. [1908/12]
Amharc ar fhreagraI propose to take Questions Nos. 8 and 21 together.
I have stated clearly in the past my view that any tax on financial transactions would be best applied on a wide international basis to include the major financial centres. If such a tax cannot be introduced on a global basis, it would be better if it were introduced on an EU-wide basis, as this would prevent any distortion of activity within the Union.
Our major concern is that if a financial transaction tax is introduced, it could affect the financial services industry, especially in the IFSC, and lead to some activities moving abroad. If, as some countries have proposed, the tax was to be brought in under enhanced co-operation arrangements, we would fear we could lose business to London, since the UK is strongly opposed to this initiative. In the past, certain financial activities moved to London when other countries enacted similar taxes.
The Commission is proposing that the financial transaction tax should be an "own resource" tax imposed centrally to fund the European Union and will be developing proposals in the context of the future of the EU budgets.
The current draft proposal is still being discussed at EU Council working party level and will be considered again by the Council of Ministers later this year. I have made clear our views, as has the Taoiseach, in discussion with our European colleagues.
I thank the Minister for his reply and welcome the substance of what he said. He clearly pointed out the implications for Ireland of such a tax being introduced and being effective here but not applying to our nearest neighbour, the UK. That is something which would be of great concern.
I trust the Minister and his colleagues are using their influence in Europe to ensure the eventual outcome of this will be to our satisfaction. When the delegation from the Joint Oireachtas Committee on Finance and Public Expenditure and Reform was in Germany last week, it was a recurring theme and many of the parliamentarians we met there were clearly very enthusiastic about the idea of a financial transaction tax. We know that France is going ahead unilaterally to implement one this year.
Will the Minister stick to his guns on the issue and ensure that whatever the outcome is at European level, it is favourable to Ireland and that we are not exposed to a situation where our nearest neighbour, an English speaking country with a very large financial centre, can pick up lost business which we will endure as a result of any decision at European level?
Yes, I will bear the Deputy's advice in mind. I think we are ad idem on this. It is also worth noting that there are various kinds of financial transaction taxes. The one that France says it will introduce in the summer is close to the stamp duty we already apply to share transactions. However, the one in the Commission paper is far more wide-reaching and, in my view, would be injurious to Ireland.
The Minister said that if the Commission's proposals were to take place we would see a leakage of jobs and revenue from the State, presumably to London. Has the Department of Finance carried out any research on what the impact would be if Ireland signed up to a financial transaction tax, while Britain remained outside? What would be the impact on jobs, revenue, GDP, and the financial services sector which makes up 3% of our GDP? If that research exists, can the Minister provide the information to the House?
Our information on the proposal is not precise enough to make those kind of fine calculations. It is true to say, however, that in general terms it would be injurious to Ireland, as there are 30,000 people employed in the financial services area here. It is hard to estimate because it depends on what activities the tax might apply to. In Ireland, at present, it is back-shop employment servicing the financial services industry, and there would not be a tax applying to those activities. We need to watch what transactions a proposed tax would apply to. Would it hurt existing employment, or would it stop the financial services industry in Ireland from upskilling to get into other more lucrative activities where higher skills and wages would ensue? Those are the present and future issues, so we are developing an information base for the discussions that will arise in Europe later this year.
Like Deputy Doherty, I think it would be quite important to get some facts and debate this matter more fully. However, I want to give the Minister the opposite advice to that of Deputy Michael McGrath for him to consider, which is precisely the argument that was put in the German Bundestag by the German finance committee members. They made the point that the one lesson we must learn from this crisis is the need to rein in the financial markets. The financial transaction tax is precisely a means of doing that. They argued that states which opt out on the basis of short-term advantage will suffer in the medium to long term because they will be more vulnerable to shocks in the currently extremely volatile - bordering on anarchic - international financial services sector. That is an important point for us to consider. If we all wait for someone else to jump, it will never happen and no action will ever be taken to have some level of regulation for states to clawback from the financial markets. We need an informed debate but, to be honest, my prejudice would be that we should join in with those who are trying to take action to regulate the financial services sector.
In principle, the Irish Government's position is that if this could be introduced through the influence of the G20 on a worldwide basis, that would be acceptable. It is not the principle of the tax we object to, but its uneven operation through which we would end up having a tax in Dublin but not in London. Employment activity and jobs would move from Dublin to London, so our objections are more pragmatic than principled. After what happened in recent years, there is a strong case to be made for some imposition to be placed on the financial and banking industry so that it would make a contribution to the resolution of what happened. It is the unevenness of the application, however, which will cost us jobs. I am in the business of creating and defending Irish jobs, so I am not going to write off jobs in the Dublin financial services centre - where there are good jobs and high employment - because they might move to London due to the implementation of a particular tax.
Our position is that worldwide it is a reasonably good idea and we can go with that. We can also live with the idea of 27 EU member states having a financial transaction tax. However, we cannot live with 17 states imposing it and Ireland having to apply it, so that there would be a tax in Dublin but no similar tax in London. That is our position.
10Deputy Denis Naughten asked the Minister for Finance the steps being taken to regulate food securities trading on the stock market; and if he will make a statement on the matter. [5519/12]
Amharc ar fhreagraAs I indicated in my reply to this question from the Deputy on Tuesday, 15 November 2011, my understanding is that the Deputy is referring to trading in futures in foodstuffs, such as wheat, on stock markets and the need to have a regulatory framework in place to deal with these trades. A regulatory regime for these types of trades was set down in the 2004 Markets in Financial Instruments Directive, which was transposed into Irish law by the European Communities (Markets in Financial Instruments) Regulations 2007, SI 60 of 2007.
Part 3 of Schedule 1 of the statutory instrument provides a list of the financial instruments within the scope of the regulations. Paragraph 8 of that part refers to "options, futures, swaps, forward rate agreements and any other derivative contracts" and sets down specific circumstances where these apply. Similar provisions should be in place in all member states. The scope of this paragraph is wide-ranging and includes derivative contracts in commodities such as foodstuffs. Although rules are in place for this type of trading in Ireland, in practice there is little prospect of them being implemented because currently there are no commodities exchanges established in Ireland, either as part of the Irish Stock Exchange or elsewhere.
In order to keep pace with trends in derivatives trading, and in line with G20 commitments, a proposal to extend the scope of market abuse regulation, so that it includes derivatives trading, has recently been adopted by the Commission and is being negotiated at Council working group level. A revision of the Markets in Financial Instruments Directive, with a view to improving transparency and accountability in securities trading, is also being negotiated at Council working group level.
A Commission proposal for a regulation, which is now nearing agreement, addresses trades in derivatives that are conducted away from exchanges, in other words, over the counter. The outcome of this negotiation will include reporting and clearing obligations for these trades, leading to more transparency and control over derivatives, including food derivatives. When finalised, these EU legislative initiatives will come into force in all member states. The Central Bank of Ireland is the competent authority in this country for the purposes of derivatives legislation.
I wish to focus on the role of the Minister for Finance as a member of ECOFIN. The EU market and financial instruments directive is currently being discussed. There is a strong lobby for light touch regulation in this area and the Minister knows where light touch regulation has got us in this country. Is the Minister satisfied with the level of regulation in the sector? Is he aware that speculators have increased their role in trades in the food market by 500% over the past 15 years? Spectators are taking money out of the pockets of Irish farmers, leading to food shortages in developing countries, and costing Irish families an additional €300 a year in food bills. As a member of the ECOFIN, will the Minister push for position limits to be put in place as part of the review of the directive, rather than position management, which is the light touch regulation that lobbyists seek? This will lead to food security being jeopardised, not just for Irish farmers and in Europe, but throughout the world.
The Deputy knows more about this area than I do because he has taken a special interest in it. As part of the post-crisis reform agenda, the European Commission has made several proposals affecting investment, particularly derivatives. I can provide the Deputy with a briefing note on that point. I was not aware of the extent of the concern in the farming community and the growth in trading derivatives. A family in a poor community in a developing country needs food but to an investor in the Chicago commodities exchange, food is just another commodity on which one makes money. The balance has been struck and I am satisfied there is a satisfactory process under way in Europe to provide strong regulation. I will input what the Deputy said to the working group discussions so that the result will be strong regulation rather than light touch regulation.
I will provide a note to the Minister, outlining some of these points. Written Answers follow Adjournment.
