Written answers

Thursday, 28 June 2012

Department of Finance

Bank Guarantee Scheme

5:00 pm

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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Question 70: To ask the Minister for Finance the discussions, if any, his officials had with the ECB prior to the payment this week of €1.1 billionn to unsecured unguaranteed bondhholders in IBRC; and if he will make a statement on the matter. [31433/12]

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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As the Deputy is aware four senior, unsecured and unguaranteed bonds with a total value of €1.1bn fall due for redemption by IBRC this week. This senior debt, unsecured as it is, is an obligation of the bank and the bank will redeem the bonds as they fall due. Following the redemption of the four bonds this week IBRC will have approximately €160m in unsecured, unguaranteed bonds which are due to be redeemed between now and 2018. The Government has always set out that we would like to see burden sharing on unguaranteed bondholders in Anglo Irish Bank. However, it has been clearly stated that Ireland would not act unilaterally and we would proceed only with the agreement of the European Central Bank and our EU partners.

I set out in Committee last week that the Government has raised this issue with the ECB upon entering Government and I also had a formal meeting with former ECB President Trichet and Commissioner Rehn on 17th September last year to discuss this specific issue. Our European partners have expressed strong reservations about burden sharing for senior bond holders. The position of the ECB and Europe at political level has hardened since March 2011 and when private sector involvement (PSI) was agreed for Greece, the communiqué from the Heads of State and Government which accompanied the agreement stated Greece was unique and that PSI would not apply anywhere else.

The value of the support that we are receiving from our European partners now and in the future outweighs any short term gain from imposing burden sharing on senior bonds in the face of European opposition to such a move. You will also appreciate that there are serious implications for the bank and the State in the event that the bank defaults on repayment of debt. That said however, we still have unfinished business with our partners to find the most cost effective way of resolving IBRC over the long term. The Government's aim is to ensure that the overall cost of resolving IBRC and the costs of resolving the difficulties in the banking sector generally are kept to a minimum. It is also essential that we break the negative feedback loop between banking debt and the sovereign and I will continue to pursue this approach.

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