Enda Kenny (Mayo, Fine Gael) | Oireachtas source

I wish to make an important announcement for the information of the House. The Government has met in the past hour to consider a proposal from the Minister for Finance to once and for all remove the promissory notes relating to the former Anglo Irish Bank and Irish Nationwide Building Society. This proposal follows the conclusion of discussions between the European Central Bank and the Irish Government.

When Fine Gael and Labour formed a new Government in 2011, we promised to renegotiate the bailout programme inherited from the previous Government to secure a fairer and more affordable solution to our banking and sovereign debt crises. In particular, we committed to replacing short-term, emergency Central Bank lending secured against the promissory notes used by the previous Government to bail out the worst Irish banks with longer term, more affordable financing that reduces the burden on Irish taxpayers and restores confidence among other potential investors in Ireland.

The promissory notes, in this Government’s view, represent a highly onerous and unfair legacy of the banking crisis. Under this promissory note arrangement put in place by the previous Government, Irish taxpayers were due to pay €3.1 billion next March and every March until 2023 and declining payments until 2031 to cover the massive private losses of Anglo Irish Bank and Irish Nationwide. Including interest costs, the lifetime cost of the promissory notes would have been almost €48 billion. I am pleased to announce today that Ireland has reached a conclusion to its discussions with the European Central Bank that delivers on our commitment to put in place a fairer and more sustainable arrangement. This is the outcome.

There is the liquidation of the Irish Bank Resolution Corporation, IBRC, as legislated for by the Oireachtas this morning. The remnants of Anglo Irish Bank and Irish Nationwide – stains on our international reputations and dents to our national pride – have now been removed from the financial and political landscape. Their closure bookends a tragic chapter in our country’s history.

The annual promissory notes payments are gone. The liquidation this morning caused the Central Bank to assume full ownership of the €25 billion in promissory notes and other collateral held as security for the funds provided by the Central Bank to the IBRC. Under the agreement reached today with the European Central Bank, the promissory notes are being exchanged for long-term Irish Government bonds with maturities of up to 40 years. The first principal payment will not now be made until 2038 and the last payment will be made in 2053. The average maturity of the Government bonds will be over 34 years, as opposed to the seven to eight year average maturity on the promissory notes. In effect, we have replaced a short-term, high-interest rate overdraft that had to be paid down quickly through more expensive borrowings, with long-term, cheap, interest-only loans.

In addition, by agreement with the ECB, the liquidation of IBRC has caused the Central Bank to take ownership of the €3.4 billion bond used to settle the promissory note last March. As a result, there will be a €20 billion reduction in the NTMA’s market borrowing requirements in the next decade as we seek to restore the economy to full employment, and a very large reduction in the debt servicing costs of the State over the next generation. The average interest rate on the new bonds will begin at just over 3%, compared with an interest rate of well over 8% on the promissory notes. This will result in a reduction in the State’s general government deficit of approximately €1 billion per annum over the coming years, which will bring us €1 billion closer to attaining our 3% deficit target by 2015. This means that the expenditure reductions and tax increases will be of the order of €1 billion less to meet the 3% deficit target. This plan will lead to a substantial improvement in the State’s debt position over time.

Today’s outcome is an historic step on the road to economic recovery. It secures the future financial position of the State by reducing the burden on Irish taxpayers arising from the bailout of Anglo Irish Bank and Irish Nationwide. Step by step, this Government is undoing the disastrous banking policies that brought this State to the brink of national bankruptcy.

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