Kieran O'Donnell (Limerick City, Fine Gael) | Oireachtas source

I am delighted to contribute to this debate. I welcome the fact that Ireland will formally exit its bailout on 15 December next. We have already exited it to a substantial degree in the context of the type of options we are taking. I commend the Government and all those involved in the discussions in respect of this matter.

What is the purpose of exiting the bailout? One of the key aspects is that we will be able to borrow money on the international markets. Before coming to the House, I had a quick look to see where Ireland stands in respect of those markets. Our bond yields have continued to fall since we announced our intention to exit the bailout without a precautionary line of credit. On the date on which we made our announcement, our yield for ten-year bonds stood at 3.56%. That rate fell to 3.53% today. This shows that the markets are comfortable with the decision the Government has made and are willing to support us by supporting funding. Ireland will formally return to the markets in January or February. People should not overlook the fact that we have borrowed consistently on the markets at reasonable rates of interest since 2012.

A great deal has been made of the decision not to accept a precautionary credit line. The key focus in this regard relates to three areas. The first of these in the reform agenda, which must be maintained but in a way that is fair to people. The second area is that which relates to growth and jobs. The facts do not lie. At present, in excess of 3,000 jobs net are being created each month. Prior to our taking office in 2011, some 8,000 jobs net were being lost each month.

This is significant, especially as approximately 250,000 jobs were lost in the previous three years. While growth is low, it is improving, and countries elsewhere in Europe, including our near neighbour the United Kingdom, and the United States are also experiencing economic growth. The fundamental requirements for continuing this phase of generating employment and getting people off the live register are being met.

Banks are a key issue. Significant progress has been made in the banking sector through restructuring and the measures taken to deal with Anglo Irish Bank. One issue that remains to be addressed, however, is tracker mortgages, which account for 59% of the mortgage loan books of the three banks being funded by taxpayers, AIB, Bank of Ireland and Permanent TSB. Tracker mortgages have a value of approximately €46 billion. Various analysts estimate that in 2012 they contributed approximately €700 million to the losses of the three pillar banks, which is a significant amount. Ireland has an unusually high rate of house ownership and tracker mortgages when compared to other European countries. Tracker mortgages were offered at a time when banks were able to borrow on the EURIBOR and inter-bank markets at interest rates lower than the ECB rate. This allowed them to manufacture a product charging 1% above ECB rates for mortgages. However, they did so on the basis that the interest rates on the EURIBOR and inter-bank markets would continue to be below the ECB rate, which is no longer the case. Traditionally, banks borrowed short-term funds from the European Central Bank and long-term funds on the inter-bank market. The ECB is trying to progressively wean banks off ECB funding, which requires banks to turn to other sources of funding which cost more. This has created an imbalance in the financing of tracker mortgages and resulted in banks losing money on them.

Banks across Europe will face a liquidity cliff risk as they switch from ECB funding to inter-bank funding. They need to ensure they make sufficient profits from their mortgage book to cover the cost of borrowing, which is not the case with tracker mortgages. One mechanism that should be considered, perhaps via a combination of the ECB, the ESM and long-term refinancing operations, would be to move the tracker mortgage loan books of the three main Irish banks into a special purpose vehicle financed through low-cost funding. This would make a significant difference to the operations of Irish banks in terms of lending because a number of them have become highly risk-averse and are protecting their balance sheets. While tracker mortgages are a specific feature of the Irish banking system, the issue must be addressed in a European context. We need to come up with some form of financial engineering to deal with them.

In a period of three years, we have been able to exit the bailout programme with our finances stabilised and the economy back in growth. Employment is also growing, with approximately 3,000 jobs being created each month. While the banking system has been reorganised, the issue of tracker mortgages must be addressed in a European context. The funding model I have in mind would involve funding these mortgages at low cost with a view to rebalancing the balance sheets of the banks. Any such model must not disadvantage tracker mortgage holders, as we must always be conscious of those who have borrowed from our banking institutions.

The Government will continue with its reform agenda, and I look forward to the economic strategy it will announce in December. I have no doubt it will place considerable emphasis on growth and jobs. As someone who was self-employed for many years, I like to be master of my own destiny.

See this speech in context