Dr. Donal Donovan:

The Deputy had two questions. The first was on bank recapitalisation and the possibility that had surfaced at the EU summit attended by the Taoiseach two years ago. The idea could have been that the ESM would take over part of the capital the Government had put into the Irish banks and would do so without requiring a Government guarantee, which, other things being equal, would have meant a reduction in the Government's debt by the same amount. That proposal has not gained much political traction in European circles since the summit. To our knowledge, there has not been any public intimation at political level in Europe of progress since our last report. That is why we did not mention it, as there was nothing to mention. It remains a political decision for which there does not appear to be a great deal of support.

The Deputy's second question was on the status of the Anglo promissory note. In early 2013 it was replaced by long-term Government bonds. There are two aspects to this. First, the bonds were of a considerably longer duration than the original promissory note. While this did not affect the total size of the debt, it improved its profile considerably - at least for this portion of the debt - as the repayment and liquidation period of the bonds was much longer. The second aspect was they had a shorter-term financial nature because under the agreement with the ECB, they had to be repaid according to a minimum schedule starting next year. Without getting into too technical a level of detail, there are two effects as this happens. One is that there is some interest cost to the Government because as it sells these bonds on the open market, the interest will no longer come back to be included in the budget. On the other hand, as it sells the bonds, it may well be and probably is the case that there will be capital gains, given that interest rates are very low. Both of these things could offset each other and there might be a gain in the budget as these transactions take place. Their timing is a matter for the Central Bank, of course, and it may well pursue a timing plan which has significant effects on the budget.

I should note in respect of the beneficial effects of these operations, that while they are good for the budget, they do not count, by and large, in the measurement of the budget deficit for the purposes of compliance with the excessive deficit procedure. Members may recall in the debate on the fiscal council's views the Minister for Finance, Deputy Michael Noonan, made the point that actually the deficit for next year was really 2.5%, not 2.7%. The 0.2% difference relates to the net beneficial effect of the Central Bank's operations which cannot formally, according to EUROSTAT rules, be counted. Of course, economically it can be counted, but from the point of view of measurement, it is not.