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EU-IMF Funding

Dáil Éireann Debate, Wednesday - 23 May 2012

Wednesday, 23 May 2012

Ceisteanna (1)

Michael McGrath

Ceist:

1Deputy Michael McGrath asked the Minister for Finance the likely cost of funds that would apply, in the event that the Fiscal Stability Treaty referendum is passed on 31 May, if Ireland should need to avail of funding from the European Stability Mechanism beyond the period of the current EU-IMF programme of assistance; the way this compares to current market rates for Irish Government bonds; if he will confirm the other sources of funding that would be available for the country in the event that the referendum is rejected and access to the ESM is blocked; and if he will make a statement on the matter. [25880/12]

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Freagraí ó Béal (5 píosaí cainte)

It is not clear what other source of funding would be available if the stability treaty is rejected, with the resulting loss of access to the ESM. However, what is clear is that any funding that would be available would cost considerably more than any prospective ESM funds. The IMF has indicated that it will provide funding to Ireland only as part of a European initiative. I have consulted with the NTMA and it considers that a "No" vote in the referendum on the stability treaty would mean in all likelihood that it would not be possible for Ireland to re-enter the bond markets at sustainable rates. Ireland's programme of financial support runs to the end of 2013. It remains on track. Based on current projections and assuming no market access, the State has access to sufficient funds for its needs well into the second half of 2013. The continuation of the strong programme implementation will ensure that we emerge successfully from this programme. It is the NTMA's stated intention to return to sovereign debt markets as soon as market conditions permit.

The availability of ESM funding is an important part of facilitating our return to the markets as it provides reassurance to the financial markets. The ESM treaty sets out the arrangements for loan pricing. In summary, it will be the financing and operating cost plus an appropriate margin. It is not appropriate to speculate on the interest rate that would apply in the event that funding were to be sought from the ESM. However, the average cost of our current EU-IMF funding is 3.46%. This is well below the current market rates for Irish bonds – where the ten year rate has been around 7% in recent months.

The capital structure of the ESM was designed to ensure that it would receive the highest possible rating, thus ensuring the lowest possible cost of funding. The principle that the EU funding mechanisms should not generate a profit is now well established following the reductions to the EFSF and EFSM rates agreed in 2011.

I thank the Minister for his response. In the remaining week of the referendum campaign, the debate will come down to brass tacks. We know for sure that in the second half of next year Ireland will need to have identified with certainty how the country will be funded on exiting the EU-IMF programme. We know we will need €36 billion in 2014 and in 2015 to ensure this country is fully funded. Is it not the case that the funding options facing this country are either to borrow substantially on the markets or to have access to ESM funding? Currently, the rate being charged under the programme is approximately 3.5%, while the markets, when I checked at lunch time, are charging 7.35% on a nine-year government bond.

The Minister said something very significant at the outset of his response and I ask him to clarify that. He said the advice from the National Treasury Management Agency to him as Minister is that the rejection of the treaty will mean, in its professional opinion, that Ireland will not be in a position to return to borrowing markets next year at sustainable rates. Will the Minister clarify whether that is the advice the NTMA has given to him?

I will reread my note again on that for the Deputy so there will be no misunderstanding - I have consulted with the NTMA and I consider that a "No" vote on the referendum on the stability treaty would mean in all likelihood that it would not be possible for Ireland to re-enter the bond markets at sustainable rates.

The NTMA is held in high regard and its reputation is beyond question and that is very significant advice from it. I would regard the fact the NTMA has given the Minister the advice that the country will not be in a position to fund itself beyond next year if the treaty is rejected as a highly significant intervention. Does that advice concur with the Minister's opinion as Minister for Finance?

It fully concurs with my opinion. However, the NTMA is not reflecting my opinion. It is independent and it is charged with funding the requirements of the State. It is the NTMA's considered opinion that a "No" vote will, in all likelihood, make it not possible for Ireland to re-enter the bond markets at sustainable rates. What the Deputy said in his initial remarks is also true. When it comes to the back end of 2013 - in my opinion and in the opinion of the NTMA - there will be two choices. We can choose either to get money from the ESM or get money from the markets. These are interrelated and the fact of having access to the ESM will make it more likely that we will be able to access money on the markets. It will also be more likely that we will be able to get it at a lower rate of interest, because we will have an alternative source through the ESM fund.

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