Tuesday, 7 June 2011
Question 21: To ask the Minister for Finance when it will be necessary to raise funds outside of the â‚¬85 billion EU and IMF loan agreement based on the projected Exchequer deficits; and the date of maturity of existing Government bonds which will need to be re-financed. [14409/11]
Question 22: To ask the Minister for Finance his view that the State, with support from the EU/IMF/ECB, has sufficient funding to meet all requirements until the end of 2013; if he will provide a detailed account of the funding requirements of the State for 2011, 2012 and 2013; the funds available to the State to meet those requirements for the same years; and if he will make a statement on the matter. [14498/11]
I propose to take Questions Nos. 21 and 22 together.
The joint EU-IMF programme of financial support for Ireland provides for a total financial package of â‚¬85 billion. Some â‚¬67.5 billion comes from the European funding facilities - that is the European financial stability mechanism, EFSM and the European financial Stability Facility, EFSF - bilateral loans from the UK Sweden and Denmark and the International Monetary Fundâ€™s extended loan facility, EFF. The remaining â‚¬17.5 billion comes from the Stateâ€™s own resources, namely the National Pensions Reserve Fund and other domestic cash balances.
Some â‚¬35 billion of the total â‚¬85 billion financial support package was originally set aside for the banking sector with the remaining â‚¬50 billion available for the purposes of financing the State. The recent banking stress tests carried out by the Central Bank identified an additional â‚¬24 billion in respect of the banking sector as being required, including â‚¬3 billion of funds which take the form of contingent capital. However, it is anticipated that mitigating actions, such as burden sharing with subordinate bondholders, will mean that up to â‚¬5 billion of this â‚¬24 billion will not have to be provided for by the State.
The budgetary forecasts contained in the recently published Stability Programme Update prudently assume that an additional â‚¬20 billion in State support to the banking sector will be required. On that basis, therefore, some â‚¬15 billion of the funding originally earmarked for the banking sector is now available for use for sovereign purposes, bringing the potential total available under the programme for sovereign purposes to â‚¬65 billion.
Based on the forecasts recently produced in the Stability Programme Update, the combined Exchequer deficits for the years 2011 to 2013 are estimated at â‚¬48.5 billion. Maturing Government debt, both long-term and short-term, over the same period amounts to some â‚¬27 billion, including an assumption for some short-term debt funding. In terms of our funding requirements for the individual years, factoring in Exchequer deficits and maturing debt, the State will require approximately â‚¬30 billion, â‚¬23 billion and â‚¬22.5 billion in each of the years 2011, 2012 and 2013.
It is the stated intention of the National Treasury Management Agency to return to sovereign debt markets as soon as market conditions permit. The steps necessary to enable such a return include resolution of the banking sector issues and continued progress in the reduction of the budget deficit in line with the targets agreed in the EU-IMF programme of financial support, together with the implementation of policies that will see us return to sustainable economic growth. A key development in that regard has been the publication of bank stress tests results on 31 March 2011 and the associated recapitalisation exercise which have been well received by investors and rating agencies alike.
The NTMA is in constant contact with market participants and will advise me when it feels that the time is right to re-enter the markets. I should say that, based on conservative projections of our funding needs and taking account of funding possibilities, there is no urgency about a return to the markets. Indeed, the purpose of a programme such as the EU-IMF programme for Ireland is to provide the space necessary for economic and financial adjustment to take place. Based on current projections and assuming no market access, the State has access to sufficient funds for its needs into the second half of 2013.
I thank the Minister for his response. In an effort to deal with the fallout following last weekâ€™s comments by the Minister, Deputy Varadkar, concerning Ireland possibly requiring a second bailout, we were reassured by the Minister for Finance, the Taoiseach and other Ministers that Ireland was fully funded to the end of 2013 and into the beginning of 2014 under all circumstances. However, in a reply to the DÃ¡il last week repeated today, the Minister stated that we were funded into the second half of 2013, which could be interpreted as meaning July 2013. It is important that we be clear and precise in our language regarding such a vital issue.
Last monthâ€™s European Commission update report on the bailout showed that Ireland would require â‚¬3.4 billion from the markets in 2012 and â‚¬14 billion from the markets to get to the end of 2013. The IMF believes we will need to raise â‚¬19.3 billion from the markets and small savers by the end of 2013. Even private sector analysts such as Glas Securities believe we will need to raise â‚¬11.3 billion in 2013 alone. As the Minister knows, a bond worth approximately â‚¬12 billion will mature and need to be refinanced in the middle of January 2014.
Based on this evidence, is it not clear that we are not fully funded under all circumstances into the beginning of 2014? We all share the Ministerâ€™s wish that Ireland would return to the markets next year. However, if this does not prove possible, is it not the case that we are not fully funded through the calendar year of 2013 and into the following year?
I am giving the Deputy the most prudent assessment of what we are facing in terms of what must be repaid and what is available to us. I could give him a more benign estimate of the figures and say we could carry through to the end of 2013, but I want to be prudent and tell him the worst case scenario. There is no question of the sovereign side requiring additional funding in 2011 or 2012. The funding will carry us into the second half of 2013. This is based on a prudent assessment of the figures. As the Deputy knows, there are variables that could be inputted two and a half years hence.
It is also worth repeating for the benefit of those who are interested in and like debating these issues that the recapitalisation of the banks is a one-off sum that must be paid against the rigorous stress tests. It is not a recurring sum whereas looking after the deficit is. As we make fiscal adjustments, the latter will decline. When we factor in all of these elements, we are not in a difficult fiscal position. The programme was intended to run a certain distance and to provide us with funds for recapitalising the banks and dealing with the day-to-day costs of running the country until the economy was restored to a growth path. As the Deputy knows, that is under way.
I agree with the Minister about the requirement for prudence and that we should plan on the basis of returning to the markets late next year, but we must prepare for a worse scenario. The Minister anticipates that we have enough funding to carry us into the second half of 2013 based on prudent assumptions but we will not allow the State to run towards the bottom of the cash buffers. In such circumstances, funding will be required earlier, in all likelihood in the first half of 2013. Assuming there is no market access - we hope there will be - and basing our figures on prudent assumptions, does the Minister agree that Ireland will need an alternative source of funding in the first half of 2013?
Theoretically the Deputy may turn out to be correct but his comments are speculative. The programme only commenced in December 2010 and we are now at the start of June 2011. We are approximately six months into the programme under two Governments. The programme under the current Government is three months old and gives us sufficient money to carry us forward for the next two years at a minimum. Much will happen in that time. Consider what is occurring in Europe. In terms of the attempts to retrofit the instruments of policy to address a currency zone in crisis, there are developments every month. As regards the Greek crisis, there will have been further developments by 20 June and further instruments of policy will be developed.
Our job is to work the programme, keep to the targets, get the economy growing again and return people to work. External issues over which we have no control might be interesting for debating purposes but they butter no parsnips.
They are similar. We will forget that the Taoiseach stated we were funded through to the end of 2013. We will forget that the Minister for Enterprise, Jobs and Innovation, Deputy Bruton, stated we were funded for all eventualities through to the end of 2013. We will park those comments to one side, as they clearly did not know the figures. The Minister, Deputy Noonan, stated that we were funded through to the second half of 2013 based on the figures he presented. Perhaps I caught them wrong, but he indicated that the amount of the Exchequer deficit plus the maturing debt up to the end of 2013 will be â‚¬75.5 billion. The amount of money available to the State will be â‚¬65 billion if we are allowed to use some of the bank recapitalisation money for sovereign purposes. This would leave a deficit in 2013 of â‚¬10.5 billion.
In 2013, the deficit plus the maturing debt will be â‚¬20 billion, there or thereabouts. We will not have enough to get us through to the second half of 2013. We know what is fixed. The income from the EU-IMF programme and the maturing debt are fixed. The optimistic projections of the Department of Finance, the Government and the programme in terms of economic growth were based on an unemployment rate of just over 400,000, but the actual figure is approximately 40,000 in excess of that.
Will the Minister clarify? Based on the figures he presented, are we funded up to and after July 2013? If so, when will the Government need to return to the markets? If we are funded up to 1 July, we will not return to the markets at the end of June. If we are to be prudent and get enough money to pay the Stateâ€™s bills for 2013 and 2014, when will we need to re-enter the markets?
I have provided in great detail the elements comprising the totals. The Deputy can run the numbers himself. In reply to Deputy Michael McGrath, I stated I was giving the most prudent assessment of where we will be by the middle of 2013. I could outline a more benign scenario. For example, we have suggested â‚¬20 billion for bank recapitalisation but the actual amount may be less, given the variables. On the growth side, all forecasting agencies agree we will return to significiant growth next year. While the OECD predicted no growth in 2011, it predicted growth of 2.3% in 2012. All the agencies predict growth of between 2% and 3% in 2012 and most predict growth of between 3% and 4% in 2014-2015.
In regard to when we will return to the markets, it remains the policy of the National Treasury Management Agency, NTMA, to test the market in the third or final quarter of next year. However, it is not intended, and never was, that we would be fully funded in 2012 without help from the outside agencies. Deputy Michael McGrath will be aware that that is what is provided for in the programme negotiated by the previous Government. While we face many difficulties in this country at present there is reason to be optimistic. There is much change in Europe and two years is a long time. We will see how things work out. All we can do is work at it every day.
The Minister is pushing it to the limit. In two years time, the tap will be turned off. We will have to return to the markets before that happens. The Minister for Transport, Tourism and Sport, Deputy Varadkar, is probably correct that we are possibly heading in the direction of a second bail out. I have consistently said this on the floor of this House. I have also asked the Minister for Finance, Deputy Noonan, what is plan B? What is the appropriate rate on ten year bonds that we would have to achieve to enable us return to the markets to obtain the amount of money required to run this State in 2013? The Minister is well aware that this morning the rate on ten year Irish bonds was 10.7%. When the Minister took office it was approximately 9.3%. The rate continues to rise for external and domestic reasons.
What rate would we have to achieve on ten year bonds to enable us re-enter the market, which if not achieved will result in our being technically shut out and requiring bail out number two, which I believe is on the cards?
The Irish bond rate is a little academic when the State or banks are not in the market. This is as much a reflection of what is happening in other European countries as in Ireland. The rate quoted by the Deputy is more a reflection of what happened in Portugal and what is not happening in Greece. I will give the Deputy my most honest answer. It will be worth our going back into the markets, even for â‚¬1 billion or â‚¬2 billion, if the bond yield falls below the rate being charged on the bail out package. The NTMA intends to put its toe in the market in the third quarter of 2012. We are 15 months away from that yet.
The markets predicted the last 30 recessions. They were correct on six occasions. The bond and stock markets are a little like sheep in that they all move in the same direction. The sheep-like behaviour has been accentuated with the movement of trading onto computers which, when a particular margin is reached, give a buy or sell instruction. I would use other evidence as well as the price being quoted on the bond market, in which we are not currently involved. I hope the Deputy is not right. The longer one is a Member of the DÃ¡il the more influential one becomes and the more oneâ€™s credibility increases. Deputies McGrath and Doherty have credibility. In regard to a second bail out, if credible people keep saying it, it becomes a self fulfilling prophecy. What one says will be carried internationally.
The best approach is to put out the facts and to then let the commentators, external markets and bankers judge them. I do not believe there is much point in trying to talk up or talk down the situation. We should put out all the relevant facts and then let people make up their minds. When Ireland puts out all the relevant facts it is in way better position than is Greece or Portugal. There is no comparison in terms of how our economy is structured. The Deputies should remember that we are running balance of payments surpluses this year.