Michael Noonan (Limerick City, Fine Gael)

I will read the prepared reply first and then will answer questions if we have the time.

It has always been my position that, given the significant cost of Anglo Irish Bank Corporation Limited and the Irish Nationwide Building Society, now known as the Irish Bank Resolution Corporation Limited, to the Irish State and the Irish taxpayer, there should be no repayment of unguaranteed senior unsecured debt. To avoid such repayments, the most logical option would have been to put the bank into administration. This was an option available to the previous Government, but instead it put the taxpayer on the line for the liabilities of the IBRC.

If we were to suspend payments to creditors in the IBRC, this would have a significant impact on both the bank and ultimately the State. This senior debt, unsecured as it is, is an obligation of the bank. If the bank does not meet such obligations, it would lead to a default and, following that, most likely insolvency. This would result in a significant increase in the cost to the State to resolve the IBRC.

In the period from the introduction of the guarantee in September 2008 to 31 December 2010, the previous Government allowed substantial repayments of around €20 billion of senior debt for the IBRC. One would gag on the hypocrisy of a party leader standing up here today complaining about a repayment of €750 million when his own party had already paid up to €20 billion to the creditors of Anglo Irish Bank. Since coming into Government, we have explored options with our European partners on senior debt burden sharing. As I stated after my meeting with ECB President Trichet and Commissioner Rehn last month, our European partners expressed strong reservations about burden sharing with senior bondholders in IBRC. Mr Trichet voiced his opinion that he is against such actions for two reasons. First, private sector involvement carries very significant contagion risk and may be inconsistent with encouraging private investors to return to markets. Second, he said Ireland had done particularly well over the summer. He mentioned the narrowing of bond spreads and he said that he felt that anything to do with senior debt burden sharing might knock the confidence of the market in the absolute commitment of the Government to take its place once again in normally functioning markets. As a result, bond yields could widen again and we would lose the ground we had gained.

Mr. Trichet's views were echoed by Commissioner Rehn. The positive international commentary on Ireland has been created by the Government's successful renegotiation of the memorandum of understanding, the introduction of the jobs initiative, the sizeable reduction of the interest rate on the EU-IMF programme and the reduction in the cost of the banks to the taxpayer. The value of support, present and future, we receive from our European partners far outweighs any short-term gain from imposing burden sharing on these bonds in the face of European opposition to such a move. For example, €110 billion of funding is provided by the ECB and the Central Bank of Ireland to the Irish banks at a cost of 1.5%, a figure below which they could borrow in the market. This is in addition to the €85 billion set out in the programme with the troika.

However, we still have unfinished business with our partners to find the most cost-effective way of resolving the IBRC over the long term. Technical discussions between officials are under way at present on the IBRC promissory notes. For these reasons, I have decided not to take unilateral action on burden sharing on IBRC senior debt. Therefore, the IBRC has today repaid senior debt of $1 billion, which is around €700 million. This was a publicly traded senior liability and, as noted earlier, the bank was contractually obliged to repay this liability on its maturity date. The IBRC has announced the sale of its €9.2 billion loan book in the United States. The process is continuing and approximately €3.5 billion in gross loans have transferred to buyers. The net proceeds from the sale will allow the bank to repay these unguaranteed bonds and also to reduce its borrowings, including emergency liquidity assistance from the Irish Central Bank. It is important to state that the redemption of the bond will be made by the IBRC. It will not be funded by the Exchequer.

Both of the Deputies were in the House this morning, or at least Deputy Donnelly was, when the Taoiseach read out a quote from my predecessor as Minister, Brian Lenihan, stating that when he introduced the issue of burden sharing by senior bondholders with the European Central Bank back in December, he was told that if he pursued that course of action there would be no programme. Thus, it is not just the threat of increased interest rates or a turning off of the tap of liquidity to the banking system. By the way, neither of these threats was ever made, but the point I am making is that these were not our only concerns. There was also the concern about the collapse of the programme. If the programme collapsed, we would have to make the full adjustment in one year. To reply to Deputy Wallace, that is when we would really have problems in this country, if we had to make the adjustment that is paced out to 2015 in one year so that our revenue receipts matched our expenditure. That would devastate public services.

This is a judgment call. I do not like it, and I have not changed my position on it. It is a choice between two evils, as far as I am concerned, and the decision we are making is the lesser of two evils. It is my judgment and that of the Government that it is more in the interests of the Irish people to grit our teeth and allow Anglo Irish Bank to pay the bond than to default, because default takes us over the edge of the cliff. As the situation in Greece deteriorates by the day, could the Deputies imagine what would happen if, from the point of view of the euro, a second front was opened in Ireland by a default? It could bring the whole thing down. I am not prepared to put the Irish people or this House in that position and I take that responsibility.

See this speech in context