Michael Noonan (Limerick City, Fine Gael)

It has always been my position in regard to the payment of unguaranteed unsecured senior bonds that, given the significant cost of the Irish Bank Resolution Corporation, IBRC, formerly known as Anglo Irish Bank, to the State and the taxpayer, that the burden of the debt should be shared with bondholders. However, if we were to suspend payments to creditors in IBRC this would have a significant impact on both the bank and ultimately the State. This senior debt, unsecured as it is, is an obligation of the bank. If the bank does not meet such obligations, it would lead to a default and, following that, most likely, insolvency. Insolvency would result in a significant increase in the cost to the State to resolve IBRC

As I stated after my meeting with the President of the ECB, Mr. Trichet, and the Commissioner for Economic and Monetary Affairs, Mr. Rehn, last month, our European partners expressed strong reservations about burden sharing with senior bondholders in IBRC. Mr. Trichet voiced his opinion that he is against such actions for two reasons. First, private sector involvement carries very significant contagion risk and may be inconsistent with encouraging private investors to return to markets. Second, he said Ireland had done particularly well over the summer. He mentioned the narrowing of bond spreads and indicated his view that anything to do with senior debt burden sharing might knock the confidence of the market in the absolute commitment of the Government to take, once again, its place in normally functioning markets. The result of that might be a further widening of bond yields and a loss of the ground we have gained.

Mr. Trichet's views were echoed by the Commissioner, Mr. Rehn. The positive international commentary on Ireland has been created by the Government's successful renegotiation of the memorandum of understanding, the introduction of the jobs initiative, the sizeable reduction in the interest rate on the EU-IMF programme and the reduction in the cost of the banks to the taxpayer. The value of support, present and future, we receive from our European partners far outweighs any short-term gain from imposing burden sharing on these bonds in the face of European opposition to such a move. For example, some €110 billion of funding is provided by the ECB and the Central Bank of Ireland to the Irish banks at a cost below which they could borrow in the market. This is in addition to the €85 billion set out in the programme with the troika.

The Government's aim is to ensure the overall cost of resolving IBRC and the difficulties in the banking sector generally are kept to a minimum. I will consider the future payment of maturing bonds in IBRC in this context and in terms of what is best for the overall position of the State. However, Irish credit institutions access ECB liquidity under the same rules and subject to the same conditions as credit institutions throughout Europe. The ECB has given very large amounts of liquidity assistance to Irish banks and maintains a keen interest in the Irish banking sector. In this regard, I point to the statement of the ECB on 31 March last to the effect that against the background of the recapitalisation of the banks "the Eurosystem will continue to provide liquidity to banks in Ireland". Together with other decisions announced on this date, the ECB was and is clear about its support for Irish banks. I am not aware of anything to suggest otherwise.

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