Michael McGrath (Cork South Central, Fianna Fail) | Oireachtas source

-----and Deputy McNamara has walked out because he does not want to listen to a balanced argument or the facts.

My party and I fully recognise the importance of the talks under way between this State and the European Central Bank. Fianna Fáil wants to see the net cost of the bank recapitalisation reduced and we genuinely wish the Minister well in these negotiations. I doubt anybody in the country wants to see Ireland pay this money at the end of March.

On behalf of the Fianna Fáil Party, I recently outlined to the President of the European Central Bank, Mr. Mario Draghi, the case for taking action to reduce the burden of bank debt being carried by Irish people. This is the time for a deal to be done as we will not have a better opportunity to resolve the issue of the legacy debt at Anglo Irish Bank. The momentum that has been building provides us with a once-off opportunity to secure the right deal. Our message to the European Central Bank must be that a deal is needed and it must be the right deal. The Government will not have the luxury of returning to this issue one year from now to restructure this aspect of our banking debt.

A deal can be done now for a number of reasons. First, there is undoubtedly a more pragmatic leadership in place at the European Central Bank under its current President, Mr. Mario Draghi, than there was under his predecessor, Mr. Trichet. Second, the principle of a banking union, including a bank resolution regime, has been agreed at European level. Third, economic recovery has not taken root in Ireland, as envisaged, and our ability to carry bank related debt is weaker than was anticipated. Fourth, Ireland is sticking rigidly to the EU-IMF plan and is in compliance with all of its conditions. Finally, Europe needs a success story and Ireland is its best shot at achieving one.

The Government must engage in intense negotiations over the next eight weeks and this engagement must take place at the highest political level. The Minister for Finance must personally lead the negotiations and must meet the ECB President as often as is necessary before the end of March to secure a deal. Officials acting on the Government's behalf have taken this issue as far as they can and the technical issues are well known to the Government at this stage. The matter has become a political issue and for this reason, the elected Government must drive negotiations with the ECB President.

I do not care if the negotiations go to the wire provided we secure the right deal. The Minister must make the point very clearly to the European Central Bank – I accept this will be done in private – that, in the absence of a deal, there is nothing inevitable about the Government making the €3.1 billion payment at the end of March. He must go further and explain that the economic, social and political reality in Ireland is such that non-payment is a live option for the Government. If I were in the Minister's shoes and the right deal for Ireland was not on the table at the end of March, I would recommend to the Government that the promissory note payments be suspended until negotiations had concluded.

Ireland's case for a deal on the promissory note is both moral and practical. This country has undergone the largest budgetary adjustment compared to all other so-called "peripheral economies", proving both our capability and commitment to facing up to challenges and implementing reforms. More than €28 billion in tax rises and expenditure cuts have taken place. As Deputies are well aware, these have led to a considerable reduction in living standards for the majority of citizens. Pressure on public services has increased and significant hardship is being felt by wide sections of the population, not least by those in unemployment and householders struggling with mortgage debt.

At the time the banking crisis emerged, there was no EU-wide mechanism in place to help deal with the difficulties Ireland faced and to this day an EU-wide bank resolution regime is still not in place. Despite agreement in principle on implementing such a mechanism, none will commence for some time yet. When the Taoiseach was asked why Ireland is a special case and how he is explaining this message to other European leaders, he stated Ireland is "unique" because it had "the European position imposed on it" and this had resulted in the sovereign having to take on the debts of all the banks. In effect, he is arguing that we have a strong moral case to put to our European partners. I say this in full acknowledgement of decisions made by the previous Government.

The promissory note alone comprises nearly half of the €64 billion cost of bailing out the banks. As a result, this "IOU" amounts to 20% of GDP and continues to place an enormous burden on the Irish people. As Deputies are aware, members of the public have displayed a remarkable level of resilience in the face of extremely painful measures but their patience and understanding is wearing thin. There is a widespread view that while people have done all that has been asked of them in terms of measures to return the economy to a sustainable footing, this is not being reciprocated by action from our European partners to underpin what has been achieved to date. As well as the practical case I have outlined, there is a very strong moral case for significant relief on the promissory note.

It is in everyone's interests that Ireland turns out to be a success story and I believe we can be a success. In contrast to all other programme countries, Ireland’s economy is capable of returning to sustainable levels of economic activity. If a country that follows EU-IMF conditions to the letter subsequently fails to successfully return to the markets with its creditworthiness restored, what kind of example will that scenario set for others? Movement on the promissory notes could significantly cut Ireland’s funding requirements in the years ahead as we seek a sustainable return to the markets.

I propose to address the claim that the Government did not pay the promissory note instalment that was due last March. Repeated by a number of Government Ministers recently, this claim is simply untrue. The European Central Bank's only concern last March, and a position it maintains, was that the Irish Bank Resolution Corporation, IBRC, pay off the money it owes the Irish Central Bank. It is instructive to examine the following statement made by the ECB at the time. It states:

It is very important that the Irish state will honour the 3.06 billion euro amortisation of the promissory notes. This will reduce the emergency liquidity assistance which IBRC receives from the Central Bank of Ireland and thus the Eurosystem.

What happened last March was that the Government was essentially given a loan by Bank of Ireland for one year, although it may be rolled over for a longer period, and IBRC used this cash to pay down some of the money it owes the Central Bank. The ECB did not budge one inch on its position and insisted the exceptional liquidity assistance, ELA, be paid down as quickly as possible. At the time, the renowned economist Karl Whelan put the matter well when he stated:

What has been achieved? In essence, the government has delayed paying out the cash for this year’s €3.1 billion but the IBRC (and hence the state) now has to repay Bank of Ireland this amount next year . . . Because the ECB have fully achieved their goal — getting a full €3.1 billion ELA repayment — calling this "a deal" with the ECB is hardly appropriate.

It is important to remember this in the current negotiations. If and when a deal is concluded, and I believe there is a good prospect for securing agreement, it must be transparent and its impact readily quantifiable. We must not have a repeat of the farce we witnessed last March when the Minister came into the House on the eve of the payment being due, issued a convoluted statement and refused to accept any questions from Opposition spokespersons. It subsequently emerged through replies to parliamentary questions that the so-called deal added €90 million to the general Government deficit in 2012 and more than €400 million to the general Government debt. This House must be treated with a little more respect and any deal concluded must be properly scrutinised and debated.

We will quickly find out the market reaction to any deal. Since the summit of 29 June 2012, Irish bond yields have been falling as the market priced in a substantial reduction in our absolute debt levels and the cost of servicing our debt. If, following a deal, bond yields are stable or fall further, we can assume the market believes our debt sustainability has been improved. However, as we all know well, bond yields are remote from the lives of most ordinary citizens. What people are truly concerned about is the scale of tax increases, spending cuts, increased charges and reduced services they face. The Government is planning €5.1 billion in new taxes and cuts over the next two budgets. It is imperative that any deal on the promissory note is accompanied by a solidarity dividend to citizens. For ordinary people, the litmus test of any deal is whether it will result in easier budgets, if it will put more money in their pockets, if the domestic economy will begin to recover and whether money will be available for investment in job creation initiatives.

The Government is planning to take a further €3.1 billion out of the economy in 2014. In cash terms, a deal on the promissory note could conceivably result in a significant reduction in this fiscal adjustment. This would make a real difference, one that people would feel, without compromising efforts to achieve the 3% deficit target by 2015.

In the short term, the true cost of the promissory note is the rate at which the Central Bank borrows from the ECB, that being 0.75% or thereabouts. The rate will not be officially confirmed. While the interest rate on the promissory note itself is high, the interest is paid to a State-owned institution in what is essentially a circular transaction over the fullness of time. Where the cost rises for the State is when it must go to the market to borrow the money required for the annual repayment of the promissory note. The longer we can get the interest rate of 0.75%, the cheaper the overall cost of the banks.

The Minister for Finance has confirmed to us and I am sure others via parliamentary questions that no agreed schedule exists for the Irish Bank Resolution Corporation, IBRC, to pay down the exceptional liquidity assistance, ELA, that it owes to the Central Bank. This is a fundamental point, as it undermines the ECB's argument on monetary financing. "Monetary financing" is an elastic term and the ECB seems to be able to bend it in whatever way suits its agenda at a particular point in time.

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