Peter Mathews (Dublin South, Fine Gael)

Today is an important day for this country, on which it is being represented by its Taoiseach in Brussels. He is one of the Heads of State or Government of 27 nations who convene in Brussels to address the European euro, banking and fiscal crises. The severe symptoms presented themselves in the five countries known as the PIIGS, namely, Portugal, Ireland, Italy, Greece and Spain. Ireland completed its quarterly review under the EU-IMF support programme only last week and received good marks across all the boxes. Ireland has reached the targets of fiscal correction and reform to the extent this now is under way. Earlier today, the Dáil completed the Second Stage debate on the Central Bank and Credit Institutions (Resolution) (No. 2) Bill, which will now proceed to Committee Stage. This shows that discipline is returning to Ireland's fiscal affairs following the change of government.

As part of the support programme, Ireland faces the imminent €19 billion recapitalisation of the banks. Because a critical point has been reached in respect of Europe's addressing European problems with a European solution, it may be timely to pause, reflect and consider the implications of the €19 billion recapitalisation as laid out in the EU-IMF-ECB agreement. When that agreement was signed in November 2010, there was an extremely poor understanding of the amount of losses that had occurred in the Irish banking system. It was only as recently as the end of March, following completion of the prudential capital assessment review, that the enormity and scale of the losses was determined at approximately €70 billion. Some people, including myself when I put on my accountancy and banking and finance hats, consider that figure possibly to be on the short side. The reason this is important in the context of the €19 billion recapitalisation concerns the funding of our banking system and our banks, which are being coalesced into two pillar banks, leaving aside the banks for resolution, namely, Irish Nationwide Building Society and Anglo Irish Bank. It is because the original six banks, now merging into two, owe obligations of approximately €150 billion to the ECB and the Central Bank of Ireland, which is proxy for the ECB. Included in the aforementioned €150 billion is approximately €70 billion that has its provenance from the redemption in full of senior bondholders up the end of last year, during the course of 12 months when there had not been an admission or a recognition of the scale of loan losses in the banking system. Consequently, by default or by a lack of proper understanding or perhaps by design but as a matter of fact, €70 billion within the €150 billion funding the banks through the ECB derived from redemption of senior bondholders.

Capitalisation of a banking system can happen by direct capital injection, of which, within the €19 billion, €10 billion will come from the National Pensions Reserve Fund. However, it may be timely to reconsider whether it might be better to present an insistent and persistent case to the ECB that a write-down of debt owed to the ECB could be negotiated.

This is in addition to what we have all heard about an interest rate reduction on the support funds being advanced by the eurofunds.

Since negotiations with Europe and the ECB are ongoing it would be very important to be able to achieve a change in the capitalisation strategy in order to preserve that €10 billion of cash in the National Pensions Reserve Fund, to be used as a cushion for the fiscal adjustments over the next four years under the relief programme of €50 billion. This would be very important because a creditor write-down of €50 billion from the ECB, €25 billion from the private creditors of bondholders and pro-note holders, could, in turn, be passed on to the customers of banks in the form of households and businesses, which would relieve customers, households and businesses, hugely. This would also create a stimulus to the economy which would get the real economy moving again.

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