Brian Hayes (Dublin South West, Fine Gael) | Oireachtas source

It would not be appropriate for me in any way to pre-empt the outcome of the discussions with the ECB, especially almost two months ahead of the next scheduled payment of the promissory note. Neither would it be appropriate for me to state that the Government is going to default. Let me be clear - if the motion before the House is passed, it would effectively send a view to the markets that Ireland was on notice of default. To adopt such an approach would jeopardise all of the work that has been done by our people, and their patience and resilience, in recent years.

As the House is aware, this Government has been involved in discussions for some considerable period of time on reducing the burden of debt associated with the recapitalisation of Irish banks. In recent months, the focus of discussions has been on the promissory note arrangement that was put in place to fund the IBRC. This is an arrangement which requires the State to make cash payments of €3.06 billion each year to the IBRC. These discussions are complex.

There appears to be an attempt by one of the opposition parties, Fianna Fáil, either to ignore or forget the origin of the promissory note, so I would like to remind them. The promissory note was a Fianna Fáil design. It was a Fianna Fáil attempt to develop a funding instrument to provide the IBRC with the necessary capital to cover its loan asset book.

Given the massive financial cost that these losses in the IBRC imposed on the State, Fianna Fáil opted to put a promissory note in place instead of government bonds. It is a legacy that we have been left to clean up and that is exactly what we intend to do. The technical details of the promissory note are that the interest rate on the note was set by reference to prevailing government bond yields at the time of the issue. The yields at that time were considerably higher than now. Yields on Irish Government bonds are now considerably lower as the Government has improved Ireland's image abroad and succeeded in attracting international investors back to Ireland.

A further adjustment to the interest rate was also necessary to allow for the interest holiday agreed by the last government. As a result of this interest rate holiday, the rate for the note's remaining term is correspondingly higher at about 8%.

As a non-standard funding instrument the IBRC promissory notes are inadequate and require bi-weekly approval for collateral purposes for the IBRC from the ECB. All parties to the current discussions could gain from an agreed approach to this issue. It is in this context that the Irish Government has been working extremely hard to secure an agreement. I can reiterate that we are optimistic that an arrangement, agreeable by all parties, can be found in the context of the current discussions.

The key objective of any new arrangement will be to make the banking related debt more sustainable. This is central to the Irish position on all negotiations with our European partners. The ongoing discussions should provide the best possible means of dealing with the significant IBRC banking related debt. However, we must all be fully aware that the majority of the national debt is related to the provision of public services and that it is entirely the responsibility of all in this House to make it more sustainable. The Government has real policies to make this debt more sustainable through economic growth and balancing the public finances.

I now turn to the core of the amendment before the House - the Government's extremely constructive engagement with our European partners and how we approach these discussions. I have previously stated that I am working to achieve a solution before the next scheduled instalment of the promissory note. That remains the case. Given the critical point at which we now find ourselves, it would not be in our best interests to declare our hand by drawing lines in the sand, especially lines that could undermine hundreds of thousands of jobs in our economy. Instead we must work towards the best possible outcome for the Irish taxpayer and this is best done by an agreed approach.

The politics of ultimatum is a dangerous business where the options that face this country are limited. We seek agreement, not some unilateral position which is based on playing some gigantic game of Russian roulette with all our futures. It has been through agreed approaches that the considerable achievements of this Government concerning the programme of assistance have been achieved to date. A stated objective of the programme for Government is the overall aim of renegotiating, which must be seen to secure a programme of support and a solution to the banking crisis that is perceived as more affordable both by the Irish people and international money markets. There has already been significant renegotiation of the programme of assistance which has meant real economic improvement and real savings for our citizens. These include reinstatement of the minimum wage - something we were told would not happen before the last election by everyone on the benches opposite and we have managed to reinstate it - and renegotiation of many conditions of the programme. The then Minister for Finance told us that would not happen, but we have made it happen. They also include a reduction in interest rates on EU money, saving almost €10 billion. We are also in negotiation with the Commission on an extension of the maturities. Both of those issues are crucial in terms of the bulk of the money that has come from the EU. There was also the agreement to retain half the proceeds from the sale of State assets for investment in job creation projects; the agreement of 29 June 2012 to break the vicious circle between banks and the State, and the specific reference to improving the sustainability of our programme; the clear recognition of Ireland's special position by our external partners; and a commitment to review our position with a view to further improving the sustainability of a well performing adjustment programme.

An agreed basis for the re-negotiation of the IBRC promissory notes will be the next step on the road to achieving full market access for Ireland by the end of this year. I have already referred to how the Opposition's motion proposes that Ireland engage in a sovereign default. This Government has made it clear that it will not countenance a sovereign default as part of its plan to work our way back to economic sovereignty and fiscal independence.

It has become too easy to suggest that a default provides some sort of economic panacea. Closer examination of the often quoted Argentinian approach, or that of Iceland, are suggested as examples to follow. I find it unlikely that any Member of this House would suggest that the savings and investments of private Irish citizens be wiped out, because this has been the experience of the default in the aforementioned countries.

In case some Deputies think that the Icelandic solution is still worth pursuing, they should fully inform themselves of the structures of the Irish and Icelandic economies and their significant differences. Foreign direct investment plays an important role in our economy, supporting 250,000 jobs directly and indirectly. The Icelandic economy is based on its natural resources of fish and cheap energy. A proposal to follow the Icelandic approach would involve the use of strict capital controls, which would wipe out overnight literally thousands of jobs in the foreign direct investment area in this country.

Capital controls severely affect the normal functioning of a market economy with severe implications for investment, market access and financing costs.

For Ireland, restricting capital controls would restrict investment and make it practically impossible for exporters to conduct their business here. This is especially relevant as Ireland exports more than 100% of its GDP.

Ireland remains open for business and is an attractive place in which to invest. Defaulting would damage investor confidence as a key time in our efforts to turn the economy around and would have a serious impact on job creation. In addition, the wider contagion of a default, with consequences for other State contracts and implications for the financial markets, would be too severe to countenance, particularly given the lengths the Irish State and its people have gone in implementing the adjustment programme over recent years and the extent to which this has been recognised by the markets. The success of Ireland's programme implementation to date has been recognised by the financial markets. Its ten-year bond yields have remained below 6% for a number of months and have been under 5% since late last year, while the NTMA has been engaged with the markets to some extent in recent months. In addition, Bank of Ireland and AIB have successfully re-engaged with the markets on the back of their own asset covered securities. These all are positive indications and the reduction in sovereign debt related to Irish bank recapitalisation, although a small fraction of the overall total, still is an explicit good news story for Ireland. In particular, the sale, for profits of €1 billion, of Bank of Ireland convertible contingent notes earlier this year reflects renewed belief in the sustainability of the Irish pillar banks. Each of these positives reflects our resolve and progress towards emerging successfully from this programme at the end of this year and to resume financing ourselves in the international money markets. If one considers Ireland's own position, we are in receipt of substantial support from the European Union mechanisms under the EU-IMF programme of financial support. This provides funding at rates well below those which would be available were we obliged to fund ourselves in the international money markets. In addition, the ECB continues to provide substantial liquidity support to the Irish banking system. It should therefore be clear that European solidarity is in our interests and to our benefit.

The Government's programme is working. It has met all its targets to date and has met the quantitative fiscal targets. It has implemented financial sector restructuring and has achieved banking recapitalisation at a significantly lower cost than was initially envisaged. It imposed burden sharing on junior debt holders and is implementing structural reforms with a view to enhancing the growth potential of the economy. The Government is introducing fiscal reforms to improve the management and control of the public finances.

The motion before the House tonight seeks to force Ireland's hand in the current negotiations while discussions with our European partners are ongoing. The Government's amendment reinforces the current approach to the issue of the IBRC promissory notes and avoid placing a restriction on the potential benefits of an agreement. The Government continues to engage constructively in these negotiations and views them as a central concern for the Government. It is confident of success and opposes the failure addicts and those opposite who only wish for this country to fail.

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